David Walker

[Supply, June 1st, 1995]

Madam Speaker, I am pleased to participate in this debate. I will take this opportunity to set the record straight concerning the Canada health and social transfer.

Contrary to the propaganda spread by the Bloc Quebecois and reflected in the motion before the House, the Canada health and social transfer does not take powers away from Quebec and transfer them to the federal government. Instead, it gives more flexibility to provinces.

Thus, the new Canadian social transfer is a big step toward more mature federal-provincial fiscal relations.

In the last federal budget, the government acted on the request made by Canadians that deficits be reduced through structural changes.

That kind of change is essential if we are to secure Canada's economic well-being and protect our social programs. But the structural changes we need could not be made without a reform of the provincial transfer system.

Cash transfers amount today to more than 20 per cent of all federal program spending.

The government responded to the need for change with a new transfer system that is both more sustainable and more effective, the Canada health and social transfer. Currently the federal government transfers funds to the provinces for health and post-secondary education under established programs financing or EPF.

Funding for social assistance and social services is provided under the Canada assistance plan. Beginning in 1996-97, these transfers will be replaced by a single transfer as described in Bill C-76 which is before the House. The Canada health and social transfer is part of that bill.

Unlike the current system, which is based partly on cost sharing arrangements, the Canada health and social transfer will

be a block fund like EPF. This means that amounts transferred will no longer be determined by provincial spending decisions as under cost sharing.

The new system will be more fiscally sustainable. When the Canada health and social transfer is fully implemented in 1997-98, the total of all major transfers to provinces will be down by about $4.5 billion from what would have been transferred under the existing system.

This is significant action but to put it into perspective, the reduction will equal about 3 per cent aggregate provincial revenues. Furthermore, the Canada health and social transfer is not merely more sustainable but also more efficient. It will bring real benefits for both levels of government.

The Canada health and social transfer continues the evolution away from the requirement to obtain federal government approval in areas of provincial responsibility, which has been a source of entanglement and irritation in federal-provincial relations.

From the provinces' point of view, the new system will include fewer conditions on the use of transferred money.

From now on, there will be no more rules on the kinds of expenditures that can be cost-shared and those that cannot. Provinces will be completely free to use innovative means in the context of social security reform, and they will have more flexibility to set their own priorities.

Let me offer some concrete examples of what this greater flexibility could entail in practice. There would be no need for provinces to submit claims for federal approval and no need to draw up lists of provincial laws, welfare agencies and the like. This will bring significant administrative savings.

The move from CAP cost sharing to block funding will also mean that policies and programs could be designed to better integrate social, health, education and labour market programming.

Further, provinces can use simpler, less intrusive methods of establishing eligibility for income support and services such as an income test. In this way federal funds will assist a wider range of people with disabilities to live independently, based on a variety of personal and employment criteria.

A less stringent implementation of needs tests could also help provinces make income support and non monetary benefits more widely available to low wage earners or people who try to stop depending on welfare and to enter the labour market.

That way, federal money could be used to support the APPORT program in Quebec and other income supplement projects geared to low income families and workers.

By moving from the needs test, provinces could also provide integrated prevention programming to a broader cross section of children and families. For instance, federal funds could support community or school nutrition programs which are not currently eligible for CAP because they are not needs tested.

The flexibility I have just described-the flexibility to spend as effectively as possible-paves the way for better design and more affordable social programs for Canadians. Each province will be able to emphasize the programs and services that work best for its own unique circumstances.

It is important to emphasize this enhanced flexibility does not mean a free for all. The Canadian health and social transfer maintains an important federal role in social programs.

First, the federal government will continue to provide substantial funding to provinces in support of health and other social programs. Individual provinces will receive amounts ranging from about 20 per cent to about 40 per cent of their total revenues.

Further, the principles of the Canada Health Act will continue to be enforced. Canadians have made it very clear this is extremely important to them. Seventy-seven per cent of Quebecers believe these new principles are important to them also.

Also, there will be no change in the principle that provinces must provide social assistance without minimum residency requirements.

Furthermore, the Minister of Human Resources Development will be inviting all provincial governments to work together on developing, through mutuel consent, a set of shared principles and objectives that could underlie the new Canada health and social transfer.

The official opposition would like us to believe that this whole process is nothing but a plot to underhandedly impose new conditions, methods or penalties on the province of Quebec.

Frankly, that is absurd. Let me emphasize again the only standards contained in the legislation introduced in the Canada health and social transfer are the Canada Health Act provisions and the social assistance mobility condition. These are not new and they have not been changed. Compared to the status quo there are fewer legislative social assistance conditions in this

legislation, not more. The legislation provides no legal authority to introduce any new conditions, standards or penalties. Claims to the contrary are simply wrong.

The legislation does contain a statement of the federal government's intention to launch the consultative process I have described, a process seeking mutual consent on principles and objectives.

