Mr. Speaker, my challenge this afternoon is to keep members awake while we talk about equalization. It is an arcane piece of legislation and an arcane concept which is watched by quite a small number of very interested people because it affects how budgeting takes place, both here at the federal level and at the sub-national levels.
This has nothing to do with the offshore accord. That is entirely a separate negotiation. Bill C-24 has to do with the direct results of the first ministers meeting that occurred in September between the Government of Canada and the provinces, where they announced fundamental changes to Canada's equalization program and the territorial formula financing arrangement.
The framework was announced in response to concerns raised by equalization receiving provinces about the funding of equalization and the planning difficulties they have experienced in recent years caused by the swings in equalization payments. A number of finance ministers made the point as we travelled across the country that it was very difficult to make up a budget on the basis of equalization payments if in fact it is not known what it will be year to year.
The government heard that concern and has tried to address that concern through this bill by effectively setting floors and ceilings and a predictable stream of money for each equalization receiving province. This new framework represents probably the most important change in the program in its history. The legislation before us today is integral to effecting that change.
The intent of the changes to the equalization program and the TFF, the territorial funding financing arrangements, is to bring stability, predictability and growth to the overall level of funding for these programs, and to have third party advice on the best way for the Government of Canada to allocate payments among the provinces and territories. As the Prime Minister and premiers negotiated this formulization, it in fact achieves that. I hope this bill will enjoy the support of all hon. members in the House.
Bill C-24 proposes to provide these issues of stability, predictability and growth. I will outline shortly the legislative proposals contained in Bill C-24. However, first, it is important to present some background to the equalization and TFF programs in order to provide some context so that we can say this is where we were yesterday, this is where we are today, and this is where we hope to be tomorrow.
The program was put into effect in 1957 and the territorial program was put in place in 1985. The equalization part of the program has certainly been with us for quite a while and in part is how Canadians see themselves in terms of sharing the wealth of this great country. Both of these programs have been largely successful in providing support, while reducing regional disparities.
The intent of these programs is to ensure that all Canadians, no matter where they live, have access to reasonably comparable public services, that is the key phrase when we are looking at measuring the test of whether this program succeeds, without having to resort to economically damaging levels of taxation to fund the provision of these services. Those are the two ideas that we want to achieve here, having reasonably comparable public services without having resort to economically damaging levels of taxation.
The idea that Canadians should have access to the same high quality of health and social services regardless of where they live is fundamental to the fairness and integrity of the Canadian federation. This is so much so that it is protected by the Constitution in the form of equalization.
In short, the equalization program transfers money to the less prosperous provinces and territories in accordance with a formula based on the revenue raising capacity of each province. This means that as a province becomes more prosperous, its equalization entitlement declines. In effect, equalization is there to fill in the gap to ensure that all Canadians have access to high quality health and social services that they have come to expect and demand, regardless of where they live in Canada.
Moreover, it ensures that less prosperous provinces do not have to resort to economically damaging levels of taxation to fund the provision of these services.
Again, we are working on a balance here. In the less prosperous areas, they have limited ability to raise taxes, yet, simultaneously, Canadians, wherever they live, are entitled to a certain base of services. Hopefully that base will be achieved in part through the distribution of moneys under the equalization program.
I would like to return to the funding arrangements to the provinces and territories. The changes to these programs encompass three important elements: first, the new framework for equalization and territorial financing starting in the fiscal year 2005-06; second, an independent review of the programs by a panel of experts; and third, complete protection for provinces and territories against overall and individual declines in payments in 2004-05.
I would like to expand on each of these three elements: first, the new framework for equalization; second, the independent review; and third, the protection that is afforded in this fiscal year.
I will begin with the new framework for equalization and territorial financing. Starting in 2005, the government will establish a legislative financial framework for both equalization and territorial financing. The new framework will establish fixed payments levels, which will provide predictable and growing funding for provinces and territories. Funding levels for 2005-06 will be set at $10.9 billion for equalization and $2 billion for the territorial funding. These amounts thereafter will grow at a rate of 3.5%.
When we talk about the stability of predictability, there we have it. We know exactly the floor that we would be starting from. We know exactly the amount by which the program would increase.
The government is committed to reviewing the overall funding levels of equalization and TFF after five years. If appropriate, the government will make adjustments in 2010-11, taking into account evidence based measurements of the evolution of disparities and costs to the territories.
Let us hope, Mr. Speaker, that neither you nor I is talking about equalization in the fiscal year 2010-11.
The second point has to do with the expert review panel. The second element of the changes to the equalization is the establishment of an independent expert review panel. Our government recognizes that simply pumping more money into the system is not enough. We need to take a hard look at how the current level of equalization and territorial financing allocates moneys to the provinces and territories. That is why the new framework calls for a review to be conducted as to how the legislated equalization and territorial financing levels should be allocated for the provinces and territories in the fiscal year 2006-07 and beyond.
We start with a legislated amount of $10 billion in 2004-05. Then we move that up to $10.9 billion in the next fiscal year, and it is 3.5% thereafter. Hopefully the panel of experts will be able to tell us the best way in which to distribute that money among the provinces.
This review will, among other topics, look to the following priorities.
First, to evaluate the current methods for measuring fiscal disparities among the provinces and territories.
Second, to examine alternate ways to distribute equalization and territorial financing, including the possibility of bringing these allocations on economic indicators, such as GDP or disposable income, or based upon the expenditure needs of the province or territory.
Third, to review how fiscal disparities between various provinces developed over time, and to look at the costs associated with providing services in the territories.
Finally, to advise the government on whether it should set up a permanent independent body to advise the government on the allocation of the equalization and territorial financing payments.
I would like to stress that although the panel's role would be advisory in nature, our government is committed to listening to its recommendations and making decisions based upon that advice in consultation with the provinces and territories.
If this framework is adopted by Parliament, the panel would be asked to report back to the government by the end of 2005, which would be within a timeframe to have an effect on equalization and territorial financing allocations set for the fiscal year 2006-07.
This brings me to the third element if I may of the changes to the equalization and territorial formula financing arrangements providing fiscal protection for the provinces and territories. In order to provide greater stability to provinces and territories in 2004-05, the Government of Canada will ensure that equalization payments total a minimum of $10 billion.
