FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 26, 2001

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I would like to call the meeting to order and welcome everyone here this afternoon. As you know, the order of the day is Bill C-18, an act to amend the Federal-Provincial Fiscal Arrangements Act.

We have the pleasure to have with us from the Government of Manitoba the Honourable Greg Selinger, Minister of Finance. He is joined by Ron Neumann, director, intergovernmental affairs, also from Manitoba.

Welcome. You probably know this, but you can proceed with your 10- or 15-minute remarks, and thereafter we'll engage in a session of questions and answers.

Hon. Greg Selinger (Minister of Finance, Legislative Assembly (Manitoba)): Thank you for the opportunity to address you today on this bill.

[Translation]

Members of the Standing Committee, equalization is an important cornerstone of the Canadian Federation. So important that it has been recognized and incorporated into our Constitution.

I submit that it is incumbent upon all of us to defend the principles of the program and to ensure that actions taken are consistent with the letter and the spirit of the provisions in section 16 of the Constitution.

[English]

I have arranged to speak before this committee concerning the provisions of Bill C-18 and the potential effects of the ongoing ceiling on equalization payments.

It is an unusual procedure for a minister from Manitoba to appear before a committee of Parliament, but this should underscore the importance of the issue to the Government of Manitoba. In fact, the ongoing ceiling on the equalization program has been a matter of concern to all provincial and territorial ministers of finance, and indeed all premiers.

During the current year, I am the chair of the provincial and territorial ministers of finance. In this capacity, I hosted a meeting with my colleagues in Winnipeg in December 2000. At that meeting, all provinces and territories reiterated their support for the position that the equalization ceiling should be removed from the program. The full communiqué from the meeting is contained within the package of materials I'm providing you today, on page 21.

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I would like to point out that this support for the removal of the ceiling is not new. Provinces and territories, recipients and non-recipients of equalization entitlements alike, have consistently supported such action, and I am here today to ensure that the position is clear. The ceiling on the equalization program is an impediment to its adequacy, and it must be permanently removed.

Earlier today you will have heard from the finance ministers of the Atlantic provinces about what an adequate equalization program means to them. I believe that our messages will be similar, but I would like to highlight a few of the points I tabled in the Manitoba legislature recently as a budget paper. This paper is also contained within this package of materials that I presented to you today. In particular I would like to emphasize the important role equalization plays in contributing to the strength, vibrancy, and unity of Canada. Equalization works to provide greater opportunity and economic growth across our country—a fact that has often been denied or distorted in the public press.

The purpose of equalization is clearly stated in our Constitution in subsection 36(2):

Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

With the ability to provide comparable services at comparable tax rates, all provinces can compete effectively for economic growth and jobs that all Canadians desire. Without comparable services, some Canadian citizens will be less prepared to take on available opportunities. Without comparable tax rates, business location decisions will be made on factors other than the fundamental economics of those decisions.

There is evidence that the equalization program has served the nation well. A recent longitudinal study by professors Richard Bird and François Vaillancourt showed that since the equalization program was introduced in 1957, per capita economic growth in the recipient provinces over the past four decades has been slightly higher than the growth in the non-recipient provinces. I think this is a remarkable result that refutes the commonly held notion that equalization is a detriment to economic growth.

The short answer here is that equalization does not create dependency. It provides the resources for provinces to grow and diversify their economies to become less dependent on federal transfers.

The growth has not been strong enough either to prevent net migration from recipient provinces or to completely eliminate the differences in per capita disparities. However, we are making progress.

Recently the situation with respect to migration in Manitoba has turned around such that we now have net in-migration, and we need that to occur because a shortage of skilled workers is one of the factors inhibiting our economic growth.

Maintaining comparable personal tax rates and costs is important to attracting and keeping people in Manitoba. Equalization payments help to level the playing field for provinces seeking to compete not only in Canada, but also in the increasingly global economy.

The other way we are taking direct action to increase the supply of skilled workers is to increase education and training opportunities. Once again, the equalization program plays a part in our ability to provide necessary public services.

I am pleased that our government recently was able to make the largest investment in post-secondary education facilities in the province's history. However, we will need to keep making such investments to ensure our province has a well-trained workforce that is equipped with the necessary skills to keep our economic growth strong.

I have focused on just a few examples to demonstrate the importance of the equalization program to Manitoba and to Canada as a whole. There are many more. However, I think that most members of this committee recognize the value of this program. That is why I am encouraged that the federal government has tabled Bill C-18, which will remove the ceiling for 1999-2000 fiscal-year entitlements under this program. It is also why I am perplexed and disappointed that the Government of Canada has not yet chosen to remove the ceiling for 2000-01 and subsequent years.

