John McCallum

[Airport Security, March 21st, 2002]

Mr. Speaker, that is my official title but junior finance minister will do.

[Taxation, March 21st, 2002]

Mr. Speaker, I must say that I was not in the House at the time and was not aware of that motion. However, I would commend the government for ceasing to support a Tobin tax because I think it is a pretty bad tax.

[Supply, March 18th, 2002]

Mr. Speaker, I find it somewhat difficult to understand my colleague opposite. At one point, he told us that even three month forecasts were difficult to make and lacked credibility. Especially after the events of September 11, the world has clearly become more uncertain.

First, he tells us that three month forecasts are difficult to make and now he wants us to accept the Séguin report with its 20 year projections. It makes absolutely no sense.

[Supply, March 18th, 2002]

Mr. Speaker, what I said is that two-year forecasts are hard to make, five year forecasts nearly impossible, and 20 year forecasts, ludicrous. That is why the Liberal government has decided not to make five year forecasts anymore, since huge errors were made in the past. The federal government made a decision to plan over two years instead of five. So, this is in keeping with what I just said.

I would like to add that the hon. member from the Bloc is perhaps the only persons in all of Canada to predict huge surpluses. I think it has to be one of two things: either the Bloc member is wrong and has no credibility whatsoever, or he is the most brilliant economist in the world. In that case, he should leave politics and start his own business, because his very valid forecasts would make him an instant millionaire.

[Supply, March 18th, 2002]

Mr. Speaker, I appreciate the opportunity to speak to the Bloc motion.

First let me say that the federal government denies the existence of any fiscal imbalance in Canada. Such a thing does not exist. It is a myth.

Hon. members opposite from time to time trot out these new studies purporting to show that there is this fiscal disequilibrium. The Séguin report is just one in a long list of such studies. More often than not, when subjected to analysis and put under the microscope, they are found to be unrealistic and unreliable.

For example, the authors of this report claim that the imbalance will generate a $90 billion federal surplus in 2019-20. Naturally, this is ludicrous.

Conclusions based on such projections are not reliable. Let us be realistic. As I said in the House a few days ago, it is difficult to make two year forecasts and almost impossible to make five year forecasts; forecasting twenty years down the road is therefore ridiculous and pointless.

The Séguin commission's long term projections are a purely hypothetical exercise. Moreover the assumptions are inappropriate and unrealistic. There is an assumption that over a 20 year period there has been no recession. Now I know we have been doing better recently but to assume that over a 20 year period there has been no recession is not realistic.

It assumes there were no tax cuts over 20 years. We just had our $100 billion tax cut a year or two ago. It is not as if we stopped. It assumes there has not been one new government program. I do not think agreement will be found on that among most of the ministers around the cabinet table.

Another example concerning the uselessness of 20 year projections comes from the United States.

The United States government, which used to publish long-term economic and fiscal projections, started phasing these out in its last budget.

The reason given for the U.S. recent decision to abandon these long-term projections was that the events of the last year underscored the difficulty of making reliable budget estimates even one year ahead. No one knew what types of economic or political shocks would arise in the future. The government of the United States is agreeing with the proposition that projections of two years are difficult, five years very difficult and 20 years I would say, literally impossible.

If federal surpluses like those projected in the Conference Board of Canada report do materialize the federal government would be happy to undertake further tax reductions or increase spending in support of those programs that are most important to Canadians. It is not as if the government is going to sit there for 20 years and do absolutely nothing in terms of tax cuts or expenditure initiatives and watch on the sidelines as the surplus rises to $90 billion per year.

The report also predicts that Quebec will be in deficit next year.

However, Quebec finance minister Pauline Marois rejected the commission's projections, saying that the province's budgets would be balanced in a foreseeable future. So, even the Quebec minister disagrees with her commission.

Finally, the minister is now preparing an economic statement and budget update to support her theory. She herself does not believe in the projections of the Conference Board of Canada.