Nothing new was included in this statement of intention. On budget night, on February 27, 1995, the government stated clearly that it would be "inviting all provincial governments to work together on developing, through mutual consent, a set of shared principles and objectives that could underlie the new Canada social transfer".

This is the exact same commitment we included in Bill C-76, word for word. What does "mutual consent" mean? It means no government whatsoever in Canada can be forced to adhere to new principles and objectives against its will.

In other words, only the governments who subscribe freely to new objectives and common principles will have to abide by them. Nothing is clearer than that and those who claim that we are dispensing with mutual consent are being ridiculous.

There is another piece of nonsense from the Bloc members that I would like to challenge during this debate. Contrary to the devious spin being given by the opposition, the bill does not allow the federal government to introduce new standards through the back door. Quite the contrary. There is absolutely no clause in the bill that allows the federal government to introduce new criteria or new financial penalties with the Canada social transfer. Bill C-76 does not allow us to tack new conditions on the Canada social transfer arising from the consultative process carried out by the Minister of Human Resources Development.

Those who say otherwise have misunderstood the bill. They do not make a distinction between statutory conditions and statements of intent. The principles and objectives eventually reached through mutual agreement between governments would not necessarily lend themselves to inclusion in a legislative text. If, some day in the future, the consenting governments want to entrench an agreement in a federal statute, it would be necessary to submit a bill to this effect to the Canadian Parliament.

In conclusion, I would say that one of the main characteristics of the Canada Social Transfer for health care and social programs is that it is proof that Canadian federalism is capable of evolving. It opens the door to further progress toward a kind a federalism that is more mature, more responsive to the concerns of Canadians, who want more viable programs, and to the concerns of the provinces, who want more flexibility.

It proves our commitment to get the government back on the right track and to reduce duplication and overlap, which will result in administrative savings. And it clearly shows the federal government's firm commitment to co-operate with the provinces. That commitment involves a consultation process on the establishment of a permanent distribution formula for the Canada health and social transfer, as well as on a series of issues concerning fiscal federalism.

I am not at all surprised that the official opposition expresses its dissatisfaction about the characteristics of the new program. The Canada health and social transfer delivers a fatal blow to the separatists' arguments because it proves the vitality and the flexibility of the federal system.

But the great majority of Canadian men and women strongly support this evolution of Canadian fiscal arrangements, as do most members in this House. Therefore, I urge all members to support this motion.

[Budget Implementation Act, 1995, May 31st, 1995]

Mr. Speaker, we are now looking at 12 motions in group 2. I will explain the government motions and the reasons for them and then return if time permits to some of the motions being presented by the other parties.

The two motions being presented by the government are Motions Nos. 12 and 14. In Motion No. 12 the Minister of Finance is proposing that subsection 181.12(2) of the National Transportation Act, as contained in clause 21, be amended so that the agency will establish maximum regulated rates from and after the 1996-97 crop year.

This motion, together with Motion No. 14, which I will explain in a minute, will amend the NTA so that the maximum regulated rate provisions will be retained beyond July 31, 2000

as currently provided in Bill C-76. The motion is a consequential amendment required as a result of the proposed amendments to sections 181.18 and 181.19 as set out in Motion No. 6.

The Canadian Federation of Agriculture and Prairie Pools Inc. both proposed to the Standing Committee on Finance that the review to be conducted by the Minister of Transport be expanded to include whether efficiency gains are shared between shippers and railroad companies.

In proposing this amendment and the amendment to section 181.18, the government is being responsive to the concerns of farmers, as expressed widely throughout western Canada and by many industry spokespeople. I compliment the minister for the number of hours he spent with groups across the country making sure that the bill is absolutely correct.

Many of these farmers ask that the Minister of Transport conduct a review of the grain handling and transportation system and whether efficiencies of the grain transportation system are being shared by shippers and railroad companies before moving to a deregulated system.

In Motion No. 14, the Minister of Finance is proposing that the review conducted by the Minister of Transport pursuant to subsection 181.18(1) be broadened to include whether efficiency gains are being shared between shippers and railroad companies.

Under subsection 181.18(2), the Minister of Transport will also consider whether the repeal of the maximum regulated rate provisions will have a significant impact on shippers and if those provisions should be repealed.

Section 181.19 will be amended so that if the Minister of Transport in conducting his review determines that the maximum regulated rate provisions should be repealed, those provisions will be repealed as of a date fixed by order of the governor in council.

The Canadian Federation of Agriculture and Prairie Pools Inc. both proposed to the Standing Committee on Finance that the review to be conducted by the Minister of Transport be expanded to include whether efficiency gains are shared between shippers and railroad companies.