The ceiling will have an impact on recipient provinces unless further action is taken. However, I would argue that this does not demonstrate a failure of the program. In fact, the narrowing of the per capita fiscal disparities over the years has allowed the program costs to decline as a proportion of GDP. The ceiling is having an impact, but it has been lowered arbitrarily three times during the past two decades, most recently in 1999.

The lowering of the ceiling is outlined in the materials I have presented to you, including my recent communication to Mr. Martin and my budget paper.

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The ceiling has been lowered from an effective rate of 1.33% of the GDP in the period from 1982 to 1987 to 1.04% of the GDP today. Ceiling reductions have been made without regard to the level of entitlements necessary to fulfil the program's mandate. The equalization program formula is designed to calculate entitlements in an objective fashion. There are always technical improvements that are being proposed. These are matters for discussion as the program is renewed at regular five-year intervals.

Unless the ceiling is removed for the fiscal years 2000 and 2001 and beyond, equalization payments will be flat and could well decline from their 1999-2000 levels. This result is not in keeping with the offer made by the Prime Minister to premiers just last September in Winnipeg. That offer stated that the ceiling on 1999-2000 entitlements would be lifted and that entitlements would be allowed to grow at the rate of GDP growth after that.

In the documents I have provided to you, there is also a table that shows the combined effect of the increases in CHST against the potential clawback of the equalization ceiling for 2000, 2001, and subsequent years. This table shows that the offer made by the Prime Minister in September would provide net benefits solely to the three most affluent provinces unless equalization is allowed to grow and not be clawed back by the ceiling provision.

That table is on page 35 in the English version, page 36 in the French version. I think it's very instructive in the case of Manitoba. No one should be under the illusion that the current ceiling will allow equalization entitlements generated by the formula to be paid for 2001 and 2000 and subsequent years. All the economic and fiscal data, which have yet to be factored into the calculations, point to the effect of the ceiling being greater in 2000-2001 than in 1999-2000.

The potential loss of revenue to Manitoba for the 2000-2001 fiscal year entitlements alone has been estimated at about $100 million. That is a significant sum in Manitoba. That is a sum that we could use for making taxes more competitive, continuing investments in post-secondary education, and, of course, in health care.

I would like to add one further comment. When the equalization ceiling was first introduced, the federal government had large and growing deficits. In the past year, the federal government had a surplus exceeding $10 billion. It is unconscionable that the federal government should be amassing surpluses by clawing back entitlements from the seven least affluent provinces in Canada. I urge the members of the committee to reflect further on the importance of this program on our collective commitment to equal opportunity to all Canadians, which resonates in our constitution, and on the fact that we are stronger as a nation when all regions prosper. The equalization ceiling should be removed.

That concludes my comments, Mr. Chair.

The Chair: Thank you very much, Mr. Minister.

We'll now hear from Mr. Epp. We'll have, I guess, a 10-minute round.

Mr. Ken Epp (Elk Island, CA): Thank you, Mr. Chairman, and thank you very much, Mr. Selinger, for being here.

Mr. Chairman, you'll be interested to know that Mr. Selinger also began his life in Saskatchewan, so great minds come together here.

I'd like to ask you a couple of questions, some of which I wish I could have asked some of the other ministers of finance who were here this morning. I'm going to begin by asking you a very, very simple question. You are quite clearly opposed to maintenance of the ceiling. You want the ceiling to be scrapped. The way I read your statement, you then want the amount of the equalization payments to go up in the same proportion as the gross domestic product every year.

You implied that this is what the Prime Minister offered. Yet the other witnesses this morning did not say that. Are you sure that you're right? Can you document that?

Mr. Greg Selinger: Yes, we have documentation. We provided the letter from the Prime Minister. The other provinces actually do agree with that position. We confirmed that in December in our meeting in Winnipeg. The commitment made in the Winnipeg meeting, when we came to an agreement on further improvements to the CHST, also included lifting the ceiling for one year on equalization and thereafter letting it grow consonant with growth in the gross domestic product.

That would imply a base of about $10.78 billion as the new starting point for growth. By re-basing it back down to $10 billion, we are not able to keep up with growth in the gross domestic product. We lose ground. That's what's illustrated on the table that I pointed out to you, on page 35.

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Mr. Ken Epp: Am I right in saying, then, that the only amendment you would have to Bill C-18 would be simply to change the $10-billion ceiling to roughly $10.8 billion, based on the GDP, and that you'd be quite content to let that ceiling grow as the GDP does after that?

Mr. Greg Selinger: We support the amendments that were proposed this morning by the Minister of Finance from Prince Edward Island. She proposed two amendments. One was to lift the ceiling entirely. Failing that, base it on the actual growth for the year in question when it was lifted, and then allow it to grow consistent with GDP after that. We hope that's the minimum position the committee will adopt through amendment. The position we would prefer in an ideal world would be to remove the ceiling entirely.