As I said, we set a floor of $10 billion. Next year it is a ceiling of $10.9 billion and each year thereafter it is $10.9 billion multiplied by 3.5%. The territorial financing payments will have a minimum of $1.9 billion in 2004-05 which will go up to $2 billion in the years thereafter.
In addition, each province and territory will be guaranteed that its equalization or territorial financing payments for 2001-02 to 2004-05 will not be lower than was estimated in the February 2004 budget and included in the budget for those years.
With respect to the financial impact on the new framework, over the next 10 years, and subject to a review after the first fiveyears, the new framework for these programs will be $33.4 billion more in equalization and TFF payments to provinces and territories than the amounts in the 2004-05 estimated at the time of budget 2004, $9.5 billion for equalization and $1.8 billion for territorial financing.
That is $33 billion over 10 years on top of what already exists. This is no small change. In fact these proposed changes to the equalization and territorial financing formula framework amount to about $33 billion. This represents the most significant increase ever to these programs.
It is also important to point out that equalization and territorial finance payments are not the only sources of federal assistance for the provinces and territories. We have the Canada health transfer, the Canada social transfer, the equalization payments and then we have a number of other direct programs where the federal government provides assistance to the provinces in the delivery of services to all of our citizens. This money is in addition to that.
Indeed, hon. members will certainly recall that the Prime Minister and all the premiers recently signed the 10 year plan to strengthen health care, which will provide $41.3 billion in new health care funding. Therefore, we have the $33 billion in equalization and the $41 billion in new health care money.
The health plan includes key elements of systemic reform and the best terms ever for reporting and accountability. By meeting and surpassing every financial standard identified in the landmark report, known as the Romanow report, it turns the corner on the annual intergovernmental feud about health funding.
The health accord puts everyone's focus where it should be: on shortening waiting times; getting more health professionals and better equipment; improving primary care, home care and drug coverage; better services in the north and for aboriginal people; more health research and innovation; and improved public health and wellness.
It is important to note that the $41.3 billion health accord, when combined with the $33 billion for equalization and territorial financing, will result in a cumulative amount of 74 billion additional dollars expected over the next 10 years. It is new money transferred from the federal government to the provinces over that period of time.
By any stretch of the imagination this is a huge sum of money and it illustrates our government's commitment to ensuring that Canadians are treated fairly and have access to reasonably comparable levels of service no matter where they live in the country.
Our government recognizes the need to ensure that all provinces and territories can offer the best possible services to their citizens. The equalization and territorial funding formula programs are clear evidence of our commitment in that area.
To sum up, under the bill, $33 billion will be allocated for equalization payments over the next 10 years, $41 billion to the Canada health transfer allocated over the next 10 years. We have a commitment to an expert review panel so that it will know whether there is a better way in which to provide the program.
We have put forward a program where we think we have met a number of the stability and predictability concerns raised by the premiers and finance ministers with respect to them trying to set their budgets. They now know that they have a fixed base and that their base will increase on a regular annual basis.
There is no doubt in my mind that the commitment of the government, in partnership with the provinces and territories, is to continue to work toward improving the standard of living of Canadians from coast to coast to coast.
As I mentioned earlier, the legislation I outlined today reflects the most significant investment ever in the equalization and territorial financing framework. The legislation is vital to ensuring that Canadians, no matter where they live, can count on comparable levels of health care and other essential services.
I encourage hon. members to support the legislation as it was negotiated by the Prime Minister and premiers. I hope all members of the House will find themselves supporting the legislation and the work of the Prime Minister and the premiers.
Mr. Speaker, as this House knows, the Conservative Party supports the equalization program as an important and necessary means of building our nation. It is responsible for creating, or at least attempting to create, the conditions for relatively equal social services for Canadians regardless of where they live.
We also support the intent of the equalization program to, in conjunction with other federal fiscal structures, help provinces create the conditions that can lead to stronger local and provincial economies.
Over time, the formula calculating the amount of equalization paid to each province has changed. For example, as I told the House earlier this month, when Alberta was a have not province from 1957 to 1965, the oil and gas revenues the province earned were not clawed back by Ottawa under the equalization program. This allowed Alberta to build its oil and gas industry by using the profits to reinvest in the industry.
As we all know, that arrangement does not exist today for provinces like Newfoundland and Labrador, Nova Scotia and Saskatchewan, nor does it exist for the territories. I will talk quite a bit about the treatment of non-renewable natural resource revenues within the equalization formula today, because I think it is an issue that must be examined as we move forward with the renewal of the program.
Over the past several years, Conservatives have argued in favour of moving from the five province standard to a 10 province standard and for the removal of non-renewable natural resource revenues from the formula. We also believe that it is essential to provide for a phase-in period if any such changes are made to the existing formula to ensure that no province is hurt in the transition period.
We are disappointed that the government is not dealing with these issues head-on when there is such a wide consensus among territories and provinces on the changes necessary, but we support the review process that is under way and look forward to hearing from the panel on these very important issues.
The bill makes basic changes to the act, which were necessary to ensure certainty within the equalization program and to allocate the necessary payments over the next year. For that reason, we support it.
The bill sets a minimum funding floor of $10 billion for equalization and $1.9 billion for territorial formula financing for 2004-05. This is something that provinces and territories have called for as a means of protecting provinces against overall and individual declines in payments in 2004-05.
It also ensures that no province or territory receives less than the levels forecasted in the 2004 budget, thereby setting $10.9 billion for equalization and a total level of $2 billion for territorial formula financing in 2005-06.
In the middle of all this, a 3.5% per year escalator has been created for equalization and territorial formula financing, going through until 2009-10.
Finally, the bill offers a breakdown of provincial equalization allocation for 2005-06 and a breakdown of territorial financing allocation for 2005-06.
Very clearly, the bill recognizes, finally, what the provinces, territories and the Conservative Party have called for, that is, greater certainty for payments. However, there are many outstanding issues that need to be addressed and are not reflected in the bill.
The bill does not specify how the equalization in territorial formula financing levels will be allocated among the provinces and territories from 2006-07 forward. The federal government has launched a review by an independent panel of experts, on which the provinces and territories have been provided with two seats. However, we remain concerned that the federal government has retained final decision making authority as to how future levels should be allocated.
Most important, the bill does not remotely address the long-outstanding concerns the Conservative Party and the provinces and territories have had with respect to the inclusion of non-renewable resource revenue in the current equalization formula. Under the current formula, provinces that benefit from non-renewable resource revenues are subject to a clawback that results in lower equalization payments.
