FINA Committee Meeting

37th PARLIAMENT, 3rd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Thursday, April 22, 2004

¿

0935

Hon. John McKay (Parliamentary Secretary to the Minister of Finance)

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.))

Mr. Werner Schmidt (Kelowna, CPC)

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

¿

0940

Hon. John McKay

Mr. Sean Keenan (Chief, Equalization and Policy Development / Federal-Provincial Relations and Social Policy Branch, Department of Finance)

Mr. Werner Schmidt

Mr. Sean Keenan

Mr. Werner Schmidt

Mr. Sean Keenan

Mr. Werner Schmidt

Mr. Sean Keenan

Mr. Werner Schmidt

Mr. François Delorme (Director, Federal-Provincial Relations and Social Policy Branch, Department of Finance)

¿

0945

Mr. Werner Schmidt

Mr. François Delorme

Mr. Werner Schmidt

Mr. François Delorme

Mr. Werner Schmidt

Mr. François Delorme

Mr. Werner Schmidt

Mr. Sean Keenan

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette (Joliette, BQ)

¿

0950

Hon. John McKay

Mr. Pierre Paquette

Hon. John McKay

Mr. Pierre Paquette

Hon. John McKay

¿

0955

Mr. Pierre Paquette

Hon. John McKay

Mr. Pierre Paquette

Hon. John McKay

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Hon. John McKay

À

1000

Mr. Pierre Paquette

Hon. John McKay

The Vice-Chair (Mr. Nick Discepola)

Hon. Maria Minna (Beaches—East York, Lib.)

Hon. John McKay

Hon. Maria Minna

Hon. John McKay

Mr. François Delorme

Hon. Maria Minna

Hon. John McKay

Mr. François Delorme

Hon. Maria Minna

Hon. John McKay

Mr. François Delorme

Hon. Maria Minna

À

1005

Hon. John McKay

Hon. Maria Minna

Hon. John McKay

Hon. Maria Minna

Hon. John McKay

Mr. Glenn Campbell (Chief, CHST and Policy Development, Federal-Provincial Relations Division, Federal-Provincial Relations and Social Policy Branch, Department of Finance)

Hon. John McKay

Mr. Glenn Campbell

Hon. Maria Minna

Mr. Glenn Campbell

Hon. Maria Minna

Mr. Glenn Campbell

Hon. Maria Minna

À

1010

Mr. Glenn Campbell

The Vice-Chair (Mr. Nick Discepola)

Mr. Massimo Pacetti (Saint-Léonard—Saint-Michel, Lib.)

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Glenn Campbell

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

À

1015

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

Mr. Massimo Pacetti

Hon. John McKay

The Vice-Chair (Mr. Nick Discepola)

Hon. John McKay

The Vice-Chair (Mr. Nick Discepola)

Hon. John McKay

The Vice-Chair (Mr. Nick Discepola)

Hon. John McKay

À

1020

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

Hon. John McKay

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

Hon. John McKay

Mr. Werner Schmidt

Hon. John McKay

Mrs. Patricia Malone (Chief, Sales Tax Division, Public Sector Bodies, Tax Policy Branch, Department of Finance)

À

1025

Mr. Werner Schmidt

Hon. John McKay

Mr. Werner Schmidt

Hon. John McKay

Mr. Peter DeVries (Director, Assistant Deputy Minister's Office, Economic and Fiscal Policy Branch, Department of Finance)

Mr. Werner Schmidt

Mr. Peter DeVries

Mr. Werner Schmidt

Mr. Peter DeVries

Hon. John McKay

Mr. Peter DeVries

Mr. Werner Schmidt

Mr. Peter DeVries

Mr. Werner Schmidt

Mr. Peter DeVries

Mr. Werner Schmidt

Mr. Peter DeVries

À

1030

Mr. Werner Schmidt

Mr. Peter DeVries

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

Hon. John McKay

Mr. Werner Schmidt

Hon. John McKay

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

Hon. John McKay

Mr. Pierre Paquette

Hon. John McKay

Mr. Pierre Paquette

Hon. John McKay

Mr. Pierre Paquette

Hon. John McKay

Mr. Pierre Paquette

Hon. John McKay

Mr. Louis Lévesque (Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance)

À

1035

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Louis Lévesque

À

1040

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Hon. John McKay

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

Hon. John McKay

Mr. Peter DeVries

Mr. Werner Schmidt

Hon. John McKay

Mr. Werner Schmidt

Hon. John McKay

Mr. Werner Schmidt

Hon. John McKay

À

1045

Mr. Werner Schmidt

Hon. John McKay

Ms. Susan Kalinowski (Senior Policy Analyst, Income Security, Federal-Provincial Relations and Social Policy Branch, Department of Finance)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Hon. John McKay

The Vice-Chair (Mr. Nick Discepola)

Hon. John McKay

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer (Edmonton—Strathcona, CPC)

The Vice-Chair (Mr. Nick Discepola)

À

1050

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

Mr. Massimo Pacetti

Hon. Maria Minna

Mr. Massimo Pacetti

Hon. Maria Minna

The Vice-Chair (Mr. Nick Discepola)

Mr. Massimo Pacetti

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

Hon. Maria Minna

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

Hon. Maria Minna

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

À

1055

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

Mr. Werner Schmidt

The Vice-Chair (Mr. Nick Discepola)

The Vice-Chair (Mr. Nick Discepola)

Mr. Joe Comartin (Windsor—St. Clair, NDP)

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

Á

1100

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

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CANADA

Standing Committee on Finance

---

NUMBER 016

l

3rd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Thursday, April 22, 2004

[Recorded by Electronic Apparatus]

¿  (0935)  

[English]

    Hon. John McKay (Parliamentary Secretary to the Minister of Finance): Thank you, Chair.

    With me are Patricia Malone and Pierre Mercille. They're here to answer questions with respect to sales tax and matters such as that. Clare Scullion is our legal representative today, and François Delorme and Sean Keenan are here for questions with respect to equalization. We have other representatives of the department in the audience who will respond to questions as they arise.

    I've asked the clerk to distribute my speech. I have sat on the other side of this table for six or seven years now, and I don't know that some of these speeches are all that terribly enlightening. I would propose that mine just simply form part of the record and we move directly to questions.

    The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): All right. Thank you very much.

    We'll go with ten-minute rounds, starting with the official opposition.

    Mr. Schmidt, please.

    Mr. Werner Schmidt (Kelowna, CPC): Thank you very much, Mr. Chair.

    Will we be going two or three rounds?

    The Vice-Chair (Mr. Nick Discepola): We will try to go up until about a quarter to eleven, or eleven o'clock at the latest.

    Mr. Werner Schmidt: First of all, I want to congratulate you for the position that you now occupy, being in the chair. I think it's the first time I've seen you as the chair of the finance committee. It's nice to have you there.

    It's also nice to see the parliamentary secretary here. That was the most expeditious disposition of a speech I've ever seen in the House of Commons. It was very, very, efficient. I think it would have been nice to have the benefit of actually expressing the thoughts that are contained in the paper, but that's all right.

    As well, thanks very much to the departmental officials who are here. It's great to have you here.

    I would like to ask you about the equalization program. In particular, the water power rentals base for British Columbia is going to be changed. I would like to know, first, exactly how that change is going to take place. I've read the notes on why that is the case, but perhaps you would review why that is being changed, what the nature of that change is, and what the actual monetization of that change will be.

¿  (0940)  

    Hon. John McKay: I think that probably would be best answered by Mr. Keenan.

    Mr. Sean Keenan (Chief, Equalization and Policy Development / Federal-Provincial Relations and Social Policy Branch, Department of Finance): The current base for water power rentals tries to measure the production of hydroelectric power for the provinces that derive revenue from it.

    In the case of British Columbia, there is the Columbia River treaty with the United States. What happened there was that the dams were built in the 1960s on the Columbia River in British Columbia, and the power was generated in the United States. For 30 years British Columbia sold that power. Essentially, British Columbia has the right to 50% of the incremental power as a result of building those dams, and for 30 years, from 1968 to about 1998, they had pre-sold the power. In 1999 that contract expired, so British Columbia then regained its access to that power and essentially sold it in the U.S. market.