Mr. Ken Epp: I said this morning that I have no problem with thinking of Canada as a community. I came to the Parliament of Canada as a Canadian, primarily. Of course, I have an obligation to represent not only my riding in Alberta, but also the province to some degree, but I like to think I'm thinking as a Canadian. So I have no problem with saying that when it comes to health care, when it comes to educational opportunities for our youth, when it comes even to some of the other economic and other infrastructure issues that we have in our country, we should basically be putting that money into a big pot and should be able to draw it out equally.

The present equalization plan does not provide for equity per capita. If you look at the tables, at the way the formula works out with the different categories of entitlements, and at the amount that is given to the different provinces that are the recipient provinces, the amount per capita varies widely. Do you agree that we should be rejigging the formulas or revisiting them—I know the review is going to come up again soon, but I'm just looking ahead a little bit—so that instead of basing it on a potential of revenue that the province could have earned if it had the same tax rates in all these different categories—which is the way it works now—we base it on actual costs? Or we might base it on an average cost over the country per capita, and then make it proportionate to that in terms of the population in each province that is a recipient province. Would you be at all open to looking at that in the next round when this equalization program is revisited?

Mr. Greg Selinger: First of all, our objective here today is to speak about Bill C-18, and your question really goes beyond that. With respect to Bill C-18, our position is very clear: lift the ceiling. Failing that, re-base it at the actual amount in the year that it was lifted and let it grow consistent with the GDP after that.

That would be a significant improvement. It wouldn't imply reform of the entire formula, but it would be a significant improvement for the provinces. That's a position supported by all ten provinces, and I think it's important to reiterate that consensus.

Once we get that back on track, we can consider other improvements to the formula going forward. The provincial ministers already are looking at several improvements to the program in the collaborations of the provincial officials, and they are happy to bring forward proposals to the federal government on how further improvements to the program could be made. But that's really not the focus today, with respect, Mr. Epp. We're trying to make progress on something on which there is a consensus, and on which everybody's on the same page.

Mr. Ken Epp: We hear the provincial consensus on the issue you've brought forward. I guess what I'm trying to do, though, is expand the discussion a little bit to see how we can improve this program and make it better for people who actually need it.

I read an interesting book not long ago, and I made a mention of this in my statement in the House during second reading. With all due respect to people like my friend Mr. Blaikie over there, and others, they totally misunderstood what I said. I guess I have some penchant for miscommunicating. I don't know why, but they really got on my case when I made a statement that there's an anomaly in the present system that permits rich people to be subsidized by poor people. This is based on actual and empirical data. It's not just a statement that I made, yet somehow it was misunderstood.

Mr. Greg Selinger: If I could just address the point you've made, I think that would be a misrepresentation of the impact to the program. You're shifting units of analysis here. The equalization program is a transfer from the federal government to provinces to allow them to offer comparable levels of service at comparable rates of taxation. To shift the analysis and to go to an individual who may be poorer in Alberta than an individual who might be wealthier in Manitoba is to form a fallacious argument. You're doing a shift in the units of analysis, that being from provinces to individuals.

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There are always anomalies. The fundamental issue is the capacity of provinces to provide services to their citizens that are of a rough equality, at roughly comparable levels of taxation. On a statistical basis, that usually allows citizens of those provinces to have the same advantages and opportunities in life. That's what we're really driving at here. You will always find anomalous examples like the ones you've pointed out, but to use those kinds of examples to condemn the program would be misdirected.

Mr. Ken Epp: I'm not condemning the program. What I'm simply pointing out is that this is perhaps an area we should look at, because, as a matter of fact, rich people in receiving provinces effectively get a tax break because of this program. That's really what happens. Again, it's an academic argument that I read in this book, but the way I read it, it made sense to me. Anyway, I don't think we should get sidetracked on that.

I'd like to ask one more question before I pass it to other members. I don't know, maybe I should have had these numbers here, but what percentage of your total provincial income comes from the equalization payment? Do you know that offhand?

Mr. Greg Selinger: Yes, it's 18%.

Mr. Ken Epp: About 18%. In some other provinces, it's higher. I think some of the other ministers of finance this morning mentioned it's up even into the 30% range.

If you think of the programs that are being supported and of the potential for a tax reduction for your citizens because of this equalization, what percentage in your province do you think would be a fair percentage to receive in this equalization program?

Mr. Greg Selinger: That percentage will vary. I think it's important to put the equalization program in an historical context. All provinces in Canada have been beneficiaries of the equalization program at one time in their history, but for Ontario—all provinces, including the province of Alberta, which until 1961 was a recipient of equalization.