The bill also does not deal with non-renewable resource revenue-sharing outside of equalization, which means that the bill does nothing to solve the Prime Minister's ongoing broken promise to Newfoundland and Labrador and Nova Scotia.
Equally as important, the bill does not deal with non-renewable resource revenue sharing outside the territorial financing formula. The territorial financing formula is an important and necessary grant mechanism to address the present needs of the territories. The Conservative Party supports it, but we also believe it is imperative that the federal government take steps to develop a resource revenue sharing agreement with the territories to facilitate their desire for control over their own economy and movement toward economic self-sufficiency.
Non-renewable natural resources and how they are dealt with under the current equalization formula has become a major concern, an economic inhibitor for provinces and territories that wish to have full access to these revenues to develop their resource sectors further and to have control over their economic future. Equalization can and should be restructured to deal with non-renewable natural resources like oil and gas in Newfoundland and Labrador, Nova Scotia, Saskatchewan and the territories.
Newfoundland and Labrador presents a timely and interesting case study for this policy. We and many Canadians watched the equalization meeting in October very closely, and were disappointed at the Prime Minister's refusal to honour the promise he made during the election to both the Premier of Newfoundland and Labrador and the Premier of Nova Scotia. The Prime Minister attempted to use the equalization program as leverage to water down the commitment he made to these premiers during the election. The premier of Newfoundland and Labrador was not going to let that happen, and he rightly walked away from the equalization talks.
As I have told the House before, our party supports Newfoundland and Labrador's position with regard to its offshore resources. We will continue to advocate for the Prime Minister to keep his word to Newfoundland and Labrador. Put simply, the Conservative Party supports the efforts of Newfoundland and Labrador and Nova Scotia to receive 100% of their offshore oil revenues outside of the current equalization formula, with no cap and no restrictions.
I have raised this issue because, again, the manner in which the formula accounts for non-renewable natural resource revenues is one of the main points of contention regarding equalization in Canada. While this party believes that it is ultimately good that the government bring more certainty regarding aggregate amounts to the equalization program, we remain clear that we support the demands of the provinces and territories to see changes in the way that non-renewable resource revenues are accounted for within the formula.
I have also raised this because it highlights the neglect of the government on this issue. This is an issue that has been ongoing and needs to be dealt with immediately. Because the government has not addressed this issue, it has become a crisis in places like Newfoundland and Labrador. Other provinces and territories are watching closely to see what kind of deal the Atlantic provinces may receive.
If Newfoundland and Labrador is successful in achieving a deal, then other provinces and territories will ask to receive a similar deal, and for good reason. They are experiencing similar economic clawback due to their resource sector revenues. Of course, changes to the formula of this nature would mean less money in the federal coffers and more money in provinces. Therefore, provinces would have a better chance of providing social services and creating conditions for economic development on their own without the interference of the federal government.
This is a political non-starter for the government, which has for the past 11 years used the fiscal imbalance and the relative poverty of provinces and territories compared to the federal government to push its own agenda in areas of provincial and territorial jurisdiction. If the government were to amend the formula to remove revenues and royalties from non-renewable natural resources, the provinces in question would have the opportunity to use those revenues to further build their industry and infrastructure. The province would take income from taxes paid by companies and employees, which would be accounted for in the equalization program.
The federal government would still benefit from the personal income taxes that workers pay to provinces and to the government. The federal government would also benefit from corporate income taxes paid to the provinces and the government. Under the sort of change about which I am talking, it is not just the local province that benefits; all of Canada benefits.
When we consider economic development, then we start looking down the road, we can open the door to working with provinces to develop economic potential in those provinces and can realize that everyone benefits from a strong and economically vibrant and diverse Canada. By looking at provinces as places of potential, we have the opportunity to see what we can do through economic development to increase quality of life, social services and economic opportunity for young people in every region of our country and help provinces and territories realize their goal of becoming economically self-sufficient.
When we talk about equalization, equity remains the main perspective, but I would argue it is only part of the picture. Talking about equity, especially within the context of the equalization program, has taken on a form of a static conversation. Conversants assume that provinces will remain relatively the same in relation to one another. Ontario and Alberta are the have provinces, Saskatchewan and B.C. flirt between have and have not status and Manitoba, Quebec, and the Maritimes are the less well off provinces.
Taking this arrangement as a perennial constant, those who talk only from an equalizing perspective need to assume that this ranking of provinces in these groups will remain constant, which on the flip side assumes no changes in economic performance. We know this to be untrue. We know that every province works toward developing its economy and we know that all provinces and territories are making successful gains in economic diversification and the raising of quality of life within provinces.
This being the case, equalization program reforms need to be done with an eye toward economic development as a means of raising the quality of life of all Canadians. After all, the end goal of every province is twofold: first, to be able to provide increased and efficient services so that citizens have a better quality of life; and, second, to do it themselves, that is to become so successful that the province in question will not need a federal equalization payment.
It is within the context of an equalization formula, which is cognizant of economic development, that I raise concerns over the place of non-renewable natural resource revenues in any reformed formula. We are not there yet and it will take a Conservative government to get us there.
We also need to have a better sense of how non-renewable resources are accounted for with regard to Canada's territories as well. Bill C-24 does not address the outstanding concern that the Conservative Party and territories have in the need to develop resource revenue sharing agreements between the territories and the federal government. The territorial formula financing is an important and necessary grant mechanism to address the present needs of the territories.
We support the territorial formula financing, but also believe it is imperative that the federal government take steps to develop a resource revenue sharing agreement with the territories to facilitate the desire for control over their own economy and move to economic independence. Yukon has a devolution agreement with the federal government which would make it more independent and give the territory greater freedom in the management of its own affairs. The Northwest Territories is working toward a devolution agreement, and Nunavut is doing what it can to bring the federal government to the table with regard to a devolution agreement as well.
Part and parcel of devolution is greater control over natural resources found on territorial lands. Agreements such as these are important for practical reasons. If we talk to representatives from northern Canada, they will say that most of the money that goes north is actually spent in the south. For example, consider health care. As of now, if a major surgery is required, the northern government will pay for the patient to fly south, receive treatment, stay overnight, perhaps in a hotel, purchase food and then fly back. While a northern government foots the bill, it is the provincial economy in the south that benefits.