In proposing this amendment to section 181.18 the government is being responsive to the concerns of farmers who asked that this review be done. In addition, the Minister of Transport in conducting his review in 1999 will take into account the interests of both the railroad companies and the shippers in determining whether the maximum regulated rate provisions should remain in place. Both the shippers and railroad companies will have ample opportunity to make their views known to the minister before he completes his review.

The motions being presented, first by the official opposition, will completely undermine the efforts being made to modernize the western Canadian grain transportation system. I do not have to tell members that there is a lot of history in the legislation we are presenting. It is one in which the farming community has been back and forth on for one generation after the other.

This is that rare time when the major actors in the industry have come together to support legislation that will be a giant step forward in the reorganization of the grain industry. Like others, there is lots of speculation on what these changes are going to mean. Nevertheless people see many positive benefits coming out for western Canadian agricultural producers.

Considering how much wealth they contribute to this whole country, anything that benefits the farmers of western Canada can very quickly benefit the rest of the country.

Motions Nos. 5 to 11, because of the nature of the official opposition amendments, would result in the deletion of the provisions that identify grain dependent branch lines and exempt designated grain dependent branch lines from certain provisions of the NTA, such as the notice of intention and conveyance provisions with respect to abandonment of branch lines. These motions would make it more difficult for rail companies to improve the efficiency and reduce the cost to ship grain from the prairies.

In Motion No. 5, the financial critic for the opposition party is proposing that clause 11, which amends section 4 of the National Transportation Act, 1987 to add a definition of grain dependent branch lines, be deleted.

The definition of grain dependent branch lines is necessary as this and other provisions in Bill C-76, identify grain dependent branch lines and exempts designated grain dependent branch lines from certain provisions of the NTA, such as the notice of intention and conveyance provisions with respect to abandonment of branch lines.

This provision and other provisions in Bill C-76 will make it easier for railway companies to abandon inefficient and costly grain dependent branch lines.

The motion proposed by the official opposition would make it much more difficult for railway companies to improve the efficiency of the grain transportation system and to reduce the cost to ship grain from the prairies.

Motion No. 6 proposes that the heading of clause 12 be amended by replacing the words "the act" with the National Transportation Act, 1987. This is a proposal which follows from the changes and the refusal of the opposition to deal with the changes we are proposing.

The official opposition is proposing in Motion No. 7 that clause 16, which exempts grain dependent branch lines from the notice of intention provision under the NTA be deleted. As I stated, this proposal would make it more difficult and cumbersome for railroad companies to abandon inefficient and costly grain dependent branch lines.

I will not take the time of the House to go through some of the other motions. In these I have reviewed the major differences we have with the official opposition. As I stated before, the changes being proposed in Bill C-76 will be of great benefit to the western Canadian agricultural community and that spills over to the rest of the country. People in every province will see a much stronger Canada as the western grain farmers and other agriculture producers gain maximum advantage from changes in our regulations and laws.

[Budget Implementation Act, 1995, May 31st, 1995]

Mr. Speaker, I would like to deal with each of these four amendments in turn, because they hit on some of the essentials of what we are trying to do as a government to deal with the public service.

I extend my thanks to the critics from the official opposition and from the third party for their work in the finance committee under the chairmanship of the member for Willowdale. I thought it was an outstanding collegial example of how to deal with a very difficult and major piece of legislation. I describe the treatment of witnesses as exemplary by all members of Parliament.

With regard to the first motion, I would like to clarify what the intent of the legislation is. The surplus period is a notice period that the employee's job will end in six months. By definition the surplus employee will have a job for six months. I do not want the amendment to leave the impression that there is a system set

up where people will be sitting around for six months. It has always been the practice of departments to plan their surplus declarations in this manner.

There are some exceptions to this rule which should be clarified. I can give an example of a military base closing prior to the six month period. We consider it costly for the government to transfer surplus employees to find jobs which may only last a month or two. It is more practical to leave them where they are until the six months have run out. In that case the legislation will have to build in these rare exceptions.

Motion No. 2 is a technical change dealing with the wording the drafters have which now has to be changed.

The motion reads as follows: "That Bill C-76, in Clause 7, be amended in the French version, by replacing lines 8 and 9, on page 7, with the following: «ou à toute personne appartenant à l'administration publique fédérale»."

The third motion by the member for Lethbridge deals with clause 8. It appears the purpose of the amendment is to ensure competent employees are retained through the exercise of priority for surplus employees. Surplus employees are generally highly competent and their employment is in jeopardy for reasons beyond their control. The priority accorded to them ensures these competent people are retained in the public service and that the investment made in their training and development is not lost. A surplus person must be determined qualified in order to be appointed. It is not necessary to hold competitions to ensure competent employees are retained.

Section 10 of the Public Service Employment Act which establishes that employments are to be based on merit does not require that these appointments be made by competition.