The proportion that you receive will shift relative to your prosperity, your capacity to provide services, your tax capacity within your province, and relative to other provinces, every time you review it, or every five years. So I don't think there's a fixed proportion.

We would like to have as little equalization as possible. We would like to have zero. But we want to do it by developing our economy and the potential of our citizens through the services they receive—education, health, etc.—to be prosperous. That's the point of the transfer. It allows provinces to build their economy, to educate their people, to keep their citizens healthy, to develop the infrastructure they need to become independent. That is the fundamental point of the transfer, and the history that was looked at by professors Bird and Vaillancourt illustrates that it has achieved that objective in the last forty years.

There have been some who have said it creates dependency. The evidence is contrary to that. I think it's really important to keep that evidence in mind when we look at the role and necessity of improving the program.

Mr. Ken Epp: I might just say in conclusion, then, that it is my belief that Alberta, British Columbia, and Ontario are beneficiaries of this program right now. I think it's beneficial to us to live in a country where there is a relative equality of opportunity across the country. That's an advantage to everybody in the country. We're also part of the country, so it's an advantage to us. That's basically where I'm coming from.

I thank you, Mr. Chairman. If there is time in the second round, I'll come back. I have some more.

The Chair: Thank you, Mr. Epp.

[Translation]

Mr. Marceau.

Mr. Richard Marceau (Charlesbourg—Jacques-Cartier, BQ): Thank you, Mr. Chairman. Minister, I'd like to thank you for coming here today to meet the committee members.

Minister, in your presentation, you refer to the enormous surpluses of the federal government. You mention the importance of the equalization program and you quite rightly noted the huge surpluses of the federal government and I'd be interested to know what reasons you are given for the refusal to remove the ceiling. How does the federal government justify keeping this ceiling that penalizes many provinces?

Mr. Greg Selinger: From my point of view, it is difficult to understand the justification for the ceiling in an equalization program. We understand that historically the ceiling was established when the federal government had a very high deficit and debts. But the situation has greatly improved in the recent past and we now believe that the program can return to its original function without a ceiling and without the federal government running the risk of a deficit.

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Mr. Richard Marceau: Yes, I understand. What I am asking you is what justification is given by the federal government to retain this ceiling against the unanimous request of the 10 provinces? Other than their refusal, what explanation do they give?

Mr. Greg Selinger: They tell us that an affordable program is necessary. But I explained in my presentation that in terms of the gross national product the level is actually lower. So it is hard for the provinces to understand why there is a ceiling at the present time when the provinces are subject to so much pressure for essential services in the field of education and, particularly, in the field of health. It should be remembered that at one time the federal government's contributions amounted to 50% of essential programs in Canada. But even with the increases to the CHSTs, its present level of contribution is much lower. The equalization program is essential for a province like Manitoba to be able to keep offering universal and essential services to its citizens and at the same time to have an affordable and competitive tax system in comparison with our cousins to the west and the east.

Mr. Richard Marceau: We discussed this a bit before the beginning of the committee: Quebec receives approximately 45% of the equalization payments and incurs 62% of the costs linked to the existence of this ceiling, which is a fairly sizeable discrepancy. Can you tell me what percentage of equalization payments is received by Manitoba and the percentage of the ceiling costs for the province?

Mr. Greg Selinger: We have approximately $1.3 billion under equalization and with the ceiling established in the bill, it will cost us approximately $100 million. That is a very large sum for us. With that kind of money we can do a lot for competitive taxes and services.

Mr. Richard Marceau: Let me rephrase my question. The total globalization payment is a certain amount. Out of this amount—

Mr. Greg Selinger: The proportion for us would be approximately 10%.

Mr. Richard Marceau: Approximately 10% of the payments. I see.

Mr. Greg Selinger: Yes.

Mr. Richard Marceau: And with the ceiling set by the federal government, despite, as I said, the unanimous requests from the provinces, what will it cost Manitoba, if we take the ceiling into account?

Mr. Greg Selinger: As I explained, it is about 100 million dollars.

Mr. Richard Marceau: And in terms of percentage?

Mr. Greg Selinger: Without the ceiling, our share of equalization would be about 11%. With a ceiling, our share would be about 9.6%.

Mr. Richard Marceau: All right, 1.4%.

Mr. Greg Selinger: Yes.

Mr. Richard Marceau: The provincial position is unanimous; we said this over and over again. But you seem to have a grudge against this unilateral approach adopted by the federal government. They decided to set a ceiling, a year will be suspended, but only one year, the ceiling will be kept and whereas the cost-sharing programs were 50-50, as you mentioned in answer to one of my questions, the percentage contributed by the federal government is going down. Do you not think that one of the ways to spare the provinces the confusion of this unilateral approach where you do not know from one year to the next how much money will be available, would be to focus more on transferring tax points to various provinces which could, in any case, either complement or perhaps even partially replace the equalization program?