More important, I must take issue with the opposition's definition of fiscal imbalance itself. The reality is that a fiscal imbalance cannot exist since federal and provincial governments have access to a wide range of revenue sources and are free to set their own fiscal and budgetary priorities. Provincial governments, like the federal government, are free to set tax rates consistent with their responsibilities. In most federations the provinces or states do not have nearly such wide taxing powers.

Provinces have access to the same major tax bases as the federal government does, including personal and corporate income tax as well as sales and payroll taxes. Provinces have access to some tax bases which we do not, such as gaming and liquor profits, property taxes and resource royalties. Some of these are growing very rapidly. Provincial revenues last year from the combination of liquor and gaming levies, property taxes and resource royalties were $27.4 billion compared to just $10 billion in 1990. Those provincial revenue sources, which the federal government does not even have, have enjoyed rapid growth in recent years. That is an annual average growth rate of 10%. On the other hand the few federal-only revenue bases are small and volatile.

For example, because of the liberalization of trade, import duties have decreased substantially, from more than $4 billion at the beginning of the 1990s to less than $3 billion today.

The Séguin report implies that federal revenues will grow faster than provincial-owned source revenues but the report from the Conference Board of Canada, used by the Séguin commission, predicts otherwise.

According to the study, Quebec's revenues will increase at an average annual rate of 3.2% over the next 20 years, which is exactly the same rate federal revenues are expected to increase.

Quebec's assumption concerning the higher increase in federal revenues is based on the fact that personal income tax is one the fastest growing revenue source and that a large part of such revenues are collected by the federal government.

However the situation is changing. Recent federal tax cuts and the full indexation of the personal income tax system will reduce the future growth of federal and personal income tax revenues. There will be continuing international pressure to reduce taxes to improve Canada's growth prospects. This will be particularly acute for the federal government because only the federal government can provide income tax relief for all Canadians, not just those in a few more affluent provinces. Moreover provinces claim that the perceived imbalance is rooted in rapidly growing health care costs.

Despite assuming an average growth rate of almost five per cent for health care spending, Conference Board of Canada projections show that government revenues and program spending will grow at the same rate for both the Quebec government and the federal government.

How does this evidence support the notion of a fiscal imbalance? The answer is that it does not. We do not need to look to growth projections in estimates of future surpluses to see that there is no fiscal imbalance.

It is just that for over two decades, provincial revenues have been higher, and substantially so, than federal revenues, a trend that will continue for the foreseeable future.

On top of this, federal cash transfers to the provinces are expected to increase more than three times faster than the growth in federal revenues over the next five years. These funds are available to provinces to use as they see fit on health care, post-secondary education, social programs and early childhood development. The federal government faces a much bigger debt burden than the provinces, almost double that of the provinces on average.

In fact, in the last fiscal year, the federal government has paid $42.1 billion in interests, compared to the debt charges paid by the provinces, which totalled $22.4 billion.

It is an enormous cost that makes us more vulnerable than the provinces to the volatility of interest rates worldwide.

Moreover, it reduces the federal government's fiscal room to manoeuvre when managing its own responsibilities and pressures, pressures which are not inconsiderable.

There is no doubt that health care and education represent major challenges for the provinces but the same is true for the federal government. Almost 70% of all the new federal spending initiatives we have undertaken since balancing the books have been in the areas of health care, education and innovation.

In support of the historic agreements reached by first ministers in September 2000 on health care renewal and early childhood development, $23.4 billion in increased funding is being provided to provinces and territories over five years. That is a huge new spending initiative and undoubtedly one of the largest in Canadian history. The sum of $21.1 billion of this investment is for the Canada health and social transfer, CHST, and $2.3 billion is for targeted investments in medical equipment, primary care reform and new health information technologies.

This investment will lead to innovations in health care, increase the number of doctors and nurses, provide new MRI machines and other medical equipment, and enhance the use of technology to improve the care Canadians receive.

This is one of the largest single expenditures by any Canadian government in the country's history and it will bring federal transfers to record highs, starting this year.