The purpose of clause 8 is to make it possible for deputy heads to place their own surplus employees before having to consider priorities from other departments. The intent is to allow departmental restructuring and downsizing in a humane and efficient way.

The delays involved in holding competitions lead to a longer period of uncertainty which is destructive to morale. Further, there are significantly greater costs involved in running competitions rather than considering people on a non-competitive basis.

While competitive processes may be seen as being fairer and more transparent there are a number of reasons why other considerations may be overriding in certain situations. For some surplus employees there is a very limited period during which they can be considered for the positions. If a competition had to be run, especially national in scope, this period could be exhaustive while the longer processes that would have been involved in that competition have gone through.

The amendment is also not consistent with the other provisions for priority entitlements in the act which provide for appointments without competition in priority situations.

As drafted, the amendment creates internal inconsistencies within the clause that would require redrafting. In particular, the need to hold a competition is in conflict with the discretion given to the public service commission to formulate an opinion as to whether an employee is qualified.

The fourth motion presented by the member for Lethbridge is also an amendment to clause 8. The effect of this amendment is to remove the commission's current discretion under paragraph 35(2)(d) of the Public Service Employment Act to exclude appointments made under employment equity programs from the operation of the various sections of the act which give priority entitlement.

Parliament chose two years ago through the Public Service Reform Act to give the commission the discretion it now enjoys. It also is currently considering amendments to the Employment Equity Act which would give employment equity programs more rather than less precedence in the public service. It is the government's place to decide what emphasis it wishes to put on these areas.

Although the commission has chosen not to exclude these programs from consideration of priorities, this does not mean there would not be times when this would not be the right thing to do. The amendment would prevent the commission from exercising this discretion in future where it considers it necessary to achieve employment equity objectives.

In reality the effect of this amendment is to defeat the effort made by the government for disadvantaged groups. This would be a setback in that it would allow surplus priorities to be placed ahead of disadvantaged group members. I know that would not be the objective of this member who has had a long public career and has been involved with disadvantaged groups in his home province before coming to the federal scene.

It is still the objective of the government to have the public service reflect the demographic configuration of our society. This motion would stall the effort we have all been making.

[Petitions, May 31st, 1995]

Mr. Speaker, the third petition deals with returning convicted persons to jail.

[Petitions, May 31st, 1995]

Mr. Speaker, the second petition deals with the rights of grandparents.

[Petitions, May 31st, 1995]

Mr. Speaker, I have three petitions to present on behalf of constituents.

The first petition deals with palliative care and the decriminalization of assisted suicide.

[Committees Of The House, May 12th, 1995]

Mr. Speaker, I have the honour to present, in both official languages, the 14th report of the Standing Committee on Finance relating to Bill C-70, an act to amend the Income tax Act, the Income Tax Application Rules and related acts.

[Income Tax Act, April 24th, 1995]

Mr. Speaker, it gives me great pleasure to take the opportunity to present Bill C-70 to the House for second reading. It is an item arising out of the budget presented in February 1994.

I will explain the process we go through with a major piece of legislation such as this one. Immediately after the minister presents the budget we have a debate on it and it is voted upon. Subsequently we introduce the budget measures act which incorporates many of the activities of different departments. It was begun last year and took up the time of the House of Commons in May and early June and of the Senate in June. It was finished before July 1.

Subsequently in the public perception we began to deal with the budget for 1995 but we had not finished the work arising from the 1994 budget. Today we are continuing the work from last year's budget.

Last fall we found out about the changes to the Income Tax Act, which is the second part of the work done in a budget. At first we have changes to departmental activities, including for example the Unemployment Insurance Act. Then we have changes to the Income Tax Act. Previously the House considered amendments to the Income Tax Act arising out of the business of the budget of last year. They were reviewed in the House of Commons last November and were reviewed in committee in December. A few witnesses appeared. We considered some of the changes offered by the opposition and decided to go ahead with the bill as it stood. It was then presented to the House, went through the Senate, and is now law.

Because of the enormous number of changes made, we split the amendments to the Income Tax Act into two different sections. This is the second section. Bill C-70 represents the second set of amendments to the budget arising out of the February 1994 budget statement.

They are a number of technical amendments which affect the income tax situation of those in the business world and corporations. In summary, the amendments implement certain measures announced in the budget of February 22, 1994 as well as other measures announced by the government in 1994.

The measures are described, first, as debt forgiveness. It requires a debtor whose indebtedness is forgiven to apply the unpaid amount to reduce any tax losses and the tax cost of properties owned by the debtor. Any unapplied balance is brought into the income by individual debtors whose incomes exceed $40,000 and by corporate debtors that are not bankrupt or insolvent.

Second, we are changing some of the rules by which we treat foreign affiliates. We expand the categories of income of foreign affiliates which must be reported as income of their Canadian shareholders.