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Mr. Greg Selinger: Some provinces and certainly Quebec would prefer the mechanism that involves transferring tax points.

We have not gotten to that point yet. We would rather improve the existing system with the recommendations that were made today. However, we are studying the possibility of transferring tax points, because this would perhaps create a more stable situation in the long term. Nonetheless, we prefer to stay in partnership with the federal government and have a good equalization program that would be advantagous for all Canadian provinces.

[English]

The Chair: Thank you, Minister Selinger.

We'll go to Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you very much, Mr. Chair.

To Minister Selinger, welcome, and thank you.

To reiterate my point from this morning's session, at the fall first ministers' meeting, the Prime Minister said... I'll read from the communiqué:

...the Prime Minister agreed to take the necessary steps to ensure that no ceiling will apply to the 1999-2000 fiscal year. Thereafter, the established Equalization formula will apply, which allows the program to grow up to the rate of growth of GDP.

I know it's a contentious issue as to what exactly this meant; our interpretation and understanding is that no re-basing was intended.

Looking at your own province, sir, as I understand it the federal transfers, including equalization and CHST, are expected to be in the vicinity of about $2,000 per person, which is about 41% above the national average. If you look at the notion of federal transfers and equalization, it's to bring those have-not provinces, if I can call them that, more in line with the have provinces, to achieve the objective you referred to—some comparability in terms of services and programs. If it's 41% over the national average, you're forced to conclude that, conceptually, at least, they are getting more.

Now the question is, is that enough? Is it enough to reach the objective you're talking about? You seem to imply that in Manitoba, for example, equalization payments are not permitting you to deliver the quality and standard of service equal to the rest of the country. Is this an intuitive analysis, or do you have any data to support this view?

I'd be the first to admit that measurement of outcomes, let's say in health care and education, is tough work at the best of times. But you seem to imply that your province is not able to deliver the same level of these services across Canada, and I'm wondering if you have any information or data you could share with the committee to support this.

Mr. Greg Selinger: The effect of the ceiling on equalization makes our challenge even greater, to offer quality services at comparable levels of taxation.

Without being specific, I think you've seen the rollout of provincial budgets across the country in the last month, and you can see widely varying levels and forms of taxation, and widely varying levels of increases in spending on programs. When you take a look, you can see that several provinces are struggling very much to balance budgets and maintain their level of services.

A practical example: we're seeing enormous pressure in the health care sector, with shortages of health professionals, over wages. Many of those pressures are being driven by agreements reached outside of our province, by provinces with greater fiscal capacity; yet with shortages, you have to match or come close to matching those rates of salary to retain these essential personnel within your province. We like to think we're doing our very best to maintain our services and to keep our taxes affordable, but the challenge is much greater, and the risk is higher, on being able to strike the right balance, because the margin of manoeuvre is much thinner.

I've indicated that this ceiling could cost us up to $100 million. That $100 million... we're running a budget of about $6.7 billion, which doesn't sound like a huge amount of money, but it makes a big difference when you're balancing to the dollar every fiscal year within your province.

Mr. Roy Cullen: Yes, and I wouldn't debate the challenges before all provinces, before the federal government, before all Canadians.

You're saying 40% above the national average per capita in terms of federal transfers to Manitoba simply doesn't do it, or doesn't get you there. I'm prepared to move on from there.

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On page 35 of your brief, sir, you make some assumptions with respect to equalization. The CHST is pretty much a known factor, but when you're projecting equalization, do you not have to make certain assumptions with respect to the rate of growth of GDP, the population of receiving provinces? You make a number of assumptions. I'm wondering what those assumptions might be, if you're prepared to share them with us.

Mr. Greg Selinger: It's an “all things being equal” set of assumptions. We're going on the basis of the information we have right now. We're not making any outlandish assumptions about changes in population or any outlandish assumptions about growth in the economy. We're working from the accepted and consensus views of what is going to happen across the country.

We recognize the situation could change in the future. As your colleague beside you will admit, economic forecasting is a dismal science and often wrong. We're not trying to do anything particularly dramatic here. Very simply, we're trying to illustrate the point that re-basing back to $10 billion could, under reasonable assumptions most people would make in the Canadian economy, cost us about as much as we gained on negotiating the improvements in the CHST with the Prime Minister last September.

Then the effect would be for the recipient provinces not to be necessarily much better off, and with the CHST accruing incrementally to the non-recipient provinces, you could be widening the gap. This would be an undesirable outcome from this kind of an exercise, and particularly ironic with respect to this particular transfer—widening the gap instead of narrowing it and allowing it to decrease so all regions can be competitive and provide quality services to their citizens.