    So the Government of British Columbia is collecting significant amounts of revenue from power that is produced in the United States, and the current base we have only measures power that is produced in Canada. We've worked to try to find a way we could bring in that power that British Columbia essentially owns, 50% of the incremental power from the Columbia River, as a result of the Columbia River treaty. We would like to bring that into the program and add it to British Columbia's base, because it is a source of revenue for the province. The impacts are quite small, in fact.

    Mr. Werner Schmidt: That is the second part of my question. What will the impact be to the base for British Columbia, if that is taken into account?

    Mr. Sean Keenan: The base for British Columbia will increase.

    Mr. Werner Schmidt: Yes, I know it will increase.

    Mr. Sean Keenan: Our estimate is that it would reduce equalization payments to British Columbia by $6 million.

    Mr. Werner Schmidt: Okay. That answers the specific question.

    The other question relates also to equalization. It is proposed that there will be an adjustment of some kind made to the property tax, that the equalization program as it is outlined in the bill would change the base for real estate on the basis of real market value, that this would be standard right across Canada, and that there would be some special consideration given to British Columbia.

    Could you define “special”, and could you define what exactly the adjustments will be with regard to the property tax base in British Columbia, specifically as the adjustments relate to the real market value?

    Mr. Sean Keenan: We have done a lot of work on the property tax base, and I've noticed that there's not a one-to-one relationship between increases in property values and increases in the property taxes paid. In order to capture that relationship, we've proposed using the nominal market value that exists across the provinces but weighting that distribution by a 0.7 ratio, which is the ratio we observed between increases in property values and increases in property tax revenues.

    In the case of British Columbia, we propose using a 0.5 weight rather than a 0.7 weight to reflect the fact that British Columbia's residential property values are disproportionally higher than in other provinces.

    Mr. Werner Schmidt: So there's a 0.2 differential in that ratio, between 0.7 and 0.5. Is that the differential found in the real market value between, say, the property values in British Columbia vis-à-vis the property values in Manitoba?

    Mr. François Delorme (Director, Federal-Provincial Relations and Social Policy Branch, Department of Finance): I would say we've observed a statistical relationship for the 0.7 across Canada, and the 0.5 is really our best estimate of how it would reflect the particular circumstances of the housing market in B.C.

    At this point, that's something we want to revisit in the next renewal to make sure that the number is updated and that it will be more robust. But at this time, it's our best estimate.

¿  (0945)  

    Mr. Werner Schmidt: I appreciate that.

    I have two subsequent questions. First, when will the next equalization review take place?

    Mr. François Delorme: It's now ongoing, covering the period from April 1, 2004, until March 31, 2009. So the next five-year period started on April 1.

    Mr. Werner Schmidt: So that means there would be no adjustment until 2009?

    Mr. François Delorme: Usually we have a process by which we consult with provinces over those five years, and then all the changes are made at once at the end of that period, yes.

    Mr. Werner Schmidt: Are they retroactive?

    Mr. François Delorme: Normally they are not, but given special circumstances, they could be.

    Mr. Werner Schmidt: But there are other provisions in other parts of the act on the equalization program that allow for certain fluctuations, particularly with regard to gas and oil revenues. Real estate markets also fluctuate. Clearly they're not as volatile as gas and oil prices, but there could be substantial shifts within a five-year period. That's a long period of time. Real estate values do shift considerably within any given five-year period.

    So in the gas and oil revenue base, you do make adjustments quarterly, or semi-annually, or annually...? Perhaps you could answer that.

    As well, how does that relate to not making adjustments with regard to real estate?

    Mr. Sean Keenan: Actually, the equalization program measures activity on an annual basis, so as oil revenues change, we use those on an annual basis. The approach we would have proposed would be to use residential property values annually. The adjustment, the 0.7 adjustment, would apply for five years, so we would continue to use, for 2004, the residential property values across each province.

    As they changed in 2005 or 2006, we would use those adjusted values, whatever the values were, in our measurement of fiscal capacity for each of those years. The approach is that the 0.7 would be in place for five years, and the 0.5 for British Columbia over the course of the next five years. We intend to do a lot more research to ensure that this is a robust approach.

    Mr. Werner Schmidt: There is some indication in the briefing notes that consultation has taken place with the provinces on this issue. I'm just wondering, Mr. Chairman, whether it might not be very appropriate for the provinces to actually appear as witnesses before the committee to deal with this.

    This is a very significant issue. In the equalization program there are some major changes being proposed here, and the implications are very far-reaching. As we've just heard, they cover a five-year period at any given time. There could be some major adjustments required from time to time, and I would think it would be important for the committee to hear if indeed the provinces do agree or don't agree, or if they would like to make some changes or some recommendations.

    Now, I agree that the government is ultimately going to make a decision one way or the other, but because this is such a significant issue for every province in Canada, I think it really would be appropriate for us to hear from the provinces directly, as witnesses to the committee, that indeed they can see that this thing really works.

    And that's one thing, the provinces, but there are also other groups that are very concerned with this. Businesses, some very large and some smaller, are directly affected by these equalization payments as well.

    So I'm wondering, Mr. Chairman, whether you would consider, when you review the future activities of the committee, if it would be appropriate for us to have those people or their representatives from provinces or industries appear before the committee. I would certainly recommend very strongly that you consider that.

    The Vice-Chair (Mr. Nick Discepola): Thank you.

    Mr. Werner Schmidt: Am I done, or can I have another question?

    The Vice-Chair (Mr. Nick Discepola): You're 1.00% over your time.

    Mr. Werner Schmidt: I am. Well, then, Mr. Chairman, thank you very much. I will wait for the second round.

    The Vice-Chair (Mr. Nick Discepola): Yes, we'll come back to you in the second round.

[Translation]

    Mr. Paquette, please. You have 10 minutes.

    Mr. Pierre Paquette (Joliette, BQ): I'd like to thank you once again for being here today. My initial question will be along the same lines as those asked by my colleague from the Conservative Party. Clearly, everything having to do with the equalization program is extremely disappointing at the moment. There was legislation that extended the current formula for one year, but a few weeks later, there is a unilateral announcement by the federal government—which has the legal right to do so—imposing an equalization formula that does not have Quebec's approval at all. As far as I know—you could tell me whether this is correct, this is the first time that we have seen such a thing.

    In recent months, we were expecting the federal government to negotiate more seriously with the provinces to reach an agreement before the expiry of the current formula on March 31. First, I would like some explanations as to why we had to pass a bill to extend the current formula by one year, when the passing of the budget will make this legislation obsolete.

    What happened between the passing of Bill C-18, if I recall correctly, and the presentation of the budget on March 24? We are not talking about a few months, but rather a few weeks. What possible explanation can there be for imposing a new equalization formula that does not settle the problems, at least not in the opinion of the Quebec government? Mr. Séguin has been very clear on this.

¿  (0950)  

[English]

    Hon. John McKay: As you well know, Mr. Paquette, the program was expected to expire on March 31. If that legislation was not in place for whatever reason, then the Government of Canada had no authority to pay out on equalization payments. So that's the basic reason for that.

    As for the negotiations, these negotiations are virtually continuous. My recollection was that there was something in the order of about 45 meetings over the course of five years, which works out to almost once a month.

    So every month various concerns are raised by various provinces. This is a continuous file for the Government of Canada. What you see now is a proposal in the budget to extend for a further five years, having reflected some of those negotiations in a manner that is consistent with the fiscal framework of the Government of Canada.

[Translation]

    Mr. Pierre Paquette: I am well aware that something had to be done by March 31, because the negotiations had not produced any results or had not been conducted seriously enough. The fact remains that we knew the budget would be brought down before March 31. So why did you force us to pass a bill extending the equalization formula for one year?

    At the time, we might have thought that the reason was that negotiations with the federal government would continue and that at some point, during the year ahead, once the provinces and the federal government had reached a new agreement, we would have been asked to pass a new equalization bill.

    That is what I cannot understand. How do you account for the fact that between the time we were forced to pass Bill C-18 and the budget day, March 23—that is before the March 31 deadline—the government was able to impose an equalization formula?

[English]

    Hon. John McKay: Discussions, as I said, are ongoing on an almost continuous basis. I can't imagine any government of any political stripe that would take the risk of not having authority to pay out the provinces.

    I suppose we could have said we'll just put the fruits of those discussions in the budget on March 24 and hope like heck that we have the budget passed by March 31 so that we can continue to make payments, but that doesn't seem to make a lot of sense to me. So I think the government took the prudent course, and made sure that legislation was in place, so that the cheques and the payments could continue.