A different side of the same problem exists when it comes to resource extraction. Companies are often based out of a centre in the south. Workers often come from the south. These companies pay taxes in the south, as do the workers who do not claim official residence in the north. Likely, many of the workers are supporting families that live in cities like Edmonton, Ottawa or Quebec City, among others. They fly north, work as long as their rotation is in and likely fly home to be with their families or send cheques home regularly. The money is not spent in the north. The taxes are not paid in the north.
It is thus very important for northerners to have a greater say over their resource sector so the government can retain more money and so more year round northerners are working in the sector, thereby giving the government a stronger tax base. With that tax base, northern governments could attack their key priorities: economic development, stronger northern health care, a better education system and affordable housing. This is where they need to go and to get there they need certain adequate territorial financing, as well as an agreement regarding natural resource revenue sharing.
It is disconcerting for me when the Prime Minister goes overseas and muses about territories becoming provinces, when he is not engaging in the proper steps necessary to help territories with their most pressing concerns. That is to secure a resource sharing agreement to create the conditions they need so they can build a strong economy which will create more jobs in the north for both indigenous northerners and southerners and lead to greater self-reliance for northern governments.
One of the other concerns I have with the bill is around the new equalization floor. The bill introduces a new equalization floor which provides certainty for have not provinces that are attempting to create budgets and would like to know in advance roughly the amount of money they will receive from the equalization program. In terms of creating certainty, this is important. A floor protecting have not provinces from drastic changes in the economy already exist. However, while introducing a new equalization floor that better shields have not provinces from potential downturns in the economy, it provides less protection for have provinces and the federal government.
For example, situations may arise where the minimum equalization payments agreed by the federal government are higher than the payments dictated by the formula. In this instance, have not provinces may actually be equalized to a greater fiscal capacity than the national average. This belies the equality that stems from the equalization formula. Further, the equalization floor created in the agreement is based upon the largest federal payout in the past decade and then is escalated.
Looking at this from purely an economic perspective, we know that Ontario accounts for 50% of the economic activity measured by the equalization formula and a significant portion of federal revenues. As the province with the most exposure to the U.S. economy, Ontario faces economic risks created by increased U.S. deficits, risks created by the amount of U.S. debt held by China and Japan and economic shocks created by global uncertainty. These risk factors could conceivably add up to slow Ontario's economic growth to a point where the equalization formula would dictate that payments should be lower than the floor agreed to by the federal government. At the same time economic trouble in the Ontario economy would have a drastic impact on federal revenues.
In this scenario the federal government would have to make up the difference between the formula payment and the floor payment out of shrinking general revenue. By building in such a generous floor, the federal government effectively detaches have not provinces from potentially adverse economic realities.
Placing a fiscally imprudent floor in equalization payments, coupled with other significant fiscal commitments in health care, raises the risks associated with economic downturns. Certainly, these commitments limit the ability of the federal government to respond to a fiscal slowdown with measures such as tax cuts or targeted investments. Governments cannot rely on blind economic optimism when creating fiscal policy, especially in the face of current global volatility.
I want to return to another aspect of our policy, which is that no provinces should receive less money simply because the formula has changed. This is an important point. Provinces that need equalization need it to provide important social services to its citizens. A simple change in a formula does not change the overall economic picture of a province, but it could change the amount a province receives.
The shock of receiving less money is usually followed by the result of providing less services. Therefore, when the government makes these changes, it ought to be careful that provinces are treated fairly and do not end up with the short end of the stick. This side of the House will be watching very carefully to ensure that this problem does not exist and if it does, we will work to correct it.
However, we know the numbers involved are more certain and we look forward to the ideas that will be put on the table in the course of the review process. It is our hope that the end results of these ideas will ensure an equalization system that both fairly and adequately provides funds to provinces and at the same time does not hinder economic development as the current formula does.
We will have to wait for the panel of experts to present its recommendations before we say conclusively whether we fully support the process which the bill sets into motion. However, we agree there needs to be a step toward a system that is predictable. At least in perception, the bill is a good beginning.
As I noted earlier, we would have liked to have seen greater provincial involvement. Given the importance of the equalization program for the efficient functioning of provincial governments and the certainty of provincial economies, their voice would have been welcomed. I am sure they would have welcomed greater opportunities to express their views.
While the government did bow to pressure from the provinces for greater provincial involvement, in my mind it was not enough. If there is a chance that we could see greater involvement from provincial governments, we believe that would be appropriate and we would support such a move.
One thing missing in the reforms, which were implemented in the 2004 budget, is a reform that would have allowed provinces that which were overpaid a longer period to pay back their overpayment. These provinces, which are struggling to provide social services and infrastructure needs to their citizens, should not be forced to redesign their entire budget because the federal government has made an accounting error.
As for predictability, we also would like to see a moving three year average used to calculate payments. This would help to smooth out situations where provinces are over or underpaid and at the same time it would provide greater predictability to the provinces.
Finally, we are glad to see the government is now committed to a five year renewal schedule. Remaining committed to the five year renewal, again provides provinces with greater predictability and certainty and also gives the federal government the opportunity to utilize medium term economic forecasts when considering changes.
By moving to a 10 year plan or commitment, we see greater risk within the program's payment schedule and we are also concerned that the government's flexibility in administering the program is negatively affective.
In the end, our party will support the bill because it is the beginning of much needed changes to the equalization formula. It is an admission by the Liberal government regarding the problems that have plagued equalization in the past and it is a step in the right direction toward making the equalization program a better program. In this light, we anxiously await the report of the expert panel, and hope to see our recommended changes included.
Madam Speaker, earlier, I was listening to the Liberal member, the parliamentary secretary to the Minister of Finance, who talked about an almost historic agreement on equalization, about rediscovered harmony between the provinces and the federal government, and about how this would help avoid the numerous disputes that arise every year between the provinces, the Quebec government and the federal government as regards equalization payments and the formula itself.
It takes some nerve to present that agreement as a harmonious accord between the provinces and the federal government. Indeed, the Liberal member forgot to mention that this is not an harmonious agreement. It is an agreement that was shoved down the throats of the provinces and Quebec. The federal government told the Quebec government “Now that we have starved your province for the past ten years or so, have made cuts to the Canada social transfer for health, education and income support, have dipped into the employment insurance fund, have questioned consensus achieved in Quebec on many occasions on social and economic policies that could enable the province to move forward, improve the plight of the poor and create an environment that fosters investments and economic growth, you will take what we will give you. You will shut up. It is a take it or leave it deal”.