Mr. Roy Cullen: But you would agree, Mr. Selinger, that it is based on certain assumptions. I'm sure your assumptions are reasonable, but whether the ceiling is triggered in the remaining three years depends a lot on whether the strong growth in Ontario relative to other provinces is sustained.

If this growth is sustained, is it not conceivable that equalization may not fit the scenario you've projected here on your chart on page 35?

Mr. Greg Selinger: Yes, it's very possible for the situation to change. I'm more than willing to concede that. I've seen lots of economic forecasts go awry.

If I was to base my assumptions on the pronouncements of the federal Minister of Finance, the economy is going to do quite well, and be in the go-forward position. Those are the projections of most of the major banks. They think there will be a recovery in the second half of the year. We certainly hope this will be the case.

But I want to return again to the very fundamental point, the purpose of the equalization program. It's a horizontal transfer, which is an abstract term to express that the provinces need to be given the capacity to offer comparable services at comparable rates of taxation. Equalization gives provinces the capacity to work with the federal government on special projects regionally important for economic development.

The Minister of Finance from New Brunswick this morning indicated very clearly that there are two components to the constitutional provision for equalization—a regional economic development component, and the services and taxation component we're focusing on here today. Both components are essential.

When we, for example, want to enter into a relationship with the federal government on a project, say for first nations people, or for a floodway, or for urban renewal—all topics we're discussing with the federal government—we need the resources to do it, and we need to have those resources without having high tax rates, which make us less competitive compared with those neighbours to the west and east of us.

The equalization program has proven historically to be a very thoughtful, forward-looking transfer program allowing the Canadian federation to reduce disparity across the country and all regions to grow very successfully.

The Chair: Thank you, Mr. Cullen.

Mr. McCallum.

Mr. John McCallum (Markham, Lib.): Thank you, Mr. Chairman.

First, in response to the remark about economic forecasts, one of the big advantages of changing from my old job to my current job is that I no longer have to pretend that I know what all these things will be a year from now.

As an initial remark, I agree entirely with your rationale for an equalization program, and I disagree entirely with the notion of giving rich people a tax break. As you said, the purpose is to provide comparable service at comparable tax effort. So in the absence of this, rich and poor people would have to pay more taxes in the poorer provinces. I think it's a wonderful program.

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That said, I'd like to ask you a question about the ceiling, because it seems to me there's a certain amount of symmetry between the ceiling and the floor. The purpose of the ceiling is to prevent unlimited or unduly large increases in any given year of spending by the federal government. The purpose of the floor is to prevent unduly large decreases to any province in any given year. So there's a certain symmetry there. Are you proposing that we get rid of the floor as well as the ceiling?

Mr. Greg Selinger: I'm going to give you how the Supreme Court interprets the Charter of Rights and the Constitution. The symmetry is strictly academic, I would suggest. The purpose of the program is to reduce disparity. So to remove the floor would increase disparity. It would be contrary to the spirit of the program.

I think when you interpret the purpose of a piece of legislation, you have to go underneath the superficial symmetries between floors and ceilings to ask yourself what's the spirit and purpose of it. A floor makes perfect sense if you want to reduce disparity and allow provinces to stay competitive, a ceiling doesn't. So there's no symmetry between those two concepts when you look at the purpose of the program.

Mr. John McCallum: Is there any symmetry, though, in the sense that each level of government wants to have some control over its budget and future expenditures, given economic uncertainties? The ceiling reduces uncertainty for the federal government, while the floor reduces uncertainty for the recipient provincial governments.

Mr. Greg Selinger: You make an important point. Every level of government—and I think this is a legitimate point—wants to be able to control its costs. There are a number of cost drivers on everybody's budget, which give ministers of finance nightmares when they're living in a balanced budget environment. Because there's an assumption behind balanced budgets that you can control all your expenditures and all your revenues. That's patently false at every level of government in this country.

I take your point there. Governments obviously look for ways to manage their costs and their revenues, where they can. I think that's legitimate. That's why we propose that you could re-base the ceiling as a reasonable compromise on the actual amount it grew in the year the ceiling was lifted. That would at least be a step forward on the part of the federal government, which wouldn't completely blow open their exposure on it.

But we should also understand that it's only going to grow if the economy's growing. It's linked into that. So it won't grow. It won't be an exposure for the federal government, unless the economy gives them the additional revenues to do it. So I don't think there's a particular problem there.

My colleague who has worked in this field—and as you may know from previous lives, has been working in this field for many years—indicates to me that the floor is re-based every year. It doesn't get locked in for five years, such as we're suggesting with the ceiling. Even that would be an improvement over the proposal existing in this legislation. So I'd ask you to consider that as well, sir.

Mr. John McCallum: Thank you.

