David Walker

[Canada-United States Tax Convention Act, 1984, September 21st, 1995]

Mr. Speaker, I welcome the opportunity to speak in support of Bill S-9 to ratify the recently-signed revised Protocol to the Canada-United States Tax Convention.

This is work-a-day legislation that addresses the dual issues of fair taxation and good international relations. In fact, Canada currently has double-taxation conventions in force with 55 countries, including the U.S.

This particular agreement was originally signed in 1980. The protocol being ratified under S-9 will be the third formal modification enacted over a 15-year period.

A substantial amount of the protocol deals with technical issues of definition and clarification of existing rules regarding taxes on income and capital. But there are also a number of important changes which should deliver real benefits to Canada and Canadians, or that enhance the fairness of the two tax systems as they apply to non-residents.

One of these important elements is that the protocol reduces or eliminates the rate of witholding tax that each country will apply to interest payments, direct dividends and certain royalties.

Canada and the U.S. already enjoy the most extensive trade relationship of any two industrial nations in the world.

And our exports to the U.S. are a critical component of Canada's 1994 economic growth, which was the best in the G-7.

By reducing tax withholding rates this protocol should ease and encourage the continuing growth of this trade and investment between our two nations. I should mention that it brings these rates into line with those provided in the OECD model tax convention, rates accepted by a majority of the 25 member countries of that organization.

Let me outline the specifics of these changes. Under the protocol the general rate of holding tax on direct dividends will be reduced to 5 per cent by 1997 from the current 10 per cent. In consequence, the protocol also drops the rate of the branch tax to 5 per cent again by 1997.

Regarding the withholding tax on interest payments, the protocol will see the rate reduced to 10 per cent from the 15 per cent rate that applied under the previous 1984 protocol. As well, the new agreement ensures that interest paid between a buyer and an unrelated seller will continue to be exempt from the withholding tax in the source country, even if the indebtedness has been transferred to a third person.

Finally, this agreement will eliminate completely the withholding tax on royalties on computer software and on patent and technological information. Let me remind this House that this bilateral relief will have very beneficial effects: first, by reducing the cost to Canadian companies of accessing technology and know-how from the U.S.; and second, by enhancing the ability of Canadian high tech firms to sell their products and services in the U.S.

Let me move to another area where Bill S-9 will have a beneficial impact: it will restore fairness regarding the impact of U.S. estate taxes on Canadians holding property there. I should acknowledge right off that there have been some concerns raised about this aspect of Bill S-9. Let me be blunt. Anyone who thinks that this is an unwarranted tax gift to the wealthy is mistaken and clearly does not understand the legislation and the changes in U.S. law it addresses.

Under current U.S. law enacted in 1988, Canadians who die holding U.S. property valued at over $60,000 U.S. may be subject to U.S. estate taxes. This is a much lower threshold than American citizens face. Once the protocol is ratified by our two nations however, Canadian residents will be entitled to treatment that is not less favourable than that available to our American neighbours. In other words, this means Canadians will generally not be subjected to estate taxes unless the value of the individual's worldwide gross estate exceeds $600,000. In addition, a special marital credit will be available with respect to property transferred to the spouse of the deceased.

There is a further change, again to enhance fairness in the way our two tax systems operate, involving U.S. estate taxes and their Canadian equivalent. Under the protocol our government has agreed to provide a credit against Canadian taxes on U.S. source income to the estate of a Canadian citizen in those cases where U.S. estate taxes are also levied. The United States will grant a reciprocal credit for Canadian income taxes levied on a deceased American.

Incidentally, it is also important to note that this provision is effective retroactively for death occurring after November 10, 1988 when the major changes to the U.S. estate taxes affecting Canadian residents were introduced.

Let me reiterate that these changes do not represent a gift of any sort to any Canadian. Given the fiscal challenges facing our government, we have no interest in helping the affluent escape paying their fair share of taxes. But fairness equally demands that no Canadian, whatever their means, should be cavalierly subject to the bane of double taxation. This is what this tax treaty protocol works to do, eliminate double taxation.

The changes agreed to by our nations recognize that while both Canada and the United States impose taxes regarding death, these take two separate forms. The U.S. applies an estate tax, but in Canada the levy takes the form of an income tax on any appreciation of a deceased's property over his or her lifetime. It is these different forms of death tax that have created a problem.

Canada, like most countries, has rules to prevent double taxation. However, these rules do not cover a situation like this where the taxes are imposed in different forms. As a result, unless the dilemma is corrected cases could arise where the estate of a Canadian with U.S. property would face combined Canadian and

American taxes conceivably exceeding the property's value. Obviously, that is absurd.

Our revised Canada-U.S. tax treaty corrects the problem. It does so by allowing Canadians to credit U.S. estate taxes against Canadian income taxes on U.S. income. In parallel, it allows Americans to credit Canadian income taxes against the U.S. estate tax liability.

I have covered the two most important areas of the tax treaty change that this legislation will ratify. There is another aspect to the protocol that I would like to review briefly. This deals with social security payments made by one country to someone who is now a resident of another country. Under the existing convention, such payments are not taxable in the source country. In other words, an old age security or Canada pension plan payment to someone who now lives in the United States is not subject to Canadian tax and only one-half of the benefit is taxable in the other country. Once the protocol is ratified however, social security benefits paid from one country will be taxable exclusively in that country. They will no longer be subject to tax in the other country.