[Translation]

    Mr. Pierre Paquette: Yes, but I'm having trouble understanding why, one or two months ago, you could not say that an equalization formula would be presented in the budget.

    You say that there is an on-going negotiation process. If, in the meantime, there is an agreement with the federal government to improve the equalization formula, could the new proposed formula be implemented, or will we have to wait another five years before it can be adopted?

[English]

    Hon. John McKay: Who knows what the situation is going to be five years hence. There may well be concerns raised by your province, by Mr. Schmidt's province, or any other province, which create egregious situations. So naturally, when you're having those discussions—and they are discussions, not negotiations—the government tries to reflect all of them in those matters.

    One of the anomalies that came up over the course of the last few months, but not quite the last minute, was the situation in Saskatchewan.

    So I think continuous negotiations are in fact the way you go.

¿  (0955)  

[Translation]

    Mr. Pierre Paquette: This reminds me somewhat of the situation with employment insurance. In his only budget, Mr. Manley guaranteed that the formula for determining the contribution rate would be included in this year's budget. Now, once again, we are told that the government will be deciding on the contribution rate unilaterally.

    What guarantee do we have that the government is honest when it says it wants to put in place a transparent procedure for determining the contribution rate, rather than proceeding on the basis of a unilateral decision by the government, as is the case at the moment? The fact is that the federal government has not invested a cent in the EI fund since the end of the 1980s or the beginning of the 1990s. Rather it has used the surplus to pay down its debt.

    Can the parliamentary secretary assure us that the government is serious when it says it wants to have a transparent procedure for determining the employment insurance contribution rate?

[English]

    Hon. John McKay: I suppose the proof is in the pudding. But ultimately, in setting the rate at $1.98 per thousand, the government is in a stasis position, so that as much as is going out of the plan actuarially is also going into the plan. So we've already hit that break-even point. That's the good faith on the part of the government.

    As to whatever arrangements might be made in the near to short-term future, I think people need to wait on that. I don't think that conclusion has been made at this point.

[Translation]

    Mr. Pierre Paquette: Does the parliamentary secretary not think that those who contribute to the EI fund should at least be consulted, as was the case formerly, when the commission made a recommendation to the Minister of Finance?

[English]

    Hon. John McKay: In fact, I think that they are consulted with. Again, this is one of those matters of ongoing consultations. As I said, at $1.98, this is a stasis position. With great respect, it is a position that's been worked out as we've worked down the number from $3.40 down to $1.98. So is that not good faith?

[Translation]

    Mr. Pierre Paquette: But the fund always continued to have a surplus, despite the reductions in the contribution rate, which were inadequate. It might also have been possible to improve the EI program.

    I can tell you that in Quebec, no one was consulted about the contribution rate, not the CSN... When I was the Secretary General, we met with the commissioners and discussed this with them. The Conseil du patronat, the Alliance des manufacturiers et exportateurs du Québec, the Canadian Federation of Independent Businesses— everyone unanimously denounces the current contribution rate and the fact that it is set unilaterally by the government.

    Mr. Manley made a commitment, and you have not lived up to it. I hope this will be corrected by the next government.

    If I may, Mr. Chairman, I would like to ask two questions. They are not directly related this matter, but are related to the budget.

    May I ask them?

    The Vice-Chair (Mr. Nick Discepola): Ask them and I will see.

    Mr. Pierre Paquette: I will ask them and you can decide.

    At some point, I would have liked us to discuss the sale of Petro-Canada shares. I would like to know what the strategy is in this regard, whether the sale will be done through a broker, and, if so, how the broker will be chosen. Perhaps we should have considered—and this may have been the case—selling the shares directly at a rate negotiated between the government and Petro-Canada. If you allow it, that will be my first question.

    My second question is very specific and has to do with the income tax credit for workers' fund. A number of taxpayers were not eligible for this income tax credit, at least in Quebec, and perhaps in all the provinces. The government decided, and I do not challenge its decision, to change the eligibility for this income tax credit in light of the measures in place in Quebec.

    The problem is that the federal government made this retroactive to 2003. As a result, in 2003 and at the beginning of 2004, some people contributed in good faith, in accordance with the current Income Tax Act, but now the government is imposing this new provision retroactively. I am all for harmonization, but I think that once legislation is passed the provision should come into effect beginning the next calendar year.

    Those are my two questions. I do not know whether you will allow them.

    The Vice-Chair (Mr. Nick Discepola): I gave you 28 seconds.

    Mr. Pierre Paquette: They could always reply in writing.

[English]

    The Vice-Chair (Mr. Nick Discepola): Mr. McKay.

    Hon. John McKay: Thank you.

    I'm not going to make him very happy on the first question. Needless to say, the budget did announce that the Government of Canada intended to sell Petro-Canada shares. The process of how that is going to take place is a matter of active discussion; however, I'm not at liberty to disclose that, in part because I think that all of that matter may have market sensitivities, making it inappropriate for me to discuss it. I'm afraid that's about as far as I can go in terms of answering that question.

    As to the second question, with respect to a tax credit work fund, I'm not prepared to answer that question.

    Is anyone here able to address Mr. Paquette's issue?

À  (1000)  

[Translation]

    Mr. Pierre Paquette: [Inaudible--Editor]... have written to the Minister of Finance on this. I'm referring to a CSN Quebec workers fund. I would suggest that the Minister of Finance look into this situation. Perhaps he could take some steps that would be fairer than those set out in the budget.

[English]

    Hon. John McKay: Is anybody prepared to respond to Mr. Paquette's question on that? No? Then I'll undertake to try to get a response.

    The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. McKay.

    Madame Minna, please, for ten minutes.

    Hon. Maria Minna (Beaches—East York, Lib.): Merci.

    I would like to go to the equalization payment transfers. Regarding the equalization formula that is being used, would the proposed three-year moving average alter the level of total equalization entitlements, or would it simply affect the distribution of payments over time? What is the impact of the shift?

    Hon. John McKay: I'm not sure that I follow your question. Could you just go back to your question?

    Hon. Maria Minna: Regarding the equalization payment formula, would the proposed three-year moving average alter the level of total equalization entitlements, or would it simply affect the distribution of payments over time?

    Hon. John McKay: I think the point of that three-year moving average is to smooth out the bumps, because if the minister heard one thing consistently from all the finance ministers, it was that their ability to plan for their budgets was impacted by the ups and downs of equalization. By putting this three-year moving average in—a third, two-thirds, and, finally, three-thirds—you are effectively creating a much more steady expectation.

    In terms of the ultimate quantum, I don't think it affects the ultimate quantum over a five-year period. I don't see that.

    Mr. François Delorme: As Mr. McKay rightly pointed out, the moving average is going to smooth out the peaks and the troughs that we have. On top of that, to make sure that the payments wouldn't be lower, or would be at the same level that they would have been, we introduced an adjustment factor of 10%, so that the level of the payments wouldn't be affected or lowered by the operation of the moving average.

    Hon. Maria Minna: So nobody will be suffering from it, more or less—

    Hon. John McKay: No, effectively, the smoothing average does nothing in terms of upping or downing your quantum, but the secondary part will in fact give you a bit of a floor.

    Mr. François Delorme: The payments would normally have been at this level. With the moving average, the levels are going to be lower, but in order to compensate for the lower number, a factor of just 8.5% would not have been warranted, so we put in an adjustment factor of 10% to be more generous, because of the operation of the moving average.

    Hon. Maria Minna: I see.

    What is the purpose of the additional fiscal equalization payment as defined in proposed section 4.3? How did they arrive at that particular number?

    Hon. John McKay: The additional $150 million?

    Mr. François Delorme: The way the renewal is being structured, it has a lot of major changes with respect to the property tax, which is the second most important base of the equalization program, and the moving average. Those are two major changes. And given that we wanted to introduce those changes as gradually as possible, a lot of the changes will take place at the end, or be fully implemented in the second half of the equalization renewal. In order to offset the fact that the money wouldn't be injected in the first two years, we put $150 million in the first year and an additional $25 million in the second year of the renewal.

    Hon. Maria Minna: Okay.

    Going to part 3 of Bill C-30, the finance minister is making a maximum payment of $400 million into “a trust established to provide the provinces with funding for the purpose of supporting a national immunization strategy...”. What types of conditions are we putting on the trust? As you know, I am always concerned about who runs the trust and exactly what kind of operation it will be, and what parameters it is being given.