This is partly in response to my Bloc friend over there about these huge federal surpluses. I don't think we have to apologize for significant surpluses in the last two or three years, and possibly this year, which have been used to pay down the very large federal debt. The problem, however, is, if we go up $800 million in spending and forever forward, we're committing ourselves to $800 million plus this year, next year, and the next several years. If you look at the federal government budget situation, by the time we get up to 2004-05, which is the year when the tax cuts finally come in, the situation is pretty tight and the surpluses cannot be described as huge.

So I would suggest to you that a case might be made from the federal side not to lock itself into $800 million plus annual additional expenditures forever, given that looking forward, the federal government's own budgetary situation is likely to become far less wonderful than it appears today.

Mr. Greg Selinger: I understand your point. You're being very practical about the realities of trying to manage a budget. I think my answer would be very similar to the one I gave you to the previous question. That will adjust according to growth in the GDP. The floor also adjusts annually. So you're not, with respect, locked into a floor that drives your costs up beyond your revenue capacity in a weak economic situation. The floor is re-based annually. If we're into symmetry here, we would ask that you at least re-base the ceiling annually. You're locking in the ceiling for five years, but you're re-basing the floor every year.

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If symmetry is important and we want to have a purposive form of symmetry consistent with the spirit of the program, this legislation would miss the point. It should be at least re-based annually. We are confident that if the economy and the tax cuts you have proposed in your mini-budget were to create a tighter fiscal situation for you, this program has built within it adjustments to take that into account.

The provinces would be willing to share that, but when times are good, when the resources are there, we also need them, particularly with the pressing issues we have in post-secondary education and health care. These are constitutionally the responsibility of the province, but the programs were built on federal transfers that were 50-50, and now we're holding the bag on that—we want to continue those programs, but we need the resources to do it.

Mr. John McCallum: I certainly acknowledge you have some good points. Thank you.

The Chair: Thank you, Mr. McCallum.

Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chairman. Thank you, Minister, for appearing before us today.

In 1982, when the ceiling was first introduced, it would be accurate, I think, to say that tax rates across the country were fairly equal. There wasn't a huge difference in tax levels. That has changed significantly since then. That's one of the differences in conditions since 1982. The other one, of course, is the degree to which the federal government is in a fiscal surplus and has greater flexibility.

On the tax side of it, given that equalization is a constitutionally enshrined program, with its mandate to provide approximately equal levels of services and equal levels of taxation across the country, isn't it just common sense that we should provide the tools by which provinces can achieve that in the short term? It's not as if right now there are equal levels of taxation across the country and equal levels of services. That's simply not the case, and we're not even close to that being the case. We recognize now the importance of having tax rates that are conducive to economic growth and opportunity. Until we have relatively equal levels of taxation and services across the country, shouldn't this ceiling be removed, providing provinces with the level of flexibility needed to make the mandate of equalization a reality?

Mr. Greg Selinger: That would be our view, that there's no economic or fiscal constraint that requires the ceiling at this time in the history of fiscal reality for the federal government. We think it would allow all provinces to become more competitive. We think it would be to the advantage of Confederation for that to occur. We think it would actually reduce the need for this transfer going forward, as provinces diversified and strengthened their economies.

Mr. Scott Brison: Would you agree with the notion of removing the ceiling for, say, a five-year period, and then revisiting it and looking at it from that perspective? The current system doesn't really provide a province with an opportunity to invest in the social infrastructure needed to succeed today. I'm thinking of education primarily and the health side, but also the need to create the tax environment required to be competitive. Would that give you a greater level of flexibility, even a five-year window?

Mr. Greg Selinger: Absolutely. A five-year lift would create greater certainty. It would allow all provinces to better make their calculations going forward. It would allow all provinces to develop and diversify their economies, taxes, and investments in education and training, high skills areas. That would be a distinct improvement, one we would welcome as a suggestion or a recommendation.

Mr. Scott Brison: Would you agree that the current equalization system actually provides fairly direct impediments to provinces seeking to diversify their economy, to pursue a value-added strategy relative to resources, or to diversify even into the knowledge-based side of it?

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Particularly from a value-added perspective, they're a direct impediment for provinces to do what we should be encouraging them to do, and that is to build their economic base.

Mr. Greg Selinger: Let me illustrate with an example. We've lost the Crow rate in western Canada. Farmers are experiencing extremely difficult times right now, with commodity prices for grains and oilseeds being very low in the world marketplace. To survive, farmers have to diversify. Part of that diversification requires some help to change their farming practices and the kinds of farming they do. We also need to make an investment in infrastructure for farming to succeed, such as in roads. Grain terminals are farther away and markets are farther away. Equalization would be part of the resources required to help the agricultural economy diversify in a very difficult period of its Canadian history.