I should point out that once the protocol is ratified our government will be proposing amendments in the Income Tax Act to apply the non-resident withholding tax to these payments. These should take effect next year.

The issues I have highlighted represent the most important and substantive changes to the existing tax convention between Canada and the United States. Now let me flag some of the more technical amendments the protocol also addresses.

There is a provision allowing for a better working of the rules concerning charitable contributions to tax exempt organizations of the other state.

Another provision covers an arbitration mechanism for the settlement of difficulties over the interpretation or application of this convention.

The protocol also introduces an article providing for assistance in the collection of taxes of the other state and to improve the exchange of tax information between our two countries.

These are small but useful steps for improving our country's ability to collect taxes owing, something the Minister of Finance pledged loud and clear in the February budget.

In conclusion, Bill S-9 is the result of carefully considered negotiations between Canada and the United States and I ask the House for its support as soon as possible.

[Questions On The Order Paper, September 18th, 1995]

The February 1995 budget presented economic and fiscal projections for 1995-96 and 1996-97. The government has stated it will not be doing medium term projections because of the uncertainties involved. Instead, it is committed to put out two year rolling deficit targets and taking whatever actions are required in order to ensure those targets are met. By doing so the federal government will be moving on a firm path toward the government's ultimate goal of balancing the budget.

Interest costs projections for 1995-96 and 1996-97 were presented in the budget. Interest costs are projected at $49.5 billion for 1995-96 and $50.7 billion for 1996-97.

Question No. 206-

[Income Tax Act, June 16th, 1995]

Mr. Speaker, today we are in third reading of Bill C-70. As I outlined when I spoke previously, the intention of my speech is to encourage the House to accept the final reading of this in the House of Commons as quickly as possible and to outline in a very factual way what the act intends to to do. It is related to the budget of 1994. This is one of two bills that deal with the amendments to the Income Tax Act.

In addition to what I outlined previously in the House, new rules are provided for debt securities that are not required to be marked to market. These rules deal with the measurement of income while the securities are held and the treatment of gains and losses on disposition.

Bill C-70 also amends the rules for the taxation of resident shareholders of foreign affiliates. This action is being taken as a result of the government's ongoing monitoring of developments in this area. The changes expand the categories of income of foreign affiliates that must be reported as income of their Canadian affiliates. Another modification prevents the use of an affiliate's foreign active business losses to reduce Canadian shareholders' income. This change also protects the Canadian tax base. The amendments are generally effective for taxation years commencing after 1994.

There are also a number of measures that were announced after the 1994 budget. These include six new tax measures that I would like to outline briefly.

First, this bill addresses the issue of eligible prepaid funeral and cemetery arrangements. Under this legislation individuals making such arrangements will not have to declare interest on their deposits up to a $15,000 maximum contribution as income, provided the deposit is not withdrawn for other purposes. The provider of eligible funeral and cemetery arrangements is, however, required to include in income the total amount received from an eligible arrangement.

Turning to the next measure, the bill proposes that real estate trusts with publicly traded units be allowed to qualify as mutual fund trusts. This measure responds to representations from the real estate sector, which is interested in expanding the available methods of financing real estate. We believe the proposed change will facilitate the restructuring and refinancing of this sector.

The third of these post-budget measures is a measure that will help mutual funds to reduce overhead costs and improve services to investors. These amendments will allow mutual fund corporations to convert to mutual fund trusts on a tax free basis and also allow tax free mergers of mutual fund trusts.

This bill also proposes new rules to speed the resolution of objections and appeals, particularly by large corporations. Large corporations will now have to specify the issues under dispute, the amount of relief sought, and the facts and reasons for objecting. The rules also limit the ability of large corporations to raise new issues in a notice of objection where the objection relates to reconsideration of an assessment. However, new issues raised by Revenue Canada on such reconsiderations may still give rise to a notice of objection.

In addition, the legislation will ensure that the new requirements relating to the notices of objection will not apply to assessments that have been appealed to courts before this legislation receives royal assent.

The final measure I want to highlight deals with the tax treatment of dividend compensation payments and other amounts connected with securities lending.

The Income Tax Act currently provides that the lender of securities not be treated as having disposed of the securities under these arrangements. As well, payments to the lender as compensation for dividends are treated as dividends in the lender's hands. While these dividend compensation payments are generally not tax deductible, a special rule established in 1989 allows security dealers to deduct two-thirds of such payments. This legislation extends the use of the two-thirds rule, thus ensuring that our securities industry remains competitive. However, the deduction of these payments will be somewhat limited.

I can assure hon. members that the government will continue monitoring these measures to make certain they can operate effectively.

Other changes clarify the effect of certain dividend rental arrangements and the meaning of securities dealers registered or licensed to trade in securities for the purpose of the Income Tax Act.

In closing, Bill C-70 amends the Income Tax Act effectively and equitably. It seeks to better target tax assistance delivered to certain business sectors while at the same time broadening the tax base and thus protecting government revenues. The legislation contained in this bill also clarifies a number of important issues related to the act.