À  (1005)  

    Hon. John McKay: I think that's probably a question best directed to the Minister of Health.

    Hon. Maria Minna: But he's not here.

    Hon. John McKay: I know, but I think all the finance minister does is to set aside the money, allowing the health minister to set the conditions and terms.

    Hon. Maria Minna: Could the parliamentary secretary maybe undertake to find out from the minister, since we don't have the Minister of Health coming to this committee?

    Hon. John McKay: I'd be happy if the Minister of Health came here and told you about the state of his discussions and negotiations, because if I responded, it would be just pure speculation on my part.

    Mr. Glenn Campbell (Chief, CHST and Policy Development, Federal-Provincial Relations Division, Federal-Provincial Relations and Social Policy Branch, Department of Finance): I can respond to that.

    Hon. John McKay: Great. That's terrific. I didn't realize that we could.

    Mr. Glenn Campbell: With respect to the $400 million provided to provinces and territories for public health and immunization, $300 million of that is for progress on immunization, particularly for child vaccines, and $100 million is to enhance public health capacities. Both of those are responses to provincial requests, following the Naylor report on the impact of SARS.

    With respect to the conditions that may or may not be attached to the trust, the trust is effectively a transfer payment from the Minister of Finance to a trustee for the benefit of provinces and territories. This is the sixth or seventh time that the Government of Canada has used this vehicle, which provides flexibility to the provinces and territories to draw down funding over a period of several years in keeping with their priorities.

    As part of the commitment, provinces have agreed to report annually to their own publics with respect to how that funding is being spent. For example, they've agreed to report publicly on the immunization programs and how the funding is being provided.

    As well, the provinces asked for $100 million to improve their public health capacities, the front-line hospital response to infectious disease control, which they've also agreed to report on publicly.

    So once the $400 million is put into a trust, there will be no conditions per se, as the money will have been transferred to the provinces. But under the social union framework agreement, provinces have agreed to report publicly on how they've spent that money.

    Hon. Maria Minna: I see.

    So the trust really is not being overlooked by anyone; the provinces can draw from it at any time they see fit.

    Mr. Glenn Campbell: The Government of Canada administers the trust with respect to a private sector trustee—effectively a bank. And the funds go from the Government of Canada to the trustee. Once it's in the trustee's hands, it's effectively the ownership of provinces and territories to draw down as they require.

    Hon. Maria Minna: I have two other questions, then.

    Since this has to do with public health, we've gone through a whole lot of problems in this country recently, and we've just established a public health department in the government. How does this particular piece fit in with the new department? Why wouldn't we have some reporting mechanism--in addition to the public, the respective provinces--to the newly established health council, to make the square a circle, or square the circle?

    Mr. Glenn Campbell: If I understand the question correctly, I think this is an issue that is more the purview of the Minister of Health. Clearly, in the establishment of the new public health agency and the selection of the head of that agency, they will look at all of the federal government's activities in response of effective disease control.

    This $100 million and $300 million were the result of a request. Although they are part of the overall federal government's response to SARS, they are transfers to the provinces. So they are really very separate. Once the funds flow, the provinces will deliver them and use this money. There is flexibility to meet the various provinces' priorities.

    Hon. Maria Minna: I understand what you're saying. I guess my concern is I don't like silos. I think silos are what caused us problems in the past. We have new entities and new players in the game.

    Maybe, Mr. Chairman, at some point--I don't know whether we have the prerogative--we can have officials from Health and Public Health come here together, since we have two departments.

    While I understand your function at Finance has to do with the dollars, there's accountability. Another committee is looking at the other piece of it, and maybe because we're looking at the money they may not be looking at the other piece.

    I guess I'm saying that I'm always concerned about stuff falling through the cracks, and how we're going to finish this loop and make sure the dots are all done.

À  (1010)  

    Mr. Glenn Campbell: Just as a supplemental, a lot of coordination activities are going on right now with the Department of Health, in concert with the Department of Finance. They're meeting with their provincial-territorial counterparts, and this really does factor into the overall approach of all governments in responding to future outbreaks such as SARS.

    The Vice-Chair (Mr. Nick Discepola): Thank you.

    We already have a suggestion from the opposition, plus yours. We're meeting at 11 o'clock with the steering committee. If the committee wishes, we can discuss those things in the upcoming work.

    Mr. Pacetti, please.

    Mr. Massimo Pacetti (Saint-Léonard—Saint-Michel, Lib.): Thank you, Mr. Chair.

    Just continuing with what Ms. Minna said, is the $400 million plus the $100 million part of the moneys we give to health? We hear in the media that it's 14%, 30%. Are these amounts part of the moneys that are transferred to the provinces, or are they aside...?

    Hon. John McKay: Do you mean the Romanow numbers--the 14% versus 25%, and all that sort of stuff?

    Mr. Massimo Pacetti: Yes.

    Hon. John McKay: I assume that in terms of accounting, these moneys will be included in the government transfers for health issues.

    But on the specific question before, it's $300 million and $100 million, isn't it?

    Mr. Glenn Campbell: Actually, for public health and immunization it's $400 million, of which there are two parts, with $300 million for immunization, and $100 million for public health. Then there is an additional $100 million, as per the budget legislation, for Canada Health Infoway, which is a corporation set up on behalf of both the provinces and the territories to provide $100 million in public health surveillance systems. This is the technology corporation that will help all governments improve their public health surveillance. In total, there's $500 million related to public health in the budget bill.

    Mr. Massimo Pacetti: On these amounts that are being paid to outside entities per se, I think you answered a question regarding health--those will go to trusts. We're back to the $200 million that's paid to a foundation. Will any of these payments be subject to the Auditor General...specifically the $200 million that's being paid to the Canada Foundation for Sustainable Development Technology?

    Hon. John McKay: On the moneys that are going to foundations, I think there has been some discussion with the Auditor General as to her purview in that area. I think we work on the presumption that she has a great deal of latitude and ability to penetrate those foundations for accountability.

    Mr. Massimo Pacetti: But I understand that if they're paid to foundations that are arm's length, the Auditor General can't touch them.

    Hon. John McKay: As I understand it, that's quite an active discussion between the Department of Finance and the Auditor General.

    Is that a fair statement?

    Mr. Massimo Pacetti: But is it not up to the Department of Finance to dictate whether it wants it to be a foundation and at arm's length? It's not up to the Auditor General. If the Department of Finance designates it to be an arm's-length foundation, then it's not going to be....

    Hon. John McKay: These are payments to foundations. The idea is to depoliticize some of the granting process, so you get a peer group in there that reviews the granting process. In so doing, you get a certain arm's-length aspect to that.

    Mr. Massimo Pacetti: Is sustainable development going to be tied to the money we're going to receive from the Petro-Canada sale?

    Hon. John McKay: There is some notional discussion about taking $1 billion out of the sale and putting it into sustainable development, fuel technologies, and things of that nature. I think that's a statement of intention, rather than anything beyond that.

    Mr. Massimo Pacetti: It's not specifically linked, is it? It's not conditional on....

    Hon. John McKay: Am I stating it correctly?

    A voice: You're stating it correctly.

    Mr. Massimo Pacetti: It's not contingent on selling it.

    Hon. John McKay: No.

    Mr. Massimo Pacetti: What will the basic parameters be? Will the foundation be for investment purposes, or will it be to dish out grants and subventions?

    Hon. John McKay: Again, this is at a fairly preliminary stage. Let's put it this way: there are a lot of ideas going around, not the least of which is how it might mix into the auto industry in southern Ontario--it's a pretty darned important industry, as 5% of our gross domestic product flows through southern Ontario's auto industry--and how those moneys might be used to enhance that kind of development.

À  (1015)  

    Mr. Massimo Pacetti: Is it still open to discussion?

    Hon. John McKay: That's the way I understand it.

    Mr. Massimo Pacetti: Okay. Will the Department of Finance determine that?

    Hon. John McKay: No. I think at some point or another this will become more of a public discussion.

    Mr. Massimo Pacetti: I have one question on the municipality issue. We increased the GST rebate from 57.14% to 100% refund. Are there any conditions tied to that? That's the first question. I don't think there are, but how do we make sure they don't come back and ask us for money they already have?

    Hon. John McKay: You've hit the home-run question.