That is exactly what happened this past October 26. That was when the first meeting of the premiers on the subject of health was held here in Ottawa. The federal government's offer on equalization was tabled there for the first time and rejected unanimously by all provinces and most particularly by the Government of Quebec. A few weeks later, the government came back with exactly the same lousy agreement. This time they forced the Government of Quebec to accept, telling it “take it or leave it”. The sizable figures may seem all well and good when presented as one overall sum, but they do not match the total that would have been forthcoming to the Government of Quebec and the provinces of Canada if the equalization formula had been thoroughly reworked.
Making in-depth changes to this formula does not require a whole series of conferences to go over it with a fine toothed comb. We have been introducing the same arguments in favour of improvements for ten years now, such as making calculations based on all ten provinces and not five as at present. Why, in a system that is representative of the fiscal potential of the provinces, would only five of them be used to calculate an average, with all provinces under that average entitled to equalization payments and those above not entitled? According to the basic rules of mathematics, if comparisons are to be made, an average is calculated from the whole set.
It would have been easy for property taxes, too. It would have been very easy. All we have been asking for all these years is that Quebec's true property wealth be taken into account, and not estimates by economists and experts, using what they call proxies, which never succeed in adequately reflecting the property tax potential of Quebec, or the rest of Canada, either. These changes could have been made with just a little goodwill. But no, just as in all federal-provincial negotiations, the government is arrogant and imposes its will. Imagine that Ottawa believes it knows the provinces' needs better than the provinces themselves. Ottawa believes it knows health, education and income support better than the provinces, who were clearly given those powers in the Constitution.
Moreover, the Auditor General has just given us a good example of the federal government's good management of veterans' and first nations' hospitals. It is a fiasco. It is a catastrophe. If responsibility for the health and education systems were given to the federal government, there would be a disastrous situation in all provinces; but Ottawa knows best, as they say. And they dare to call this a “cooperative agreement”. People can only be laughed at for so long: there is a limit.
There is also a big problem with this agreement, and it is all the individual agreements. It has been arranged so that Saskatchewan and British Columbia come out ahead after this conference. Apparently, in order to avoid the shock of disparities between the equalization payments that are now planned and those foreseen in the 2004 budget, there would be a kind of formula, a special agreement with the provinces. Unfortunately, the base line is the 2004 budget.
Saskatchewan received that bad news that, for the period from 2001 to 2004, it was overpaid $590 million. To cushion the shock, in a side deal, on October 26, it was forecast that Saskatchewan might receive equalization. But in early October, it was told that it might lose.
Given that, in the last budget, Saskatchewan was told it might receive equalization, to cushion the shock, the federal government decided to let it keep the $590 million it should normally have had to pay back.
Unfortunately, in the case of Quebec, the bad news came before budget 2004. Quebec was told it owed $1.2 billion, if I remember correctly. Quebec will have to repay, because the federal government forecast that, in 2004-05, it would be paying a tad more than previously agreed to.
Quebec is forced to pay back this $1.2 billion. But just months later, to cushion the shock caused by the budget and the latest review, in early October—and because the budget is the basis for assessing transitional payments—Saskatchewan was told, “While we originally said, in budget 2004, that you could expect a fair amount in equalization, a review in early October showed that you were overpaid $590 million by the federal government, but because we do not want to cause a shock, you can keep the money”. This is a double standard.
Saskatchewan will not have to pay a $590 million debt back to the federal government. It will be paid the additional amount of $590 million for 2004-05, as planned. But it does not matter if Quebec's $1.2 billion overpayment causes an economic shock. It will have to pay it back over the next 10 years.
We know that equalization is established on a per capita basis. Given that the population of Saskatchewan is 1 million, this means that the side deal made with Saskatchewan, which Quebec cannot take advantage of, is providing on average $590 per person in Saskatchewan.
If we apply this $590 per person to the seven million Quebeckers, it follows that this adjustment could have been worth about $4.5 billion to Quebec. This is not peanuts. This amount is obtained by taking into consideration the per capita amount given to Saskatchewan, and the fact that we will continue to pay $1.2 billion over the next 10 years to repay last year's overpayments.
It is always sad to see that, whenever a federal-provincial conference ends, there are always people in Quebec who are entirely or partly unsatisfied. This time, the federal government starved the Quebec government so much over the past seven years by cutting payments to it, that the latter has no choice but to accept what is on the table. The Quebec government is very upset, but it will accept the proposed amounts.
It is always the same thing. There is not one federal-provincial conference on specific agreements at the end of which Quebec is not frustrated. Every consensus reached in Quebec is ignored whenever we ask the federal government to participate and to do so in a fair and equitable fashion.
Take the example of day care. Everyone in Canada and here in this Parliament agrees that the Quebec model is the example to follow. People like Quebec and they think it has a good program. It is well structured. day care spaces at $5 and then at $7 per day have been in place for five years in Quebec.
Because parents pay $5 and $7 per day, this government pocketed the federal tax credits or tax deductions that these parents used to get in the past, when they were paying $30 or $35 per day to put their children in a day care. No agreement could be reached, even though the Quebec day care program was presented as a great example. It is a progressive measure that is mentioned everywhere and that gets rave reviews here. It is nice to get praised and to be congratulated for our good initiatives, but in the meantime the federal government is not doing its share.
Last year alone, Quebec parents lost $250 million in federal tax deductions, precisely because there is in Quebec a progressive system that is the envy of everyone, a system that the rest of Canada wants to copy down to the fine details.
In the past five years Quebec families have saved the federal government $1 billion in tax credits and tax deductions, because it has not had to pay them out.
The same goes for parental leave. We have been pleading for it for years, while there is consensus in Quebec. The Employment Insurance Act allows for the transfer of roughly $600 million or $700 million to fund parental leave programs. The Government of Quebec parental leave policy is much more generous and consensual than the federal government policy, which can be extremely complicated. When a person becomes a parent they get a two-week penalty under the employment insurance system. You are so proud to be a parent and the federal government penalizes you.