Given all this, I have no hesitation in encouraging all of my hon. colleagues to support this bill.

[Income Tax Act, June 15th, 1995]

Mr. Speaker, I am pleased to again rise in support of speedy passage of Bill C-70, an act to amend the Income Tax Act.

As the House is aware, the bill will implement a number of measures relating to taxation that were introduced in the 1994 budget, along with certain others announced by the government over the last year.

In moving to third reading, it is again appropriate to remind ourselves of the context of this legislation. The fiscal challenge facing the country is familiar to us all. Few dispute the need for tough action and that difficult choices face us all. Surely we will all agree that fairness and effectiveness must be essential guiding principles of the steps we have to overcome in our challenge in dealing with the deficit.

These principles have guided the government as we have worked to restrain spending. They have guided the minister in crafting the budgets of 1994 and again in 1995. In both cases, spending cuts alone could not deliver the deficit reductions that Canada needs. Rigorous government restraint needed to be complemented with some measures on the tax side.

Doing so for us was simply a question of fairness. It was our vision of fairness that guided us as we looked at the tax system, addressing unsustainable tax preferences instead of imposing general tax hikes on Canadian taxpayers.

In looking at the corporate tax regime we sought to ensure that corporations paid their fair share of the tax revenues needed to fund government programs and to prevent certain businesses or sectors from taking undue advantage of certain tax provisions.

With this in mind, the 1994 budget proposed a number of measures to the rules governing the taxation of business income. Our goal, and let me stress this, was not to penalize the business sector or to impede the competitiveness of Canadian corporations. In fact, we believe that it is essential to maintain a competitive tax system in today's global economy.

I would like to now outline some of the specific measures from the 1994 budget which have been reflected in Bill C-70.

One fairness issue this legislation addresses is the tax rules dealing with debt forgiveness and foreclosures. Under the old provisions of the Income Tax Act many transactions involving the settlement of debt were not recognized in any meaningful way for income tax purposes.

The new rules provide a comprehensive basis to deal with debt settlement. In general, they provide that forgiven debt amounts will be applied to a loss carried forward and expenses are partially included in the debtor's income. I should point out, however, there are special relieving rules to minimize undue hardship from these new rules.

Let me now turn to the tax treatment of securities held by financial institutions. Until now the Income Tax Act has not provided specific rules regarding the tax treatment of such securities. The measures under Bill C-70 seek to reduce uncertainty in this regard and also to ensure that the income derived from such securities is measured appropriately. The amendments provide that certain securities will be marked to market, meaning that the

appreciation or depreciation in their value each year must be recognized in that year.

In keeping with our goal of fairness, the amendments include a transitional rule that allow increases in income resulting from the new rules to be spread over five years. These new measures have been generally effective after February 21, 1994.

In addition, new rules are provided for debt securities that are not required to be marked to market. These rules deal with the measurement of income while the securities are-

[Budget Implementation Act, 1995, June 6th, 1995]

Madam Speaker, I welcome the opportunity to lead off debate on third reading of Bill C-76, an act to implement certain provisions of the February 1995 budget.

The bill seeks to give concrete reality to the non-taxation measures announced in the budget, a budget of reform and renewal that has been described as historic.

This means that, over the next three fiscal years, this budget will translate into cumulative savings of $29 billion, $25.3 billion of which will be the result of spending cuts. This is by far the most ambitious series of measures proposed in a budget since demobilization, after the Second World War.

The objectives set are extremely important, but so are the means used to achieve them. Indeed, in order to achieve lasting fiscal consolidation and then fiscal balance, it is essential to change the role and the very structure of the state. We will continue to reap the benefits of this budget in 1997-98 and beyond.

These measures will have a very significant impact on future levels of federal spending. By 1997-98, program spending will total $108 billion, compared to $120 billion in 1993-94.

Although it was a tough budget, Canadians approve it. They approve it because they know we have to stop writing IOUs and get on with the business of building the 21st century economy.

By 1996-97, our financial needs, that is the new money which we have to borrow on financial markets, will go down to $13.7 billion, or 1.7 per cent of the GDP. Canada will fare better than any other G7 country.

The public debt will stop growing faster than the economy. The debt to GDP ratio will start decreasing. This is the key to a manageable financial situation, and it is the reason why we are not merely trying to reduce the deficit. Indeed, we are also determined to start the Canadian debt ratio on a downward trend.

Let me emphasize that these projections do not rest on rosy assumptions. On the contrary, prudent assumptions that were more pessimistic than the private sector average were used. The assumptions were backed up with substantial contingency reserves. We will continue to rely on prudent assumption. We will continue to set short term targets that make impossible to postpone action. We will continue to take whatever action is needed to meet our objectives. This is the course we will stay until the deficit is eliminated entirely.

Let me turn now from the budget background to the specific elements of the bill before us today. As the provisions of the bill have already been discussed at some length in the House, I will focus on a few highlights and draw the attention of members to the one amendment that is more than a technical amendment.

I am referring to the transfers to the provinces. We will never have the kind of structural changes needed if we do not reform our system of transfers to the provinces.