    I think the Prime Minister has rightly characterized it as a down payment on our relationship with cities. I don't know if we've actually attached conditions to these payments. I think there's some discussion that they should be addressing particular infrastructure needs, such as housing, transit, or things of that nature. They shouldn't be going to things like the police budget, and various other things that are ongoing responsibilities of municipalities. They shouldn't be used to just pass on tax reductions to municipal constituents.

    Mr. Massimo Pacetti: Is there a possibility of attaching any conditions to that?

    Hon. John McKay: I suppose there's always a possibility, but the better way of phrasing it is that this will be part of a larger relationship with the municipalities. We'll probably enhance some of the infrastructure vehicles so we target needs that the municipalities identify and enhance their financing ability through tax relief, such as the GST, direct grants, some form of municipal bonds, and those sorts of things.

    Mr. Massimo Pacetti: My only problem with that is we're giving money or allocating money, and there's no accountability at the end. They're able to do whatever they wish with it.

    Hon. John McKay: On a short-term basis, I think that's an issue of concern.

    Mr. Massimo Pacetti: They are going to ask for more money later and we're going to talk about the excise tax. Will we be able to give the municipalities the excise tax without going through the provinces, or will we have to do it through the provinces?

    Hon. John McKay: You mean the fuel tax? Again, those are discussions. How that will ultimately play out is simply too difficult to predict at this stage.

    The Vice-Chair (Mr. Nick Discepola): My understanding, Mr. McKay, is that there are no conditions attached. If so and the government wanted the municipalities to spend the money in particular infrastructure areas, why didn't they just take the $700 million and top up the infrastructure fund instead?

    Hon. John McKay: It's a thought. I don't really have a good answer to that question.

    The Vice-Chair (Mr. Nick Discepola): What about the $700 million? That seems to me a huge commitment, and it's a ten-year commitment.

    Hon. John McKay: It's $7 billion over 10 years.

    The Vice-Chair (Mr. Nick Discepola): Can we afford it through general revenues, increased revenues? Are we going to look at areas of cutting? Has that been thought out?

    Hon. John McKay: There's a general program that the Government of Canada has introduced mandating all the ministers to come up with at least $1 billion out of current programming, and that'll be an ongoing exercise. Canadians need to look at the appointments the Prime Minister has made in that area. Mr. Alcock at Treasury Board is leading that charge, and all the ministers and deputy ministers I talk to are very serious about finding savings within their current program spending. So I think the overall review of program spending is going to be a very serious undertaking going forward.

À  (1020)  

    The Vice-Chair (Mr. Nick Discepola): Thank you.

    We'll go with five minutes at the most.

    Mr. Werner Schmidt: Is that a threat?

    The Vice-Chair (Mr. Nick Discepola): No, it's just that I know it exceeds that all the time. We want to get out of here by about 10:45.

    Mr. Werner Schmidt: Okay, thank you, Mr. Chairman.

    I'd like to pursue further the GST question, in particular moving from 57.1%, as I believe it is, to 100%. There seems to be at least an understanding that there will be, or perhaps is in process now, a whole new regime of regulations for municipalities to meet in order to qualify for the rebate. I'm wondering, Mr. Chairman, whether I could ask the parliamentary secretary or one of his officials what the difference is between qualifying for 57.14% of the GST rebate and qualifying for 100% rebate? Why would you change the rules between getting a rebate for 57.1% and 100%?

    Hon. John McKay: Currently there is no difference. If you're qualified for 57%, you're qualified for 100%. The question was, should there be? From a federal government standpoint, the asking never ends. The question on the part of the federal government is, what are you going to do with this money? Are you just going to use it to reduce your own tax base?

    The Vice-Chair (Mr. Nick Discepola): There was no rationale as to why if you had six doughnuts sold separately, they wouldn't qualify for GST, whereas if they were sold in a dozen, they did, etc. It's your party that implemented that system, I think.

    Mr. Werner Schmidt: The question really has to do with the complication of the rules, because there seems to be some difficulty here. Maybe the answer is, as the parliamentary secretary has indicated, that there is no change at the present time. Why does it seem there may be? To perhaps give more substance to this, when it comes to the sale of certain assets of municipalities and the transfer of money to another agency, there are changes in the proposals before us right now. Maybe they don't apply exactly to the rebate itself, but they do apply to certain other parts.

    Hon. John McKay: I'm not sure I followed the second part of your question. As far as I know, the rules on the rebate haven't changed, unless there's a philosophical or relational reason that may be advanced in the future on our overall relationship with municipalities. Right now we don't have, if you will, a formalized relationship. I'm not quite sure how that connects to the second part of your question.

    Mr. Werner Schmidt: Let met try to make that connection. There are certain assets municipalities have that they can sell to other agencies; they are now taxed and weren't before. That's really the issue.

    Hon. John McKay: Ms. Malone was indicating that there are some consequential rule changes.

    Mrs. Patricia Malone (Chief, Sales Tax Division, Public Sector Bodies, Tax Policy Branch, Department of Finance): The eligibility rules have not changed, so municipalities that are currently eligible for the 57% rebate will be eligible for the 100% rebate. But in order to ensure that the rebate applies appropriately to municipalities and is not passed on to other entities, certain changes are introduced, consequential amendments to the rebate increase.

    There are basically two main series of changes. One is to ensure that the rebate applies to acquisitions by municipalities and the benefit of the rebate is not passed on to other entities. That is where certain supplies of municipalities are going to be made taxable. These are not the supplies of municipal services or the supplies of infrastructure, they're more one-off supplies, where a municipality might sell some real estate or something like that. It wouldn't apply to sales or leases of residential property.

    The second set of changes is to modify the calculation of what's called the basic tax content. That is intended to ensure that the rebate applies on a going-forward basis as of February 1 and that municipalities cannot, through various mechanisms that exist under the act, recover tax that was embedded in assets prior to February 1.

    The third amendment is to ensure transparency by giving the Minister of National Revenue the authority to release information on the incremental amount of the rebate, so that people are aware how much individual municipalities are receiving.

À  (1025)  

    Mr. Werner Schmidt: That's good.

    I have another question, in a totally different area, which has to do with the the Canada Foundation for Sustainable Development Technology and the application of funds. I really liked the answer before, that the provinces have agreed that under the health trust fund, they will report to the respective publics. The question now is, will the same kind of thing apply to the foundation for technology development, and what happens to funds that aren't expended? Could you explain that?

    Hon. John McKay: So the question has to do with the funds that aren't passed out before the end of the fiscal year.

    Mr. Werner Schmidt: Yes, that's one part. The first part is the actual projects that are approved and on which money is spent.

    Hon. John McKay: On that part of the question, I think the answer is that the board determines the payouts. I don't think it's provinces. Am I correct on that point?

    Mr. Peter DeVries (Director, Assistant Deputy Minister's Office, Economic and Fiscal Policy Branch, Department of Finance): There is a funding agreement that will be negotiated between the foundation and the government between now and the end of this fiscal year. They will not get the money until that funding agreement has been signed. Then they'll disburse the funds according to that funding agreement, and that'll be done through peer review, as is the case with other types of foundations. Then they'll be required to prepare annual reports, which will be tabled in Parliament and subject to review by parliamentarians.

    Mr. Werner Schmidt: Thank you.

    What about the other part of the question?

    Mr. Peter DeVries: The residual funds issue would only come into play if the foundation were to be dissolved or wound up. In a case like that, the funds can returned to the government.

    Mr. Werner Schmidt: So these moneys exist in the trust, period, they are not subject to the annual budget approvals?

    Mr. Peter DeVries: They are subject to the annual budget approvals when they are transferred to the funds. So through this legislation, Parliament will be approving a transfer of $200 million to the foundation.

    Hon. John McKay: But your question, Werner, had to do with residual funds left over on an annual basis.

    Mr. Peter DeVries: On an annual basis, the foundation can carry the funds over from one year to the next, because it is not a time-set payment. However, if the foundation were to be dissolved at some point, the amount of the residual funds that relates to the contribution made by the federal government can come back to the federal government.

    Mr. Werner Schmidt: All right.

    A total now of $550 million has been put into this fund. How much of that has been expended?

    Mr. Peter DeVries: I don't have the actual amount. Of course, the foundation has a fairly lengthy period of time over which to disburse those funds, and before it will disburse those funds, certain conditions will have to be met by the recipients of those funds. So there is that check and balance to ensure that the funds do go where they were intended to go.

    Mr. Werner Schmidt: The government has added $200 million this year.