It responds to a widely held view by Canadians. It was a perspective that we certainly heard about in the late eighties and early nineties when we were in opposition. Canadians saw the corporate world was able to transfer moneys to foreign affiliates and to avoid taxation in certain regimes which they considered to be too high. We took a very progressive step in our first budget, the budget of February 1994, to expand the rules and ways in which we were able to deal with foreign affiliates.

Third, we now require financial institutions to report profits and losses on securities held in the ordinary course of business, on income rather than capital on a market to market basis.

I was very much involved with the initial discussions that were held with industry when we announced the rules. I am very happy to say the relationship between the financial institutions and the government have greatly improved through numerous discussions.

The industry felt at first that the tax measures were too aggressive and did not take into account some historical developments, particularly in the insurance industry. We argued very strenuously that the insurance industry should be understood. We held discussions not only in Ottawa but across the country. We listened to representatives of their associations and met with senior officials of individual companies. They pointed out that if we did not proceed with some care our evaluation of their securities and our treatment of their securities no longer being on the capital side but on the income side would greatly hurt their business.

The insurance industry is very important to the country. There are more than 140 active insurance companies. We want to make sure we stabilize the companies and do not do anything negative to affect either their capital base or their income base.

After several weeks of discussions amendments were suggested back and forth. I think all parties will agree that the rules as finally presented to the House a few weeks ago and now being expanded upon at second reading are fair to everyone.

We must remember the purpose of the Government of Canada is to ensure that every corporate sector is taxed properly and pays its fair share. That is the demand of all Canadians. The insurance industry has responded admirably. It is more than willing to pay its fair share and now feels the rules and regulations we are developing are more appropriate to its business activities.

I take this opportunity to publicly thank members of the insurance industry who have taken many hours to explain to me the nature of their business. Last year was my first year in the finance field on behalf of the Government of Canada. When that is the case we need a lot of kindness from people in the private sector to explain how they operate and the way new regulations or new tax regimes negatively affect their businesses. There was no element of hostility. I very much respect their willingness to spend time with me to ensure I understood their case.

Fourth, in terms of funeral arrangements we are providing an exemption for interest earned on prepaid amounts under eligible arrangements entered into by individuals to cover their funeral and cemetery expenses. This is a combination of federal and provincial laws, rules and regulations that govern people who make such arrangements ahead of time.

Through trust arrangements at the provincial level those funds are protected but because of the high cost of property, particularly in major metropolitan areas, we found that the limits originally being considered were not sufficient. The change is to accommodate the reality of how people are purchasing plots in cemeteries. We do not feel we are suffering in any way, shape or form an unnecessary financial burden. We are

dealing with the reality of the high cost of property. We did not want to put Canadian taxpayers, the industry or the non-profit sector in the field at risk through unfair tax rules. These amendments address the issue.

Fifth, we are permitting publicly traded real estate investment trusts to qualify as mutual fund trusts for tax purposes.

Sixth, we are dealing with mutual fund reorganizations. It will allow a mutual fund corporation to convert into a mutual fund trust on a tax free basis and will allow tax free mergers of mutual fund trusts.

Members of the House will know that the mutual fund business is one of the fastest expanding businesses in North America. Every effort has been made at the regulatory level to keep in touch with the industry and keep up to date with its changes.

We have sought through the Income Tax Act several other initiatives in the securities industry to ensure the tax regime is fair to people in the mutual fund area and is current with established practices. As time goes on, if the industry continues to change as fast as it has, we will have to make future changes.

Seventh, we are dealing with objections and appeals. This requires large corporations to specify in notices of objection to income tax assessments the issues under dispute and the amount of relief sought.

The House may be familiar with the past practice of legal departments and taxation departments of corporations sending notices of appeal to Revenue Canada on a regular basis, indicating that they have an objection to the taxes being assigned by Revenue Canada. By making a general objection as they have in the past they have been able to wait for specific tax cases to come forward. Once the tax cases are registered they are able to re-examine their books to see if they apply. In theory that has caused the Government of Canada to have a great deal of liability each year in the corporate tax sector.

We are seeking to limit the liability in the future within a specified time that we think will give the corporation a lot of time to review its tax assessment. The notice of appeal should specify exactly what is being appealed. It is no longer suitable to have a general appeal against the tax assessment. The corporation must specify exactly what it is objecting to and proceeding with, if necessary, through legal action. That will give Revenue Canada and the Government of Canada an opportunity to proceed without having to worry about innumerable court cases in the future.

The eighth section deals with securities lending. This will permit investment dealers to deduct two-thirds of dividend compensation payments made in securities lending arrangements.

The bill has a fairly broad range of measures. It complements the original budget speech, the budget bill introduced last year and the changes to the Income Tax Act dealt with in the fall of 1994 that were finished in the spring of 1995. The bill introduces specific measures that are very compact including funeral arrangements. It establishes the principles of fairness long talked about by governments but rarely acted upon.