We must implement a system which will better meet today's needs, and we must also be able to fund that system over a long period.

As regards the first requirement, we feel that the conditions set by the federal government for transfer payments in sectors which clearly come under provincial jurisdiction should be reduced to a minimum.

Currently, the Canada assistance plan transfers come with many needless conditions that restrict the provinces' capacity for innovation and increase administrative costs. In short, the costsharing method no longer helps the provinces which are clearly responsible for designing and delivering social assistance programs and for implementing them as efficiently as possible, in accordance with the needs in the community.

This bill will deal with the situation by providing funding for the Canada assistance plan in the same way as the established programs financing did in the areas of health and post-secondary education. As a result, the current breakdown into three

transfers no longer has any basic justification. That is why we are combining them into one single block transfer program called the Canada health and social transfer, starting in 1996-97.

The Canada health and social transfer represents a new, more flexible and mature approach to federal-provincial fiscal relations but the physical situation demands that the new system also be less costly than the current one. That is why when the CHST is fully implemented in 1997-98 the total of all major transfers to the provinces will be down by about $4.5 billion from what would have been transferred under the present system. However to put this into perspective, the reduction will equal about 3 per cent of aggregate provincial revenues.

We believe our approach to provincial transfers passes three very important tests. First, the federal government has hit itself even harder. Second, the provinces have been given ample notice of the government's intentions. Third, the reduction in transfer payments is equitable across provinces.

In addition to the introduction of the Canada health and social transfer, the bill also includes other measures that will help to reduce the cost of payments to provinces. One of these measures is the reintroduction of a 5 per cent eligibility threshold to the fiscal stabilization program. This will restore the program to its original function of compensating provinces for revenue losses in the event of severe economic downturns, that is, where revenues decline by more than 5 per cent.

I want to turn now to a number of allegations about the CHST which members of the official opposition and the Reform Party have made in the debate on Bill C-76. Some opposition members have been confused about the additional flexibility which the CHST will offer provinces in the area of social assistance.

The hon. member for the riding of Quebec alleged that the government was misinforming Quebecers when it said that federal conditions on social assistance transfers were being reduced. Let us be clear on what is happening here.

This bill is a major reform of the system of federal transfers to the provinces and territories that will lead to the Canada health and social transfer, the CHST.

Starting in 1996-97, the EPF and the CAP will be replaced with one single mechanism, the CHST. Contrary to the existing system which is based in part on costsharing agreements, the CHST will be a block funding mechanism, like the EPF. Accordingly, transfers will not be determined by the provinces' spending decisions as they are under the cost shared programs.

The new arrangement will eliminate inherent limitations of the former cost shared programs and reduce longstanding irritants.

Provinces will no longer be governed by rules determining which expenditures are eligible for cost sharing and which are not. They will be free to find innovative approaches thanks to social security reform. Administrative costs of cost sharing will be eliminated. Federal spending will no longer depend on the provinces' decisions concerning delivery of their welfare and social services programs and the identity of recipients.

The Canada health and social transfer is a new vision of federal-provincial fiscal relations which gives more flexibility and freedom to the provinces while increasing their accountability, and provides more stable fiscal arrangements to the federal government.

This approach will bring about more mature fiscal relations.

The hon. member for Calgary North has been giving us contrary advice on how we should deal with transfers to the provinces. First she says there has been no consultation with provincial governments about the future of federal transfers and that the federal government has been too hasty in setting out important parameters for the health care system which will affect Canadians for years to come. However, in the next breath she attacked the government for precisely the opposite error. She asked how provinces in the health care sector are supposed to plan if the federal government will not tell them how federal transfers will be structured in the future and how much the provinces can expect to receive. The hon. member cannot have it both ways.

The government has taken a very sensible approach in dealing with the provinces. In the 1994 budget the government gave the provinces a two-year breathing space prior to making any cuts in transfers. In the 1995 budget, transfer restraint does not take effect until 1996-97, even though action is being taken in the federal backyard in 1995-96. The provinces have been given two years to manage the reductions and adjust their programs. At the same time the CHST provides more flexibility for provinces to make the necessary adjustments.

In addition, the government will soon begin consulting with the provinces and the territories to develop a permanent method of allocating the Canadian health and social transfer among the provinces from 1997-98 onward.

The federal government remains committed to a co-operative and productive approach to federal-provincial relations.

Third, under clause 13 on the new CHST, the Minister of Human Resources Development shall invite all provincial governments to work together to develop, through mutual consent, a set of shared principles and objectives that could underlie the new Canada health and social transfer.

The official opposition is trying to depict this quest for shared principles and goals as an artificial issue.

Its members would like the House and Canadians to believe that this whole process is nothing but a plot to underhandedly impose new conditions, methods or penalties. This is what I have to say about such comments.

"Mutual consent" means that no government in Canada can be subjected to new principles and objectives against its will.

In other words, only the governments that freely agree to new objectives and principles will be bound by them.

Governments that do not agree would not be bound by those objectives and principles.

So, if some provinces, including Quebec, do not agree, they will not be bound by the objectives and principles approved by other governments. Things cannot be made any clearer.