    Mr. Peter DeVries: It is proposing to add, yes.

    Mr. Werner Schmidt: It has to be passed first. I quite agree.

    What is the rationale for increasing it by $200 million from the $350 million?

    Mr. Peter DeVries: As it states in the budget and the budget bill, there are new types of arrangements the government wants this foundation to enter into, and those are in the areas of water, clean air, things of that nature, as well as new types of technologies. So it was felt that an additional $200 million at this time would be sufficient to advance those interests.

À  (1030)  

    Mr. Werner Schmidt: And the $350 million has all been spent?

    Mr. Peter DeVries: I don't think it's all been committed yet, but a fair amount of it has. I don't have the details of that, I'm sorry.

    The Vice-Chair (Mr. Nick Discepola): There you go, Werner, that's 10 minutes right on.

    Mr. Werner Schmidt: Gee, thank you so much, Mr. Chair.

    Hon. John McKay: Mr. Chair, that information on the expenditure would be available in the annual report of the foundation, I should think.

    Mr. Werner Schmidt: Yes, but money has been spent since then.

    Hon. John McKay: You'd have to wait until the fiscal year ends.

[Translation]

    The Vice-Chair (Mr. Nick Discepola): Mr. Paquette, please.

    Mr. Pierre Paquette: Thank you, Mr. Chairman.

    Mr. Chairman, I have my daughter with me today, who is a commissioner on the Montreal School Board. She asked the following question, which I will ask of the Parliamentary Secretary.

    Given that you have taken into account the fact that municipalities were experiencing financial difficulties and that you have increased their repayment from 57.14 per cent to 100 per cent, why did you not do so for school boards, colleges and universities?

[English]

    Hon. John McKay: You could see that question coming a mile away.

[Translation]

    Mr. Pierre Paquette: She is listening.

[English]

    Hon. John McKay: As I indicated, there is a never-ending series of requirements of the federal government. You could work your way all the way through the mush factor, the municipalities, the universities, the hospitals, and things of that nature. The current approach of the Government of Canada is to restrict the GST rebate to municipalities. With respect to universities, our granting councils have dispersed something like $6.8 billion over the last number of years, and any time I talk to a university president, including McGill, Corcordia.... Where is she going to school?

    Mr. Pierre Paquette: Right now she's at the college. University is next year.

    Hon. John McKay: I haven't talked to any CÉGEP people, but whenever I talk to university presidents, they are extraordinarily pleased with the relationship the Government of Canada now has with post-secondary institutions. The president of the University of Toronto said to me one day, you put us back in the game. There are a lot of really good things that the Government of Canada has decided to do in responding to the needs of not only the post-secondary institutions, but the post-secondary students.

[Translation]

    Mr. Pierre Paquette: That is not a very convincing answer. I will move on to another subject, if I have some time left, Mr. Chairman.

[English]

    Hon. John McKay: I'll talk to her later.

[Translation]

    Mr. Pierre Paquette: You can try to convince her. I think you will have a very hard time.

    With respect to the budget implementation bill, there is a reference to the $150 million that will be transferred under the Canada Social Transfer for Child Care Services. This question has already been raised by the Quebec government and representatives of the Quebec Child Care Services Network.

    As you know, we have a not-for-profit childcare network, in which users pay $7 a day, and the Quebec government pays the rest—that is the entire community of Quebec taxpayers. When Quebec parents complete their income tax return, they can only deduct the equivalent of $7 a day. The federal government saves money in this way—approximately $200 million in tax refunds. For a long time now, the Quebec government and all the stakeholders have been asking the federal government to transfer these savings to the Quebec government so that it can improve its network of early childhood centres, because at the moment it is the entire community, all taxpayers who are paying this $200 million shortfall.

    Is the federal government thinking about a way of correcting this injustice?

[English]

    Hon. John McKay: I can't answer that question. Louis?

[Translation]

    Mr. Louis Lévesque (Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance): My name is Louis Lévesque and I am assistant-deputy minister at the Department of Finance. I can provide some clarification on this matter.

    In the context of increased transfers under the National Child Benefit System and the agreements on early childhood, the Government of Canada has provided significant assistance to all the provinces for the implementation of measures on family policy. This enabled Quebec to reduce its welfare benefits and to put money into developing its childcare services network. The same goes for transfers for early childhood programs, learning and additional childcare services that were announced in the budget.

    The point raised by Mr. Paquette is based on the fact that the deductions for childcare by taxpayers reflect the actual amounts paid. Under the government policy, throughout Canada, the amounts claimed by parents are the actual amounts they paid. The fact that a lower amount is claimed by parents reflects the fact that the actual amounts they pay are lower. However, the federal childcare deduction continues to compensate parents on the basis of the actual amounts paid in each case.

    The fact remains that overall, increased transfers and child benefits have helped the Quebec government substantially in the implementation of its childcare policy.

À  (1035)  

    Mr. Pierre Paquette: From what I understand, you have no intention whatsoever of responding favourably to the Quebec government's claims regarding the fact that the real cost of childcare is $20 to $25 a day, even though parents pay only $7, and the fact that this has an impact on the child benefits. Since Quebeckers pay less for their childcare services, parents have higher net incomes, and that too has an impact on GST refunds.

    Personally, I think you will be hearing a great deal about this matter during the upcoming election campaign, and I hope you start thinking about a possible solution to the problem.

    The Vice-Chair (Mr. Nick Discepola): That may be the case for us, but not for Mr. Lévesque, because he...

    Mr. Pierre Paquette: He's going to hear about it, because despite the fact that he's a deputy minister, he's also a citizen like any other. Thank you.

    The Vice-Chair (Mr. Nick Discepola): Before you answer, I'm going to ask you the same type of question. Following Mr. Paquette's logic, wouldn't the province of Quebec have to be compensated for having seen fit to charge students tuition fees at about half of the Canadian average?

    So since students pay only about $2,000, while students in other provinces pay $4,000, perhaps the province of Quebec should be compensated for this shortfall in the field of education.

    Mr. Pierre Paquette: That's an excellent idea, Mr. Chairman.

    The Vice-Chair (Mr. Nick Discepola): I could give you other examples, but where do you draw the line?

    Mr. Pierre Paquette: When you get right down to it, the system penalizes provinces that take social initiatives.

    The Vice-Chair (Mr. Nick Discepola): It's not a penalty, it's a choice that provinces freely make.

    Mr. Lévesque.

    Mr. Louis Lévesque: I'd like to add that the provincial and federal governments are supposed to take their initiatives with a view to achieving results. The purpose of setting up day care programs is to improve access to day care. There are often secondary effects associated with aspects of other programs, in terms of taxation or eligibility, for example. These effects go in all kinds of directions.

    I'm going to give you an example that will help you to understand why it's hard to establish a policy whereby compensation must be paid whenever there's a secondary effect. At the end of the 1990s, the government of Quebec was concerned that the labour market wasn't operating satisfactorily. So it adopted a policy to make things easier for people aged 50, 55 or 60, who wanted to retire and had modest retirement funds, but couldn't retire because of the Supplemental Pension Plans Act. In general, the product of a pension plan cannot be cashed out all at once; the annuity must be spread out over a number of years.

    Ultimately, the government of Quebec decided to facilitate early retirement in order to give young people better access to the labour market. When it amended the Quebec Supplemental Pension Plans Act, the government wanted to enable people to cash out retirement funds faster, between ages 55 and 65, despite the fact that these people would no longer receive pension benefits after age 65.

    One of the factors that this Quebec policy explicitly relied on was that after age 65, part of the impact on retirement pension income was to be offset by federal Old Age Security benefits under the Guaranteed Income Supplement Program, which would basically increase because these people would no longer have any retirement income after age 65.

    Nobody questions the policy objective behind Quebec's decision: that's not the Government of Canada's role. The point of this is just to demonstrate that in terms of the consequences, it cuts both ways. If we were to establish a principle whereby there should be compensation whenever there's a secondary impact in one direction, it would be interesting to consider whether compensation would also have to flow in the other direction. That seems to be a rather difficult method to follow.

À  (1040)  

    The Vice-Chair (Mr. Nick Discepola): It was when the Government of Canada increased the national child benefit that Quebec reacted by cutting everything.

    Mr. Pierre Paquette: To recover it and set up the not-for-profit day care network.

    The Vice-Chair (Mr. Nick Discepola): See the kind of debate that you've started.