If Quebec were sovereign we would have had a parental leave system a long time ago. We would have used our tax resources—the more than $40 billion in tax we have been paying to Ottawa all these years—a long time ago for our child care program, to increase the number of spaces in child care, rather than come here to beg for our share of the taxes we pay to the federal government to solidify the consensus in Quebec. It makes no sense.
It is the same thing in the agriculture sector. Do you think that if Quebec were sovereign, and $40 billion were paid to Quebec City in taxes, that we would let our farmers suffer as they are right now? Do they think we would not have come up with a way to help them? They are receiving roughly 20% of what they were getting for cull. They are also victims of U.S. subsidies on grain crops. When it comes to mad cow the federal government says it has tried and that it is still trying, but nothing works. We would have taken measures a long time ago to help farmers in Quebec.
Over the weekend, I read that Air Canada Jazz is moving out of Quebec City. Everybody was surprised and wondering why. Do you think that a sovereign Quebec would have let Air Canada Jazz leave? No, because the national capital of a sovereign Quebec would have been Quebec City. And unlike the federal government, a sovereign Quebec would not see Quebec City, its national capital, as just any other region of the country. Therefore, we would have ensured that the airport facilities in Quebec City were worthy of a national capital. I think Quebeckers are realizing that it does not make any sense for a people with such national pride to see the federal government use our tax money to stick it to us and frustrate us every time we negotiate agreements concerning the allocation of our own tax money.
To my fellow countrymen, I say that we have to realize it no longer makes any sense to live in such a system. Even at the international level, we are considered a nation and referred to as the Quebec state. We have a national assembly. We are being robbed by agreements like the one on equalization and the long-delayed parental leave accord. We have a highly praised day care system, but for the past five years, as Quebeckers, we have been working on a fund to develop a day care network outside Quebec.
According to the federal government, the first year of operation of this Canada-wide day care network would cost $1 billion. And guess what, these last five years, it has saved money from the tax credits and tax deductions it would give parents in Quebec, which is the money we, in Quebec, are investing in day care. What this means is that Quebeckers will be footing the $1 billion bill for the first year of operation of this Canadian child care network in Ontario, Prince Edward Island, New Brunswick, Saskatchewan, Alberta, etc.
So, we are being used as an example, but the federal government never offers any funding or truly harmonious arrangement. It always tries to impose things. It always makes us fight right to the bitter end to get the least cent, while we hand over $40 billion to the federal government in taxes every year without protest.
With the war on poverty, it is the same thing. How many years have we been demanding a real social housing policy? Despite the fact that the Government of Quebec has been struggling with public finances, falling behind, and will have problems in coming years because the federal government has cut its funding, the fact is that the Government of Quebec is the one investing heavily in social housing.
If we had the share that we send to Ottawa for it to waste and spend on their cronies—because with the sponsorship program there was real, systematic corruption—if we had all these resources, we would be able to build more social housing units. However, we must go begging to the federal government and buy into the policy of subjugation, because the federal government imposes its point of view and because it is not the federal government's priority. The same is true even if it is a priority for Quebec, even though parental leave is one of Quebec's priorities and responsibilities. There is an incredible consensus in everything to do with the work-family balance as it is called. Even in agriculture—we would give aid tomorrow morning if we could, in Quebec—we must always wait. Even when we ask the Minister of Agriculture and Agri-Food to set a floor price everywhere for cull cattle—it costs him nothing—he hesitates, he consults, he does not know if Alberta will agree, does not know if it is a good plan for all of Canada.
As for the mad cow in Alberta, the source of the problem, at one point the federal Minister of Agriculture and Agri-food was asked whether there was not some way to divide the country into specific regions as they do for trade disputes, so that Quebec, with its tracking and inspection systems, which are superior to those in all the rest of North America, might be considered a region, and the western and maritime provinces as two other regions. But no, the Minister of Agriculture and Agri-Food stood up and said “No, from east to west, we are all Canadians”. So the mad cow became the symbol of Canadian unity. It makes no sense to do things that way, particularly when we know that they are doing this with our money.
If Quebec acquires its status as a sovereign state, that will put an end to the squabbling, and to the bogus negotiations that end with Ottawa imposing its opinions on us regardless of the priorities and consensus we have defined for ourselves.
How long has fiscal imbalance been a topic? The Séguin report dates back three or three and a half years, if I remember correctly. Everything is totally clear. There is too much money in Ottawa for the federal government's mandate as set out in the Constitution and for the other mandates it has given itself in recent decades. There is, on the other hand, not enough in Quebec and in the provinces to fund such basic things as health and education, income support, highway construction, regional development and so on.
As far as fiscal imbalance is concerned, even if the government has agreed that there may be certain fiscal pressures, this is scarcely remedied at all by the equalization agreement. If we go by the revised calculations the Séguin Commission came up with three years ago, there would appear to still be a shortfall of close to $2.4 billion annually in the payments to Quebec that would be required to remedy the imbalance. This is even taking the agreement on health and equalization payments into consideration, the figure is $2.4 billion. The Government of Quebec may make it through this year all right, but next year there is nothing preventing it from ending up with a deficit.
There are huge surpluses at the federal level, and apparently in some provinces as well. The federal finance minister himself commissioned a study from the Conference Board a few months ago, to review the federal and provincial governments' financial situation for the next 10 years. He was surprised to learn that, over the next 10 years, a surplus of $160 billion would pile up in the federal government's coffers, while the provinces would run deficits of more than $60 billion. That makes no sense for the few, like the Minister of Finance and the Prime Minister, who believe in federalism. That is not how a federal system works, with some provinces lagging behind and running deficits, while the federal government has loads of money and invests in every area of provincial jurisdiction, not even bothering to respect the Constitution anymore.
That having been said, we have to say that this is not just a bad agreement, it is a very bad one. But to Quebec and the provinces in the rest of Canada, it is worth a few million dollars they desperately need because the federal government has starved them. It has cut transfers and forced the provinces into situations where the fiscal imbalance is creating an incredible number of victims. We saw what happened in Ontario this year. The same could happen in Quebec within a few years. Only Alberta, really, can manage pretty well thanks to its petroleum.
But where the others are concerned, we absolutely have to use this example as the basis for a serious debate on fiscal imbalance, so that it can be resolved once and for all. I hope that the subcommittee to be struck at the Standing Committee on Finance to address this issue of fiscal imbalance will produce a report that will effectively eliminate this imbalance for good and ensure that the members opposite stop saying that there is a harmonious agreement, when in fact agreements that the provinces do not want are forced down their throats.