Indeed, this is usually what "mutual consent" means, an agreement made by consenting parties. The wording of the legislation is quite clear on this issue. I do not see the need to be more explicit than that.

Fourth, the Reform Party has proposed eliminating cabinet's role in enforcing the Canada Health Act as well as considerably reducing the role of the Minister of Health. Instead it would turn over this job to the federal court.

Hon. members should recall that Bill C-76 makes no substantive amendments to the Canada Health Act, only consequential amendments required by the ending of the established programs funding and introduction of the CHST. The five Canada Health Act criteria whose enforcement will be affected by these motions relate to universality, comprehensiveness, accessibility, portability and public administration.

The current procedure for applying penalties to a province is as follows. The Minister of Health initiates the process by consulting the province. If the province has not given a satisfactory undertaking to the minister to remedy the default within a reasonable time, she refers the issue to the governor in council. The governor in council decides whether penalties are appropriate, how much they should be and whether they should be reimposed.

Under the Reform proposal, the minister would instead apply to the federal court. The federal court would decide whether penalties were appropriate, how much they should be and whether they should be reimbursed.

This government strongly supports the Canada Health Act, as does an overwhelming majority of Canadians all across this country. The member for Winnipeg North is here. He has spent his whole life advocating and supporting the Canada health system. I am sure he would agree with the view of the government and my own view that if we should turn the decisions on enforcement over to the courts, we would pull away one of the most fundamental principles behind the act, which is that we as politicians and as a government must take responsibility for the Canada Health Act.

It is the cornerstone of this government. We will not accept any amendments that weaken the ability of the federal government to enforce the delivery of a system that Canadians find is one of the most attractive features of living in this country.

The provisions of the Canada Health Act which the Reform Party object to have served Canadians well since that act was passed over a decade ago. Reformers are seeking to water down the enforcement of national medicare standards, but we will not waver from our commitment. The Reform amendments would have the courts decide how the Canada Health Act is to be applied. Canadians have elected us as parliamentarians to do this job. We do not intend to shirk that responsibility.

Fifth, some opposition members seem to suggest that all our problems would disappear if only the federal government would abandon health care and other social programs and give the provincial governments more transfers of tax points.

The Canadian government has no intention of giving up its responsibilities in terms of funding major social programs. The Canada social transfer will help to subsidize the programs which are essential to all Canadians, including Quebecers, and its contribution will reach almost $27 billion by 1996-1997.

Canadians all know how important these programs are, and to suggest that the federal government should withdraw from them is preposterous, as preposterous as the suggestion that Ottawa should replace these transfers by giving up tax points. The Canadian government needs all of these tax points to fulfil its obligations towards all Canadians, including Quebecers. Everyone knows that, because they mean more for the have provinces than for the have not provinces, tax points put the underprivileged provinces at a disadvantage.

Another issue raised in the bill and in further debate has been subsidies to business. In the course of program review, departments across the government took action to reduce business subsidies. Overall we are proposing to cut business subsidies by 60 per cent. This includes agriculture and transportation subsidies that were designed decades ago.

The bill proposes to repeal the Western Grain Transportation Act and to terminate the western grain transportation subsidy paid to railways effective July 31, 1995. The reform of the WGTA will result in savings of $2.6 billion over the next five years.

This is much more than a deficit issue. The elimination of the subsidy will encourage the development of value added processing and the production of higher value crops. It will result in a more efficient grain handling and transportation system. It will help maintain our market access for grain sales in foreign countries and comply with our obligations under the agreement establishing the World Trade Organization.

A number of further initiatives will facilitate the transfer to the new system. These include a payment of $1.6 billion to owners of prairie farmland plus a $300 million transportation adjustment fund. The bill also provides for the regulation of maximum freight rates that can be charged by railway companies to move grain from the prairies.

There is an amendment to the bill on the matter of freight rates that I would like to point out to the House. Clause 21 of the bill has been amended to strengthen the provisions governing the review of the maximum regulated freight rates. Instead of an automatic sunsetting provision for maximum rates, the Minister of Transport will be given the authority to determine whether the rates should be fully deregulated during a review in 1999. These amendments are designed to provide greater rate protection to shippers. Should the benefit of full rate deregulation become apparent during the period leading up to the review, the Minister of Transport will have the authority to remove the maximum regulated rate protection.

The bill also proposes the elimination of the Atlantic freight subsidies under the Atlantic Region Freight Assistance Act, the ARFAA, and the Maritime Freight Rates Act, the MFRA. These subsidies which have proven inefficient in reducing shipper costs are of marginal and declining importance to regional economic activity. This measure to take effect this July will save nearly $100 million a year. To help ensure that the elimination of the subsidy contributes to a better transportation system, the budget announced a five-year $326 million transportation adjustment program.

I would like to respond to some of the specific criticisms made about the Western Grain Transition Payments Act. First, the hon. member for Saint-Hyacinthe-Bagot, the critic for the official opposition, during his speech on May 31 stated that the transition payment of $2.2 billion is tax free. The payment being made by the government to owners of prairie farm land is $1.6 billion and is taxable. The payment is neither $2.2 billion nor is it tax free.