    Mr. Pierre Paquette: The network is a model throughout all of North America, Mr. Chairman. You're going to have some explaining to do.

    The Vice-Chair (Mr. Nick Discepola): No problem.

[English]

    Hon. John McKay: Thank you for the sidebar discussion of Quebec politics. Only Mr. Lévesque could take a discussion about child care and move it into senior citizens.

    The Vice-Chair (Mr. Nick Discepola): Are there any other questions? No?

    All right, then I'd like to thank the witnesses.

    Mr. Werner Schmidt: Can we go for another round?

    The Vice-Chair (Mr. Nick Discepola): Yes. How many more minutes do you want?

    Mr. Werner Schmidt: It's not a question of how many more minutes; it's about answers and things of that sort. It's not a matter of time, as far as I'm concerned.

    Going back to the EI surplus, I think what I'd really like to know relates to the change in 1986. The Auditor General at that time asked that the EI premiums become part of the consolidated position with the Government of Canada. I'd like to ask you if you could review for me the rationale as to why it was made part of the consolidated revenue fund. Why was it not kept separate?

    Hon. John McKay: That was before my time, Mr. Schmidt.

    Mr. DeVries probably has a....

    Mr. Peter DeVries: Under generally accepted accounting principles, those types of programs over which the government has control should then be reflected in the government's financial statements. The employment insurance program, as well as a number of other programs, such as the western grain stabilization account and ones of that nature--which had been funded by premiums or which are funded by premiums but over which the government still has ultimate control through legislation in deciding what the level of premiums should be or the parameters of the program are, its benefits--it was argued that those types of programs are no different from any other type of program the government delivers. As such, it was argued that they should be consolidated with the government's overall revenues and expenditures.

    That was a long-outstanding beef that the Auditor General had with the government, going back many years prior to 1986. In fact, the Auditor General did issue reservations on the government's financial statements because those types of programs were not consolidated in those statements. So in 1986 the government decided it would accept the recommendations of the Auditor General and of the Public Sector Accounting Board and include those types of programs as part of its overall revenues and expenditures.

    Mr. Werner Schmidt: Okay. Well, as you know, Mr. Chairman, there's a continuing debate about the EI surplus. The point has been made over and over again that the EI fund is not a cash fund. It's not there, and I understand that. I think the parliamentary secretary indicated that $1.98 creates a stasis position in this particular fund at this time.

    So on the one hand, there's this debate in the public arena about the surplus in the EI fund, when in fact there is no cash there. So what is the problem here? You've maintained this stasis position but without any separate sort of accounting, and one begins to wonder sometimes what the relationship is then between the level of the premiums collected and the level of benefits paid out.

    Hon. John McKay: Well, the current situation is that the level of the benefits paid out is basically equivalent to the amount of the premium revenue.

    Mr. Werner Schmidt: Yes, that's what “stasis” means, of course.

    Hon. John McKay: That's what “stasis” means.

    Now, there have been high unemployment years, as you well know, in which there's been a deficit. So the Government of Canada ultimately ends up as the guarantor of the fund. If it's going to end up as the guarantor of the fund, you might as well put it in the consolidated revenue fund and be done with it.

    Mr. Werner Schmidt: Okay.

    The other question relating to that has to do with it being in balance. Clearly, one factor is the level of premiums and the level of benefits paid. That's one dimension. But the benefits that are actually paid can change independently from the premiums collected and can affect the stasis position very immediately. When that shifts, you have one side of the equation changing while the other one remains static. So how does that--

    Hon. John McKay: Well, the level of benefits has changed--probably the most obvious one is the maternity benefit that has been given in the last couple of years--and that puts a draw on the funds. I think there is sort of a broadly based acceptance that people taking time off to have children is a social good and ought to be encouraged. Probably the best funding for such a social good is out of an employment-related notional account. It gives the Government of Canada some flexibility to add on or not.

    One of the anomalies--and I know it's a matter of concern in our caucus--is that there's not similar support available for people who are self-employed. This brings up another whole set of issues. But by having it in the consolidated revenue fund, by being the ultimate guarantor, by being able to set the rate on an annualized basis, the government does end up with some social policy flexibility.

À  (1045)  

    Mr. Werner Schmidt: I have one final question on the change in the CPP disability qualifications and then I'm done. Has there been a cost-benefit analysis done to see how much this change will actually cost the Canadian treasury?

    Hon. John McKay: Is there a person here who can answer that?

    Ms. Susan Kalinowski (Senior Policy Analyst, Income Security, Federal-Provincial Relations and Social Policy Branch, Department of Finance): I am Susan Kalinowski from the Department of Finance.

    There was an actuarial report done by the chief actuary on the CPP changes. The chief actuary estimates that there will be a small savings to the plan resulting from the proposed changes to disability. He estimates a savings of about $6 million in 2004 and a small increase of about $1 million in contributions in the same year. That's because the measure is intended to facilitate the reintegration of disabled individuals into the labour market. They should be people who feel capable of returning to work and may be more apt to try to do so. Hence the chief actuary estimates that the payment of benefits for CPP disability could decline and contributions from those people would result.

    This actuarial report was tabled in Parliament. I could leave a copy with you.

    Mr. Werner Schmidt: Thank you very much.

    Thank you very much, Mr. Chairman.

    The Vice-Chair (Mr. Nick Discepola): Thank you to the witnesses.

    I would like to now ask for guidance from the committee. I am led to believe that all parties have had notice that we could go to clause-by-clause at this meeting. I understand from the opposition that they don't have any objections to doing so, with the exception of the Alliance--the Conservatives, sorry--

    Hon. John McKay: But not “Progressive”.

    The Vice-Chair (Mr. Nick Discepola): The unprogressive Conservatives. How's that?

    Notwithstanding that comment, which we are going to discuss at eleven o'clock, and notwithstanding Madam Minna's suggestion also, which I think can be taken up in future business, the chair doesn't see any reason why we can't go to clause-by-clause at this stage, and then study the other suggestions that have been made.

    Yes, Mr. McKay.

    Hon. John McKay: If we are going to clause-by-clause, there are some very minor changes that reconcile French translations, which we will introduce prior to consideration of the specific clauses, if I may.

    The Vice-Chair (Mr. Nick Discepola): All right, I'll ask for that at the appropriate clause.

    If there are no objections, we'll go to clause-by-clause.

    Mr. Werner Schmidt: We weren't asked before this....

    The Vice-Chair (Mr. Nick Discepola): I know, but the notices have gone out.

    Mr. Rahim Jaffer (Edmonton—Strathcona, CPC): They went out at six yesterday evening. We didn't even know. We were expecting to do clause-by-clause next week, Mr. Chairman.

    The Vice-Chair (Mr. Nick Discepola): No, the note was very specific that we could go to clause-by-clause at this meeting.

À  (1050)  

    Mr. Rahim Jaffer: Yes, it was a note and it was at six yesterday evening. Even our finance critic was not available to see it. We don't usually do that.

    The Vice-Chair (Mr. Nick Discepola): I'm led to believe that there are no witnesses required for next week, so all we're doing is delaying it until next week.

    Mr. Werner Schmidt: Where is the formal notice? I was completely unaware. How was the notice actually transmitted? How can we act on something we really don't know about?

    I was told by you, Mr. Chairman, when you asked whether we wanted to do this. I said no because I'm not in a position to want to do it when our chief critic isn't here. I indicated earlier that we probably should look at some other input. Quite frankly, I was completely unaware. You took me by complete surprise. Nothing was distributed, as far as I'm concerned.... Well, I don't know.

    Were you advised, Kevin?

    If we haven't seen anything, how was it sent out?

    The Vice-Chair (Mr. Nick Discepola): I can ask the clerk to verify how he informed everybody and what responses he received. I would like to relate that before I talked to you, I didn't know that the relevant parties had received notice.

    Mr. Werner Schmidt: You were advised that we had been advised.

    The Vice-Chair (Mr. Nick Discepola): No, I didn't know that.

    Mr. Werner Schmidt: If you, as chairman, didn't know, how in the world do you expect us to know?

    The Vice-Chair (Mr. Nick Discepola): It's because I was asked to take the chair at six o'clock last night.

    Mr. Werner Schmidt: Well, there you go. It just proves my point.

    Mr. Massimo Pacetti: When we left committee yesterday, we knew. You were there.

    Hon. Maria Minna: We discussed it yesterday. Why is it so...? I don't understand.