Mr. Speaker, my colleague is very kind, and we thank him for all his generosity, but it is absolutely abhorrent to hear such a speech, particularly his comparisons of how things are in other places in the world, how we have a decent share of the decisions that have to be made. What we want is not a share, but 100% of decision-making, shaped by the needs of Quebeckers and not by the needs of Toronto and the rest of Canada. We will not have anything to do with that. That is what sovereignty is all about.
How is it that Canadian sovereignty is so important, yet when we raise the issue of Quebec sovereignty, we hear “You know, there are arrangements”. That is not true. Any time a consensus was reached in Quebec, it has been a real grind to obtain anything. Things never change.
We do not want just part of the decision; we want to make the entire decision. Take the example of our faculty of veterinary medicine. How is it that all four other faculties of veterinary medicine in Canada are fully accredited, and the only one with just partial accreditation is the one in Saint-Hyacinthe. The only francophone veterinary medicine faculty in North America is in Quebec, in Saint-Hyacinthe, and the Liberal government is still thinking about whether or not to give it the $25 million it needs to get full accreditation back.
And what about parental leave, how long has that been under discussion? How long have the discussions been going on with the federal government to find arrangements that are not hard to find, because the Employment Insurance Act allows us, for comparable programs such as parental leave, to transfer some hundreds of millions of dollars to Quebec to allow it to develop its own parental leave program?
Yet it was simple enough to invest $500 million into the Ontario automotive industry. They did not even have to make demands or to negotiate. In the full flush of the election campaign, the Ontario automotive industry gets given $500 million. We ask for similar treatment for the aerospace industry, concentrated mainly in Quebec. But no. We get peanuts. We get equalization payments.
All the structural spending goes to Ontario, while Quebec gets equalization payments. What a shameful thing to say. We have heard it from the lips of the Liberal MPs from Quebec, “You have equalization and Ontario has investments and jobs”. That is the current reality.
If Quebec had that $40 billion in taxes, we would use it to create more wealth, more wealth for Quebec and the regions of Quebec. I never said it would be the best country in the world. We are not making that claim. It is shameful, in fact, that successive prime ministers here, in Canada, could tell the world to its face that Canada was the best country in the world. That is an incredible diplomatic insult. We have never made such a claim.
Still, making 100% of the decisions on 100% of our matters of consensus; choosing what we think is good for us, ourselves; and not being dictated to by Ottawa about what would be good for all of Quebec—that is sovereignty. If it is important for Canada, it is important for Quebec, too.
I am convinced that, next time, Quebeckers will decide to leave this system, because we have things to build. It is not because we want to be acrimonious. We have things to build in Quebec. For some time now, we have been putting all the pieces of the puzzle together to build Quebec: regional Quebec, agricultural Quebec, industrial Quebec—
An hon. member: Cultural Quebec.
Mr. Yvan Loubier: Yes, cultural Quebec, and rich Quebec—not a poor province getting equalization. That is not what we want.
There is an economic principle which says that a dollar invested in one sector is not the same as a dollar invested in a different sector. A dollar invested in the industrial sector has a multiplier effect. That is what has been happening in Ontario for many years. Ontario has the multiplier dollar; we have equalization and we are expected to shut up when they tell us, “You are doing fine; you get back most of the taxes you pay to Ottawa”.
That is a colonialist position. It lacks common sense and it is what we want to change.
Mr. Speaker, I am very pleased today to have an opportunity to participate in the debate on Bill C-24, an act to amend the Federal-Provincial Fiscal Arrangements Act and to make consequential amendments to other acts that are impacted by the changes in the fiscal arrangements act.
All members of the House are aware that this is a bill that received first reading in late November. It essentially reflects the new equalization and territorial funding formula framework that was agreed to by the first ministers in late October.
I have been listening to the debate so far and there is no question that there is a certain amount of acrimony and a certain amount of frustration being expressed on behalf of a great many Canadians, not because of the provisions of the bill before the House but because of the context in which this bill is being introduced.
A tremendously acrimonious environment has been created by the tremendous hardship that was imposed by the massive unilateral measures, the massive cuts that were introduced by the Martin budgets of 1996 as well as those that followed.
Everyone knows it was a big job to get us back on a more constructive course. It is important, as we get into this debate, that we remind ourselves that equalization payments are not a handout from one province to another. Often that is the sense that is created. There is a sense that it is the wealthy provinces that give money to the have not provinces, either cheerfully or reluctantly and sometimes it is expressed as reluctant.
That is not what is meant by equalization payments. It is important for us to remind ourselves of that. Equalization payments are from taxes that are paid by people in all parts of Canada, not a payment from richer to poorer provinces. We are committed to the important concept that we should have equality of access to the important programs and services that make up the quality of life. It is to ensure that we have a floor below which Canadians cannot fall, given the immense resources of this nation as a whole. It is important that we think of it in those terms.
It is truly what creates a situation in this country where we do not have, or we have no excuse for having, the kind of growing gaps between haves and have nots that we have seen in recent years as a result of the massive unilateral cuts that were imposed in transfer payments and then the arbitrary cap that was set on equalization payments.
I had the privilege in the early nineties of being at the Constitution table. Some would say it was a questionable privilege because it was a very dragged out process, to say the least. However, at that table, one of the things that was established was that the equalization formula should in fact become part of our constitutional framework. It is extremely important that it now exists.
It would be easy to spend the short time available to go on at great length about the immense damage done as a result of the massive unilateral cuts at the federal level, the damage done to our health care system and education system. The cost of that is being borne more and more and being heaped onto the shoulders of our post-secondary education students.
It would be easy to dwell on what a setback this was for environmental remediation and environmental protection measures for public transit, in particular, the advancement of the cities agenda. The federal government turned its back on promising a national child care program and then said that it could not be afforded for now, even though Canada reached a level of 3% growth within a couple of years of the Liberal government taking office and it could indeed have been afforded.
I want to take a few minutes this afternoon to focus on a couple of positive developments that I see across the country and in particular in my own riding, which I think is typical of many of the areas that have been so hard hit by the federal arbitrariness in the cuts and constraints applied to our equalization payments and transfer payments.