The hon. member has also suggested that transition payments will be made to beef and hog producers in western Canada. The payments are being made to owners of land which in 1994 produced grain or land which was in summer fallow in 1994 and which in 1993 grew grain. Payments will not be made to western beef and hog producers.

I know the hon. member has a long history of being interested in grain transportation. In committee he gave a very eloquent defence of his position. He told me he had worked on the issue many, many years ago. I very much appreciated his comments and I simply wanted to put on the record some of the perspectives of the government on the issue.

On behalf of the NDP, the hon. member for The Battlefords-Meadow Lake stated that with the repeal of the WGTA, elevator points would lose $1 million annually in income. The repeal of the WGTA will result in increased transportation costs to producers. This will encourage producers to move from being oriented on exporting grain to increasing local consumption of grain to increase diversification in the economy on the prairies.

This diversification will in turn create more jobs on the prairies. For example, the construction of a new canola crushing plant in Moose Jaw was recently announced. This plant will help diversify the local economy by producing value added processed products.

The same member has suggested that we as members of Parliament need a chance to study the effects of the removal of the WGTA. Ever since the WGTA was enacted in 1984 it has been the subject of studies and ongoing reviews. There were numerous studies conducted before the WGTA was passed. As well, there have been an extensive number of studies on the WGTA reform conducted by industry, academics, various consultants, as well as by the federal and provincial governments over the past decade.

This is not the time to study nor to continue delay. Now is the time to act. I am sure the member from the New Democratic Party understands how dramatic these changes will be on the prairies. We are all looking forward to a responsible, co-operative attitude among the producers, shippers, rail companies and provincial and federal governments to make sure this works. It is no longer the time to study.

There are also a number of amendments in the bill on the public service. The measures I have outlined so far, along with other initiatives arising from the program review, mark the transition to a more focused, effective and frugal federal government. Reducing the public service was not an objective of the

program review. Such a reshaping of the government's role and the spending cuts it entails will unfortunately have an effect on the employees delivering services to Canadians on behalf of the federal government.

By the time the 1995 budget actions are fully implemented, federal employment is expected to decline by some 45,000 or about 10 per cent. Natural attrition and the programs currently in place are inadequate to deal with changes of this scope. The government appreciates the valuable service its employees provide. We are committed to managing the reductions in a fair and orderly fashion.

In keeping with this commitment the bill proposes changes to the Public Sector Compensation Act that will allow for an early departure incentive. This incentive could be taken by as many as 13,000 to 15,000 employees in the most affected departments. We estimate the cost of the program for the public service, the military, certain separate employers and the crown to be about $1 billion which will be included in the 1994-95 fiscal year.

Other proposed changes to the act will allow for cost neutral changes to non-salaried terms of employment and for certain new kinds of leave. In addition, we are proposing amendments to the Public Service Employment Act that will give public sector managers more flexibility in staffing arrangements.

Employees affected by the downsizing who decide not to take advantage of the departure incentives will have a reasonable period to find employment elsewhere in the public service, but that period cannot be indefinite. The government simply cannot afford to pay people for not working.

Accordingly the bill also includes amendments to the workforce adjustment directive so that surplus employees in most affected departments who decline departure incentives will cease to be paid after six months and will be laid off after one year unless alternative employment is found.

The President of the Treasury Board recently signed an agreement in principle with the public service unions to assist employees affected by downsizing. He will be working through joint labour-management adjustment committees to assist affected employees in making the transition from the public service.

Our goal in introducing these and other transition measures is to be fair to the taxpayer as well as to the federal employees affected. We believe the program balances the objectives.

Today's legislation will play a key role in setting the country on the course of fiscal responsibility and government renewal. These measures are absolutely essential if we are to meet our deficit targets and refocus the government on its priorities and on the country's needs.

We have drawn directly on the advice of Canadians from whom we heard several months before the budget and who subsequently gave us advice after the budget. Canadians in turn have shown their strong support for the budget. They know it will promote better public finances and a stronger economy.

To secure the savings that will lead to the improvements we must pass the legislation as quickly as possible. Anything less will compromise our ability to reach the objectives we have promised Canadians and our commitment to a secure and prosperous future for ourselves and our children. I therefore urge all members to give the bill final approval in the House.

[Budget Implementation Act, 1995, June 5th, 1995]

Mr. Speaker, a point of order. There is great sensitivity among Canadians to the word "closure". The government is very proud of the fact that it has not used closure. The hon. member slipped up by describing time allocation as closure.

[Budget Implementation Act, 1995, June 5th, 1995]

Mr. Speaker, as this part of the debate draws to a close, I would like to review some of the amendments supported by the Bloc and later supported by the Reform Party.

Dealing first with the motions of the member for Notre-Dame-de-Grâce, these proposed amendments would remove all references to the Canada health and social transfer in the bill, in effect killing the Canada health and social transfer. The amendments would also keep in place the intrusive cost sharing rules of the Canada assistance plan that have limited the provinces' ability to innovate and improve their social programs to better meet the needs of Canadians.