The objections and appeals, the opportunities to challenge tax rulings and deal with the tax payable by foreign affiliates, are fair measures. The Minister of Finance has done an excellent job. He stated quite often that the government would not let up on bringing more fairness to the tax system. Those measures will be benchmarks of the new fairness in the Income Tax Act dealing both with corporations and individuals.

When we have made major changes affecting an industry such as the insurance industry we have proceeded not only with a determination to make things fairer for the whole sector but we have been responsive to criticisms and to critiques. We have been willing to talk with these people and to talk to the executives of the different companies and to the associations and to respond when a point is well made.

To have good tax law we have to be determined to be fair but we also cannot be stubborn and in the face of obvious mistakes hold to a position which puts companies at a disadvantage. I have learned a lot about the insurance industry as a result of these measures and I am hopeful we will continue to have these discussions in other spheres.

The government welcomes the opportunity to open up this debate, to have second reading on Bill C-70, amendments to the Income Tax Act. We welcome comments from the opposition and its critique on what we are trying to do and its suggestions on how we can make the Income Tax Act fairer in the future.

We also welcome the opportunity to hear from witnesses in committee both in the House of Commons and later in the Senate so that the views of professionals in the field can be heard, taken seriously and government can continue to refine the Income Tax Act to be fairer and more just to more Canadians and as we proceed over the years to make further amendments to ensure every Canadian is paying his or her or corporate fair share and at the same time finds the system just in the way they are treated and in the way other people are being treated.

[Budget Implementation Act, 1995, March 30th, 1995]

For the NDP it is never enough. The bill provides for the regulation of maximum freight rates that can be charged by railway companies to move grain from the prairies. The transition from these maximum regulated rates to commercial rates will take place over a five-year period.

The bill also proposes the elimination of the Atlantic freight subsidies under the Atlantic region freight assistance program, ARFAA, and the Maritime Freight Rates Act, MFRA. These measures to take effect July 1995 will save nearly $100 million a year.

The Atlantic freight subsidies have proved inefficient in reducing shipper costs. They have, moreover, encouraged companies to structure their investments and organizations to meet regulatory criteria rather than for sound business practice. The subsidies are of marginal and declining importance to regional economic activity since transportation services in the region are now much more competitive than they once were.

To help ensure that elimination of a subsidy contributes to a better transportation system, the budget announced a five-year $326 million transportation adjustment program. Provinces will be able to target assistance under the program to meet local shippers' needs and upgrade infrastructure. Among other things it should help modernize the highway system in Atlantic Canada and eastern Quebec.

A third area of concern is transfers to persons, particularly the veterans program. An initiative as sweeping as program review must inevitably touch upon some programs that provide payments to individual Canadians. When the Department of Veterans Affairs underwent review the decision was taken to preserve all essential programs and services for veterans who had served Canada. However the department took steps to control cost, eliminate overlap and duplication, and return programs to their original purpose.

Accordingly the bill proposes that the war veterans allowance be discontinued for former members of resistance forces and for allied veterans living abroad for more than six months within a calendar year. As well, new allied veterans will be ineligible for war veterans allowance unless they were pre-war residents of Canada.

Further, effective from budget day no new applicants will be accepted under the education assistance program because it duplicates other available programs. Also the veterans travel program will be restructured so that the benefits are rationalized.

A fourth area of concern is consular services. Not all departments offer the same scope for savings under program review. However each is contributing to the restructuring process. Cost recovery is one such step. The Department of Foreign Affairs,

for example, will be shifting a greater portion of the cost of consular and trade development functions to the prime users.

Therefore the bill includes provision that would authorize the department to levy an additional fee for Canadian travel documents such as passports. As a result of the measure the cost of a regular five-year passport is expected to rise between $20 and $30. However, even with the increase, the cost of a Canadian passport will still compare favourably with that of many other industrialized countries.

The measure will help the Department of Foreign Affairs to maintain the high quality consular services it currently provides.

The next area is the public service. The measures I have outlined along with other initiatives arising from program review mark the transition to a more focused, effective and frugal federal government. Such a government will need fewer employees to deliver programs and services.

At the time the 1995 budget actions are fully implemented federal employment is expected to decline by 45,000 or 14 per cent. 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 the commitment the bill proposes to change the public sector compensation act to allow for an early departure incentive. The incentive can be taken up by as many as 13,000 to 15,000 employees in the departments most affected. We estimate the cost of the program for the public service, the military and certain separate employers and crowns to be about $1 billion, which will be included in the 1994-95 fiscal year.

Other proposed changes in the act will allow for cost neutral changes to non-salary terms of employment and for certain new kinds of leave. For example, employees will be permitted to take off blocks of time and have their incomes averaged over the year.