Clearly the quality of social programs is not being jeopardized by the government's actions, quite the contrary. Provinces are receiving $2.8 billion more in CHST cash this year, bringing CHST cash to $18.3 billion. Next year the increase rises to $3.6 billion. These amounts keep growing. By 2005-06, CHST cash will reach $21 billion, which is $5.5 billion or a 35% increase over the levels of 2000-01.

While the CHST is at its highest level ever, the Quebec government would have us believe that this program should be abolished in favour of a transfer of GST revenues to the provinces. More generally, in 2001-02, total transfers to Quebec, that is CHST and equalization, were almost $12.4 billion. That is about 25% of Quebec's total estimated revenues.

Moreover, the transfers are expected to total about $1,670 per person, about 16% above the national average. The province wants to trade CHST cash for GST revenues, a scenario in which Ontario would receive 22% more per capita than Quebec. The less wealthy provinces would receive even less than Quebec.

What we are talking about today is the essential issue of fairness that lies at the very heart of our federation.

First, the CHST and equalization programs were conceived with fairness in mind, a fairness that could never be achieved through the transfer of tax points, whether GST or personal income tax.

Second, only the federal government can provide income tax relief for all Canadians, not just those in a few more affluent provinces.

Third, there is another issue at stake here. Just last Thursday our Bloc colleagues issued a press release stating that they believed the Séguin commission's recommendations should be phased in according to a five year plan. While Mr. Séguin himself suggested that his recommendations be implemented without the federal government returning to deficit, the plan advertised by the Bloc Quebecois in its press release last week would, according to the conference board's own numbers, return us to a deficit of some $6 billion in 2006-07.

This plan does not take into account the great influence that the federal government's financial situation has on interest rates in Canada. Canadians, as well as the provinces, have benefited from lower interest rates resulting from the federal government's sound financial management.

The Bloc program would put us back into a big deficit and that would jeopardize the low interest rates which have become so important for the Canadian economy. Our economy is beginning to recover from the global economic slowdown. This recovery is being fueled by consumer demand, demand enhanced by low interest rates and tax cuts, which would not have been possible without healthy federal financing.

The plan supported by the Bloc would put our financial situation back into jeopardy. After the sacrifices they have made, Canadians will not tolerate the federal government going back into deficit. The struggle to restore fiscal integrity was just too long and too hard fought. I might say for my colleagues on this side of the House that they will not want to go back into deficit either because I have noticed that Liberal members of parliament are more against going back into deficit than are bank economists.

There will be unanimity on this side in terms of not going back into deficit and that is why the plan of the Bloc Quebecois, which would put us back into deficit within a few years, is so utterly and totally irresponsible. Certainly that is reason enough for me to vote against it.

[Airport Security, March 15th, 2002]

Mr. Speaker, the user pay principle means that, over the next five years, users will pay the overall cost of $2.2 billion.

It will not be the same every year but, over a five year period, that is the policy. If, in the fall, it looks like revenues will exceed costs, the charge will be reduced.

[Airport Security, March 15th, 2002]

Mr. Speaker, I understand the hon. member is referring to the charge rather than a tax, but I will check into this. However it is my understanding that if a person goes from point A to point B and takes three different stages along the way, the charge is only paid once. I will check into it.

[Airport Security, March 15th, 2002]

--or the charge will be reviewed in the fall. In the event we find that the projected revenues exceed the expenditure, the charge will be reduced.

[Airport Security, March 15th, 2002]

Mr. Speaker, as the government has pointed out many times, we feel it is fair that the users pay for $2.5 billion out of the $7.7 billion cost of enhanced security. As we have also pointed out many times, the tax will be--

[Taxation, March 15th, 2002]

Mr. Speaker, the hon. member ought to know that the 70% rebate was always the intent of the law. An effort was made to find a loophole. It is the government's responsibility to protect its tax base for the benefit of all taxpayers, and the school boards will continue to have the 70% rebate as was always the intention.