    Mr. Massimo Pacetti: It's because you left, Mr. Chair.

    Hon. Maria Minna: On a point of order, Mr. Chair, you had left the meeting at that point yesterday, but in addition to the notice coming out, it was discussed yesterday that we would do clause-by-clause today.

    The Vice-Chair (Mr. Nick Discepola): So it was discussed yesterday after the testimony from the governor of the bank.

    Mr. Massimo Pacetti: Just before the votes we discussed it.

    Mr. Werner Schmidt: At yesterday's meeting?

    An hon. member: Yes.

    Mr. Werner Schmidt: Mr. Solberg was there.

    The Vice-Chair (Mr. Nick Discepola): This was at the end of yesterday's meeting?

    Mr. Werner Schmidt: Yes, after the governor of the bank testified.

    Hon. Maria Minna: Yes, it was discussed yesterday.

[Translation]

    Mr. Pierre Paquette: That doesn't bother us, but we're not in any hurry either.

[English]

    The Vice-Chair (Mr. Nick Discepola): There are two issues here. One is the clause-by-clause to adopt this legislation. The other is the question of additional information on various areas Mr. Schmidt and Madam Minna have put forward. I think they are two different areas. Nothing precludes us from calling testimony on some of the questions you have, but they aren't really relative to the legislation.

    Mr. Werner Schmidt: I think, Mr. Chairman, with all due respect, they are pertinent to the legislation, because there are certain clauses that are directly affected, in particular the question that has to do with changes in the equalization formula and the base--

    The Vice-Chair (Mr. Nick Discepola): Which is an ongoing discussion, though, and we had the same officials.

    Mr. Werner Schmidt: But the legislation clearly indicates that there are going to be some changes made, and those changes are specified. Mr. Chairman, it's those particular specifications that are in the legislation that need to be clarified.

    I want to be convinced that in fact the provinces are in agreement with those changes, particularly with regard to the real market value of real estate, the particular changes that are being proposed, considerations that are being given to British Columbia, and also the averaging out over three years of the equalization payments. I think these are very, very significant issues, and they affect the provinces directly. I'm not prepared to get into this without having that information. I think it's very pertinent to the content of the legislation.

    The Vice-Chair (Mr. Nick Discepola): Is there any other discussion?

    Madam Minna, please.

    Hon. Maria Minna: Mr. Chairman, the comments I made earlier do not really have relevance to the bill; they had to do with the Minister of Health. It's additional information.

    But I'll go back to the issue with respect to the clause-by-clause. With respect, you had actually left the meeting yesterday when we discussed it, and the chairman in fact informed everyone that we would be coming in today to do clause-by-clause on this bill. That was very clear when we left yesterday. The notice that went out was then as a reminder, but the committee was told yesterday, so I don't see why now we come here and all of a sudden we have amnesia and have forgotten we're doing clause-by-clause today.

    I would suggest, Mr. Chairman, that we just get on with it.

    The Vice-Chair (Mr. Nick Discepola): Is there any other discussion? No?

    All right, then, I'm ruling that we're going to proceed to the clause-by-clause. If the opposition objects, they can simply vote down every clause.

    Mr. Rahim Jaffer: But it's tough, Mr. Chairman, to move--

    The Vice-Chair (Mr. Nick Discepola): Well, if somebody puts forth a motion.... I don't think you need a vote. Notice was given, and we're--

    Mr. Rahim Jaffer: Well, can I make a motion that we don't proceed with the clause-by-clause? I'd like to do that right now, if I may.

    The Vice-Chair (Mr. Nick Discepola): There's a motion on the floor that we don't go to clause-by-clause. Is there any discussion?

    Mr. Rahim Jaffer: Can I just get one thing clarified before we do this, though? Can the clerk verify that there was official notice given or not? If there wasn't official notice, we can't go ahead with this anyway, because it violates the rules.

À  (1055)  

    The Vice-Chair (Mr. Nick Discepola): No, there was an agreement with your party yesterday afternoon to proceed to clause-by-clause if time permitted.

    Mr. Rahim Jaffer: Yes, but who agreed?

    The Vice-Chair (Mr. Nick Discepola): Monte was there.

    An hon. member: No, he was not.

    The Vice-Chair (Mr. Nick Discepola): Yes, he was. He testified--

    Mr. Rahim Jaffer: In any case, Mr. Chair, this is significant. We're doing clause-by-clause on the budget implementation, and I think it's significant. We should be following the regulations of the committee and formal notice should be going out.

    It's something where I don't see how we can push forward, as Ms. Minna is saying. We need to go through the formal procedure of getting notice. I don't recall receiving formal notice and all this going through the proper procedures, so what we're doing right now is a violation of the regulations of the committee. That's something we need to get clarification on, and I don't think anyone can push it through without following the proper rules.

    Mr. Werner Schmidt: Well, Mr. Chairman, I recall very distinctly being at that meeting yesterday; I was there. It's true that Monte had to leave, but I was there. Mr. Chairman, I would address it to Roy directly, because I don't recall. Now, perhaps we need to call up the Hansard record on this, but I don't recall saying we were committed to a clause-by-clause examination today. I remember clearly that questions were asked of the Governor of the Bank of Canada, then there were no further questions, the gavel was brought down, and the meeting was adjourned.

    The Vice-Chair (Mr. Nick Discepola): You have some members here saying they recall it, yet you don't recall it.

    There's a motion on the floor saying that we don't go to clause-by-clause. I would call for the vote at this stage, please.

    (Motion negatived)

    The Vice-Chair (Mr. Nick Discepola): We go to clause-by-clause.

    Yes.

    Mr. Joe Comartin (Windsor—St. Clair, NDP): On a point of order, Mr. Chair, does the parliamentary secretary get to act in both capacities here?

    The Vice-Chair (Mr. Nick Discepola): Yes, he does. He is still a full member of the committee.

    Mr. Rahim Jaffer: I still need clarification from our clerk. Did an official notice go out according to the regulations of the committee?

    The Vice-Chair (Mr. Nick Discepola): A notice went out. It was discussed yesterday.

    Mr. Rahim Jaffer: So it wasn't a proper procedure. Mr. Chair, the clerk just mentioned to us that it wasn't a formal notice that was sent out yesterday that in fact we would be doing clause-by-clause today. What was suggested in the notice was that we could eventually get to clause-by-clause, depending on what might happen. According to the regulations of the committee, that's not formal notice to the committee members. Many of our members would have wanted to be there.

    The Vice-Chair (Mr. Nick Discepola): My understanding is that there is no formal notice required to go to clause-by-clause. We stated in the agenda that if we had time, we'd go to clause-by-clause today.

    Mr. Rahim Jaffer: At 11 o'clock we have future business, and that's one of the issues that would have been discussed in committee anyway, when we were going to be dealing with which legislation and how we were going to proceed. That's something I was looking forward to doing at 11 o'clock.

    The Vice-Chair (Mr. Nick Discepola): I've ruled, and you have appropriate recourse if you don't like the ruling. I've ruled on the motion before us, and we are going to proceed to clause-by-clause.

    An hon. member: What did you rule, Mr. Chairman?

    The Vice-Chair (Mr. Nick Discepola): It was on Mr. Jaffer's motion that we don't go to clause-by-clause. It was defeated, and if the opposition doesn't like that, I think you know the rules of the House.

    An hon. member: The rule is that we have proper notice.

    The Vice-Chair (Mr. Nick Discepola): I am led to believe that sufficient notice was given and that the rules have been followed. This is according to the clerk. So we're proceeding under those circumstances.

    Mr. Rahim Jaffer: Am I to understand that we're not going to be proceeding with the future business meeting at eleven?

    The Vice-Chair (Mr. Nick Discepola): Yes, we are, in 207 West Block.

    An hon. member: The plan was that if we had time to go into clause-by-clause, we would, and we'd defer the planning meeting.

Á  (1100)  

    The Vice-Chair (Mr. Nick Discepola): But there are two suggestions that came out. We have to have the meeting anyway.

    Mr. Rahim Jaffer: It's 11 o'clock now, though. Shouldn't we be moving to the planning meeting if we wish to deal with the future business?

    The Vice-Chair (Mr. Nick Discepola): I've ruled. I am proceeding to clause-by-clause.

    However, I'm told another committee has the right to this room, so the meeting is suspended to the call of the chair, to be reconvened in Room 207 at 11:05.

    Thank you.