In addition, we are proposing amendments to the Public Service Employment Act that will give public sector managers more flexibility in staffing arrangements. This would include, for example, the block transfer of employees with their functions within the public service.

Employees affected by the downsizing who decide not to take advantage of the departure incentives will have a reasonable period of time 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 the departments most affected who decline departure incentives will cease to be paid after six months and will be laid off one year thereafter unless alternative employment is found.

The vast majority of items in the bill are obviously about reducing the deficit. However there is one that relates to financing the deficit and the debt. The bill contains amendments to the Financial Administration Act that will enable the government to efficiently sell debt securities to individual Canadians under the retail debt strategy. The amendments will allow the federal government to offer Canadians improved access to a family of safe and secure Government of Canada obligations.

The proposed amendments include new authority for the government to issue securities without physically printing certificates, thereby promoting more efficient and less costly electronic transfers.

The amendments will also enable government to buy its own securities at the time of issue. This way they can be sold to retail buyers through a special government agency set up for the purpose.

There is one final measure in the bill I should like to mention, locked-in RRSPs. Currently holders of locked-in RRSPs are limited to purchasing life annuities with the funds. In order to provide such individuals with greater flexibility in managing their retirement income, the bill includes an amendment to the Pension Benefits Standards Act that will allow holders of locked-in RRSPs to purchase life income funds.

Today's legislation will play a key role in setting our country on a course to fiscal responsibility and to governmental renewal. The legislation will help ensure that our budget goals are translated into real performance. It draws directly on the advice we have received from across Canada. It focuses on the total economic and social picture before us and addresses the challenges we all face.

The budget and the bill reaffirm the government's fundamental objective of sustaining growth and job creation. They achieve that by meeting the fundamental requirement of restoring fiscal health by refocusing government on priority roles and needs.

In summary, Canada needs and Canadians support the legislation. They have already demonstrated support, and I urge all members of the House to do likewise.

[Budget Implementation Act, 1995, March 30th, 1995]

Madam Speaker, last month , this government introduced a budget that has been described as historic. The description is apt, for it was a budget of fundamental reform and national renewal. Today, we are considering legislation that will help turn those goals of reform and renewal into reality for the benefit of all Canadians.

The budget redesigns the very role and structure of government itself-because getting government right is essential to getting the economy right. The budget achieves dramatic savings to secure our deficit reduction targets-real, bottom-line savings based on prudent economic assumptions.

And this fiscal reform will continue to pay off, because the structural changes introduced by the budget will deliver savings, not just over the next two years, but every year thereafter. It is a tough budget, but it is also a budget of commitments kept and meaningful results.

Just as important, it is a budget of nation building-because it is firmly rooted in the principles of economic leadership; compassion; and increased fairness. Before describing the specific measures in the legislation, I would like to say a few words about the importance of passing it on a timely basis.

Canada's economic future remains at risk because of a $550 billion debt. A huge portion of government revenues are consumed by the cost of servicing this debt. That's money that could otherwise be spent to provide Canadians with services and programs, or to reduce the amount of taxes we pay.

The debt also makes us unacceptably vulnerable to financial markets and the harsh impact of interest rates. The unexpected increase in these rates since last year's budget has put tremendous pressure on our deficit targets. Meeting our targets is essential to strengthen confidence and bring interest rates down. This, in turn, is essential for greater growth and more jobs for Canadians.

The budget takes the actions necessary to meet these objectives. To hit our targets, we are implementing cumulative savings over the next two years of $15.6 billion. Over $13 billion of the savings will spending cuts. There will be no increase in personal income tax rates.

Going beyond, to 1997-98, our reforms will deliver a further $13.3 billion in savings for a three-year total of $29 billion. This is the largest set of actions in any budget since demobilization after the second world war.

We are also taking firm steps to increase tax fairness and close loopholes. The budget delivers almost $7 in spending cuts for every $1 in new tax revenue. The actions set out in the budget involve changing the size and shape of government by hard choices on priorities. By 1996-97 program spending will fall from $120 billion last year to just under $108 billion.

By 1996-97 our financial requirements, the amount of new money we will have to borrow in the financial markets, will be down to $13.7 billion or 1.7 per cent of GDP. That is better than every other G-7 country. Most important of all, by 1996-97 the debt no longer will be going faster than the economy. That is the key to fiscal stability, to putting our debt ratio on a permanent downward track.

Canadians realize the importance of achieving fiscal targets. They know this is the budget our economy needs. They affirmed this in the consultations leading up to the budget and they reaffirmed it in the response to the budget itself.

Financial markets have also recognized that the budget will promote an improvement in public finances. However, to secure the savings that will lead to this improvement, we must pass the legislation as expediently as possible. Anything less would compromise our commitments to a secure and prosperous future for ourselves and for our children.