I speak directly about a community consultation this weekend. Basically a chamber of commerce exercise has been conducted over the last couple of years addressing the whole question of the economic potential, in this case focused on what is called HRM. I have to say honestly, I am delighted to be the member of Parliament for Halifax, but to live in a city which now calls itself HRM and not Halifax I think raises the question of how a city called HRM can actually have a soul, because it is just such a nebulous, meaningless notion.
Looking at the greater Halifax-Dartmouth area and all that includes, there has been a wide consultation process conducted to look at the future potential for growth and, one hopes, meaningful development and genuine economic progress. It is not just growth for growth's sake, because growth can be positive or negative depending on how the benefits of that growth are redistributed and how the growth is achieved. On another day we will have more opportunities to talk about that.
The engagement in the community and the leadership shown by the chamber of commerce in bringing many different elements of the community together around these issues helps to focus on not just how much damage has been done as a result of the massive unilateral cuts of the federal government starting in the mid-1990s, but also to focus now on some of the solutions.
It is extremely instructive and I welcome this. We needed to turn the corner on this. I welcome the recognition that some of the greatest impediments to genuine economic progress in many parts of the country and in this instance on my community of Halifax have been the major erosion of funding to things as critically important as education.
It was highlighted over the weekend that we need to be very careful not to lose sight of the fact that the tremendous burden of debt heaped on our post-secondary education students sadly has also been mirrored and paralleled by a serious erosion, at least in the Nova Scotia context, of the quality of our public education system from primary through to grade 12. We have a repair job to do here. We know how incredibly important education is to the future economic growth of our communities and the future genuine progress of our communities.
In supporting the bill that is before the House, we acknowledge that this is a step forward from what we have experienced, the harsh effects of the inadequacy of the formulas. It is not perfect, but it is an improvement. It has been arrived at through the agreement reached with all provincial premiers.
What is now important is that we make sure the lessons of the past are acted upon, with the government turning the corner on its treatment of equalization and transfer payments. We need to make sure that we repair the damage done to the education and health care systems.
We are getting there. Important steps have been taken in that direction. The same kind of pan-Canadian context provided by the Canada Health Act is what is needed with respect to education as well, something that has standards and enforceability mechanisms. That work remains to be done. The bill before us with respect to fiscal arrangements does not get us to where we need to be in that regard.
It was very encouraging over the weekend at the economic potential consultation wrap-up held in Halifax when it was acknowledged that there is a critical central role for arts and culture. There is an economic impact of arts and culture on community. We must recognize that it is the kind of creativity which is stimulated by having a very solid commitment to funding of arts and culture that will allow us to make the kind of judgments that are needed and come up with creative solutions that are desperately needed in this very complex challenging world in which we live.
There are similar considerations with respect to the erosion of our public transportation system, and that applies especially to public transit in the urban context, but also more regionally. Tremendous damage has been done by the massive cuts and frankly, in many cases the blind embracing of purely market driven solutions with respect to an area such as transportation. It clearly does not work for the less prosperous areas and the less populous areas in the country. That certainly is the case for the Atlantic region in general and certainly for my own province of Nova Scotia.
It is important for us to recognize that a lot of damage has been done. Even in instances where it was clear that the government's cutting and slashing was going to heap burdens on the most vulnerable citizens, the government was not prepared to back off, even after it began to introduce surplus after surplus. After seven straight years of surplus budgets the government continued to resist repairing the damage and making the changes needed in the fiscal framework that would enable us to get on to a path of rebuilding.
One cannot speak about this subject without recognizing the massive gutting of employment insurance benefits to create a false impression about the size of the surplus. This has yet to be repaired. It seems so easy for the Liberal members to beat on their chests and talk about the great job they have done in generating this surplus. They conveniently ignore the fact that the surpluses have been achieved by heaping the burden on those who should least likely have been asked to bear the costs of the mismanagement of the Liberal government over the last decade.
The government has conveniently ignored the fact that a big chunk of that surplus has actually been generated by taking money directly out of--and I am going to say--the mouths of children in a lot of cases. This has happened in families where members of the workforce have found themselves without employment through no fault of their own. They have contributed in good faith to the employment insurance fund over the years and have built up that surplus. Then they have found that such restrictive eligibility measures have been introduced that they simply have never been able to draw from the employment insurance fund.
An hon. member: No one qualifies anymore.
Ms. Alexa McDonough: Mr. Speaker, qualifications, as my colleague has reminded us, have been made so restrictive that it is not rocket science to figure out why in 2004 we actually have to take note of an increase in child poverty in this country today.
It may seem like a big step from the discussion about the fiscal arrangements act to the increase in child poverty, for which we now suffer the embarrassment and low income families suffer the burden, but there is a connection. It has to do with the misplaced priorities. It has to do with the fact that the policies that have been consistently pursued by the Liberal government have enriched the wealthiest corporations and those in the higher income categories at the expense of those who most need to know that the community and their governments are there for them.
We hope this is the beginning of a repair job. It does not address at all the unfulfilled promise made by the Prime Minister during the last election. We have not yet seen any signs of the promise being honoured by the Prime Minister to Nova Scotia and Newfoundland and Labrador with respect to the share that is owing to our provinces which needs to be invested in the future economic prosperity of our provinces from our natural resources.
It is important on this occasion to recognize that further legislation will be needed. We are not talking about an amendment to the bill before us. We are talking about a companion piece of legislation that would honour the commitment made, but not yet kept, by the Prime Minister to ensure that we become the beneficiaries of the offshore resources that currently overwhelmingly are going to the federal government.
That is not only the fair thing to do, but it is also the only honest course of action that can be pursued by the government. The Prime Minister so transparently came to Atlantic Canada desperate for votes. The Liberals were so desperate to hang on to those Liberal seats and to take the seats out from under the NDP everywhere they could possibly do so. A commitment was therefore made to allow us to invest the benefits from our offshore resources in order to build our own more solid, sustainable economic base for the future.
Let us not lose sight of the fact that needs to be done. This legislation does not address it. However, it is no less urgent than the changes that are proposed here in the fiscal arrangements which now ensure that Canadians can expect there will be some kind of floor below which nobody in this country should sink, starting with the over one million children who remain in poverty. Sadly, in the last set of statistics available from the previous year, that number looks as if it is on rise, not on the decline in the direction of the eradication of poverty as promised by this Parliament in an all party resolution a full 15 years ago.