The Canada health and social transfer replaces the Canada assistance plan, which currently contributes to provincial social assistance and social services, as well as the established programs financing, which currently contributes to health and post-secondary education. The CHST combines existing federal transfers into a single block fund. It provides the provinces with the ability to better explore the linkages and synergies between health, post-secondary education and social assistance. This completes the gradual evolution away from cost sharing to block funding of programs in areas of provincial jurisdiction.

The Canada health and social transfer provides the provinces with the flexibility they need to experiment and improve social programs. There are many concrete examples of what this greater flexibility could entail in practice.

These amendments would delete such clauses as clause 32 which repeals the Canada assistance plan. The effect of this amendment would be to leave in place the cumbersome and intrusive system of cost sharing social assistance and social services which has stymied provincial efforts to innovate and improve social programs. Moreover this amendment would perpetuate the administrative burden associated with cost sharing.

Another clause that would be deleted would be clause 48. This clause puts in place many of the building blocks of the Canada health and social transfer. It includes the process in which the Minister of Human Resources Development will invite all provincial governments to work together in developing through mutual consent a set of shared principles and objectives that could underline the Canada health and social transfer and thus allow all governments to reaffirm their commitment to the social well-being of Canadians.

The amendment would also derail the government's fiscal plan to reduce the burden of debt and put social programs on a more sustainable basis, a fiscal plan that has been designed to ensure the survival of social programs in the future. In this regard the proposed amendments would cost the government $7 billion over the next two years.

Turning now to the motions of the member for Lethbridge from the Reform Party, these amendments would have the effect of reducing the power of the government and this House to protect the access of Canadians to health care and the basic protection of social assistance. To this end, they must be defeated.

The main thrust of these amendments is to change the enforcement mechanisms that can be used to protect the criteria and conditions in the legislation, namely the five criteria and two conditions of the Canada Health Act and the condition that there be no residency requirement for provincial social assistance. The enforcement mechanism put forward in the bill is modelled on the Canada Health Act which has worked very well for Canadians over the past 11 years.

This enforcement mechanism requires the relevant minister, the Minister of Health in the case of the Canada Health Act, and the Minister of Human Resources Development in the case of social assistance, to determine whether a violation has occurred and to act. The legislation sets out exactly how these ministers should proceed in terms of notifying the province, making a report to the province within 90 days and if they are not satisfied that the violation has stopped that they refer the matter of penalties to the governor in council.

What the amendments put forward by the hon. member propose is to take the ministers and the cabinet out of the process and to give the power to the federal court. In spite of our respect for the federal court and its role, it is not the appropriate place for the enforcement of the criteria and conditions governing the Canada health and social transfer.

It is essential that these ministers, as elected members of this House and as members of the cabinet with particular responsibilities for the health care system and the social security system, have the discretion to determine whether the provinces are in compliance with the Canada health and social transfer.

One of the main purposes of the Canada health and social transfer is to encourage innovation and experimentation by the provinces in the delivery of their programs, for example to find more efficient and effective methods of helping people to find and keep jobs and to become more self-reliant. The determination of whether these new approaches respect the standards set in the legislation must be made by a minister with a broad perspective on policy and the ability to use discretion and diplomacy in order to protect the integrity of our health and social programs. The federal court is simply not the best place to do this.

Equally, it is cabinet that should use its broad perspective to determine the appropriate penalty in the case of a violation by the withholding of cash transfers. This bill will give the governor in council the ability to set the appropriate penalty having regard to the gravity of the non-compliance. The amendment would give this power to the federal court which would lack this broader perspective.

Finally, I will deal with Motion No. 46. This motion would drop the reference that one of the purposes of the Canada health and social transfer is to promote the shared principles and objectives that are to be developed by the Minister of Human Resources Development in consultation with provincial governments and with mutual consent. This is of central importance to the government's social policy. Canadians expect their governments to reflect their expectations for social programs, that they will protect the most

vulnerable, that they will improve the situation of people by helping them to help-

[Budget Implementation Act, 1995, June 5th, 1995]

Mr. Speaker, most members have have had an opportunity to speak to the motions in group No. 3.

I would like to refer to the motions presented by the opposition members and to put on record the government's response to them and why we are not voting in support of them.

Motions Nos. 20, 21, and 22, as proposed by the member for Kamloops and I believe supported by the NDP, propose that the WGTA would remain in force. The government is committed to changing the WGTA because it feels that after years of discussions on the prairies, the time has come to transform the grain handling system in western Canada. Liberals are very confident that the way the Minister of Agriculture and Agri-Food, the Minister of Transport and the Minister of Finance have developed this legislation is correct, that the proper consultations have taken place and now the country is ready to proceed.

Motions Nos. 75 and 76 are proposed by the member for Lethbridge. Motion No. 75 would reverse the government amendment adopted by the Standing Committee on Finance on May 18 of this year. The purpose of the government's amendment is to ensure that an equitable arrangement with respect to the transition payment is made by a landowner and his tenant. Many farm groups have specifically requested that the government make the amendment to the WGTA in the legislation known as Bill C-76.

Motion No. 76, also proposed by the member for Lethbridge, would reverse the government's amendment adopted by the Standing Committee on Finance on May 18 of this year. The purpose of the government amendment is to ensure that an equitable arrangement with respect to the transition payment is made by a landowner and his tenant as requested by many farm groups. The government's amendment to subsection 4(4)(c) is to provide for the tax treatment to be given to that portion of a transition payment made by an owner to his tenant.