There is no need for further budget background. It has been extensively discussed in the House. Let me turn therefore to the specific elements of the bill before the House.

Provincial transfers. One of the most important elements of the bill is the reform of transfers to the provinces. The federal government wants to create a transfer system that functions better and is fiscally sustainable. The centrepiece of this reform is the replacement, beginning in 1996-97, of established program financing for health and post-secondary education and the Canada assistance plan, with a single consolidated block transfer, the Canada health and social transfer.

The Canada health and social transfer represents a new approach to federal-provincial fiscal relations. This new approach is marked by a greater flexibility for provincial governments, and more sustainable financing arrangements for the federal government. It continues the evolution toward more mature fiscal relations.

Although provinces will have greater flexibility in addressing their priorities, the budget made it clear that the principles of the Canada Health Act will be enforced. There will be no change in the principle that provinces must provide social assistance without minimum residency requirements.

We believe the new system will be more effective in meeting contemporary needs. Our fiscal situation demands that it also be less costly than the current system. That is why, when the CHST is fully implemented in 1997-98 the total of all major transfers to provinces will be down by about $4.5 billion from what it would have been if it had been transferred under the existing system. However, to put this into perspective, the reduction will be equal to about 3 per cent of the aggregate provincial revenues.

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

In addition to the introduction of the Canada health and social transfer, the bill also introduces other measures that will help reduce the cost of payments to the provinces. For example, the government is proposing to reintroduce to the fiscal stabilization program a provision which will trigger payment under the program only when economic conditions cause provincial revenues to decline by more than 5 per cent. The fiscal stabilization program compensates provinces if their revenues decline from one year to the next due to economic circumstances.

When the program was introduced in 1967, it provided compensation only in situations where the economic conditions caused revenues to decline by more than 5 per cent, that is, in the event of a severe economic downturn. The program was amended in 1972 to provide compensation if province's revenue fell at all.

Despite that change only two payments were made under the program between 1967 and 1990. However, the combination of the last recession and low inflation has triggered recent stabilization payments to virtually all provinces.

Now that inflation is low and stable, even a minor economic downturn can cause a decline in a province's revenue and thus result in a stabilization payment. This is not consistent with the intent of the program and is not consistent with current fiscal realities. Therefore, the government is reintroducing the 5 per cent eligibility threshold to the program. This measure will take effect for stabilization claims in 1995-96 and subsequent years.

The federal government will continue to play a major role in stabilizing revenues of provincial governments. However, it will do so only in times of severe economic shocks, as was intended when the program was originally introduced. There are no immediate savings associated with this measure.

The bill also includes an amendment to the Public Utilities Income Tax Transfer Act, PUITTA. Under PUITTA the federal government transfers to provinces and territories most of the federal corporate income taxes paid by privately owned electrical and gas utilities.

These payments were intended to level the playing field between privately owned utilities which pay income tax and provincially owned utilities which under the Constitution do not. However, it is up to the provinces and the territories to decide whether or not they will pass these savings through to utilities companies or to consumers.

Most provinces and territories do not rebate the payment to utilities or consumers. The majority retain it as general provincial revenue. Moreover, none of the provinces rebate its own provincial income taxes to these utilities.

The Standing Committee on Finance recommended that the federal government eliminate PUITTA transfers. Under the current fiscal circumstances, the continuation of PUITTA payments can no longer be justified. Therefore, the legislation proposes that PUITTA be terminated as of March 31, 1995. This measure is expected to reduce expenditures by an estimated $200 million in 1996-97 and $280 million in each of the two subsequent fiscal years.

The bill contains a final measure affecting transfers to provincial governments. It concerns the vocational rehabilitation of disabled persons Act or the VRDP. Under this act the federal government pays 50 per cent of the cost incurred by provinces in assisting disabled persons to become employable. As part of the government's reform of social programs, the maximum contributions to the provinces under the VRDP will not exceed the 1994-95 levels starting in 1995-96. VRDP entitlements are expected to be about $168 million in 1994-95. This measure will result in estimated savings of $4 million in 1995-96; $8 million in 1996-97 and $12 million the year after.

Let me turn now to another major area dealt with in today's bill, assistance to business. In the course of program review, departments across government took actions to reduce business subsidies. Such subsidies frequently fail to achieve their desired objectives. Many work counterproductively, discouraging adjustment and innovation. Overall the government is 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, WGTA, and to terminate the western grain transportation subsidy paid to railroads effective July 31, 1995. The reform of the WGTA will result in savings of $2.6 billion over the next five years.

However it is more than a deficit issue. The elimination of the subsidy will encourage the development of value added processing and the production of higher value goods. 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 established with the World Trade Organization.

A number of further initiatives will facilitate the transition to the new system. They include a payment of $1.6 billion to owners of prairie farm land.