The government in amending the WGTA to provide that an equitable arrangement is reached between an owner and his tenant is being responsive to the concerns expressed by many producers.

Motion No. 77, also proposed by the member for Lethbridge on behalf of his party, proposes that subsection 6(c) be deleted. That section allows the minister of agriculture to make regulations prescribing conditions that must be met by an applicant in order for him to receive a transition payment, including the condition that an equitable arrangement be reached between the applicant and tenant. This would reverse the government amendment adopted by the Standing Committee on Finance on May 18. The purpose of the amendment is to ensure an equitable arrangement with respect to the transition payment is made by a landowner and his tenant as requested by many farm groups.

Finally, in this group of motions, the finance critic for the official opposition has not proposed that clause 26 of Bill C-76 be deleted. The effect of this motion would be to repeal the Western Grain Transportation Act but no compensation would be payable to owners of the prairie farmland.

This motion would preclude the government from making any payments to owners of land in recognition of loss in land value that may result from the termination of transportation subsidies. A cornerstone of this legislation is to provide compensation.

[Supply, June 1st, 1995]

Madam Speaker, in the Canada social health transfers and in the debate we are having, the words distinct society do not appear. I will put that case aside for another debate.

In the history of federal-provincial relations in the country there have been many arguments by many provinces against the federal government. Some of those have been conceptual fights over the federal-provincial authority and some have been fights over money. Depending on the nature of the Quebec government at various times it has pursued aggressively some of these objectives. In the same fashion, British Columbia took the federal government to court over cutbacks in the Canada assistance program.

The constitutional debate is always on the horizon in Canada, but it is not here today and is not central to the debate today. What is before the House is an opposition motion debunking the cornerstone of the government's approach to resolving the problems of the country.

We feel we have a very pragmatic and effective way of permitting provinces to develop their own social programs. There will be programming responses from Quebec, which I am sure will be entirely different from programming responses elsewhere in the country. This facilitates the development of programs that are very responsive to the Quebecois. People in other provinces may choose to do things differently. I see this in the context of a very wide ranging series of problems we are dealing with.

[Supply, June 1st, 1995]

Madam Speaker, the opposition member confused about three or four very important issues in the same speech. Let us take them one at a time.

First, the federal government has given the provinces every opportunity to design their social programs as they wish. The only condition the federal government is putting in Bill C-76 is the condition that there is no residency requirement attached to social assistance.

We think that the provinces will respond very positively and will develop some very innovative programming. As I explained in my speech on some of the barriers under the Canada assistance plan, which has been sort of the cornerstone of the Canadian social assistance program and social policy for the last 30 years, the time has come to change it. We feel very confident that the provinces will do the right thing and develop some very innovative programming. One of the things I mentioned was the school lunch and breakfast programs, which are not facilitated under the present arrangements under the Canada assistance plan. There will be other opportunities.

One expression in the text is crucial to this debate, and that is "mutual consent".

We use those words very carefully and very purposely to indicate to the provinces that we are not about to impose new conditions on their social programs and that if a future government wishes to do so this would require entirely new legislation.

The Minister of Human Resources Development will be approaching the provinces, as is stated in the act. I want to say to the House that in my short history as a parliamentarian and my longer history as a student of Canadian politics, I cannot remember an act that mandates a minister to go out and consult. This was not just said in a speech in the House of Commons but is in fact part of the legislation.

I suspect this is being taken very seriously by the minister himself, as he has indicated in the House, and that by mutual consent there may be programs emerging and conditions or statements. However, this is up to the minister to discuss with the provinces. We have simply said that at this time the conditions that are stated are those that are in the act.

In terms of the responsibility the federal government has for closing hospitals, we cannot have it both ways. We cannot ask the federal government to sponsor and finance but to leave people alone and then second guess whether provinces are closing hospitals or cutting back on doctors or cutting back on nurses. These are very serious decisions, but they are the decisions of the provincial government.

I will use the example of Alberta, where everybody is up in arms about the government closing rural hospitals. They often forget that it was the same government that opened those hospitals in the first place. The province has the responsibility for its construction programs and for the infrastructure it puts into health care. If mistakes were made in the past, I do not think federal politicians should second guess them. Those things are in the provincial domain, the construction of hospitals and the delivery of health care.

I say this in the context that the cutbacks that will come into effect in two years represent 3 per cent of the total provincial revenues of Canada.

We in the finance committee listened to many groups intervening on the question of federal funding for social and health policy. We have been most conscious that the amount of funds will not be devastating to the poor of the country. We are confident that with the two years of warning, one year of no cuts and another year of half the cuts, most provinces will have the revenue capacity and the tax points and the space needed to generate the money to make sure the programs continue, particularly those west of Ontario that have a balanced budget. I believe seven out of ten are getting close to a balanced budget. However, they have to decide on their own which are the best ways to finance these programs and what the priorities are.

There is no province I can think of that would think of abandoning the poor as a priority. I am confident these issues will be taken care of.