Mr. Scott Brison: This is one of the rare occasions when you have ten provinces agreeing to something that involves a transfer, in this case, from some provinces to other provinces. That's a fairly rare occurrence. Do you feel the reticence of the federal government... Well, I'll add to that. You have ten provinces agreeing to something, including the have provinces. You also have the federal government agreeing to invest in economic development programs that are federal government economic development programs, whether it's the Atlantic Canada Opportunities Agency or Western Economic Diversification. Isn't this another example of the federal government seemingly trying to maintain as much control as possible? Would that be one of the rationalizations? Why do you think the federal government is so reticent to providing a little greater flexibility at this very critical time?

Mr. Greg Selinger: I usually do not try to speak for others or try to get inside the heads of other politicians in terms of what their motivation is. I usually just try to keep mine as straightforward as possible. But I would say this: The federal government—and it might even predate the present government—has been concerned about getting recognition for the contributions they make at the provincial level.

For a long time, provinces were reasonably good at taking transfer payments and then bashing the federal government for further supports. It makes it difficult for any level of government to hand out money and then get its fingers burned right after doing it. I think it requires a certain amount of graciousness on the part of all levels of government to recognize the contributions each level is making to the development of a province or a region. So I think that might be one contributing factor historically.

That plays out in different ways in different regions. For example, I've heard it said in some of the non-recipient provinces that they're surprised the federal government contributes to, say, roadwork or infrastructure in, say, some of the maritime provinces, the Atlantic provinces. But when you look at it, the federal government has made strategic investments in every province in this country, whether it's a high-tech industry, whether it's a tar sands, whether it's a floodway, or whether it's a port in northern Manitoba, in Churchill. Those strategic investments are made by the federal government in every province, and of course they want to get recognition for the contributions they make.

Equalization isn't attached to a specific project, so it's a little harder to get visible a credit for that. Maybe we need to address that issue in the renewal of this program. But I can tell you that when you don't have that transfer, it's harder to partner with the federal government to do these special projects, because your resources are more limited. When the federal government comes along and says to us that it would like to do something for farmers at the end of a budget year and will put up 60% if we put up 40%, it's very hard for us to find that 40% when we're projecting a $10 million surplus and the federal surplus is over $10 billion. The margin for manoeuvre is much thinner for us, yet we want to be part of that solution. Equalization would allow us to be part of that solution.

Mr. Scott Brison: As a province, are you finding it difficult to match the Canadian Foundation for Innovation, for instance?

Mr. Greg Selinger: Foundation for Innovation funding is very challenging for us because it's 40% matched by us. Often the decisions are made at the federal level, and we then have to ante up the 40%. We want to do it, we want innovation to occur in our province, and we're very much trying to develop a climate for research and development within Manitoba, and that is part of the puzzle. But there is a frustration there on our part in having to just write the cheque after the fact without having any say on what the projects are, necessarily, and the amounts that are contributed to them.

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The Chair: Thank you, Mr. Brison.

We'll go to Mr. Blaikie, and then to Ms. Guarnieri.

Mr. Bill Blaikie (Winnipeg—Transcona, NDP): Thank you, Mr. Chairman.

I noticed that, for a moment there, the conversation was focusing on the whole question of federal visibility in transfer payments to the provinces. It reminded me that twenty years ago this month, I was sitting on a special parliamentary task force on federal-provincial fiscal arrangements, chaired by Herb Breau at the time. This was a problem then in terms of the federal government feeling it wasn't getting enough visibility given the money it was spending.

Equalization was not one of the problems in that respect. It had more to do with established programs financing and the money the federal government was putting into health care and post-secondary education. But the battle between the provinces and the federal government goes back and forth. At that time, I would say it was mostly the federal government that had a legitimate grievance against the provinces for not spending money in the areas for which it was actually targeted.

Over the years, my own feeling has been that it is now the federal government that has become the bad guy in the federal-provincial battle, mostly in terms of downloading, offloading, and putting caps on things that shouldn't be capped. Equalization is, after all, a constitutional principle. We might have put a notwithstanding clause in the Constitution having to do with the charter, but we didn't plan an ad hoc notwithstanding clause on the principle of equalization, which is what the cap on equalization has become. This is a constitutional principle, and it seems to me that it ought to be adhered to. But that's just by way of comment.

I wonder if the Minister of Finance from Manitoba could just elaborate a bit more on something.

I know you've touched on this a couple of times, but can you elaborate on the perverse logic of what has happened here? That is, it's actually the poorer provinces, the so-called have-not provinces, the recipient provinces—which is the more image-neutral way of describing provinces that receive equalization—that, after you take a look at what happened with the health accord, the CHST, and equalization, actually are getting the short end of the stick, whether the federal government intended it or not. I'm not sure everybody understands completely just how that is so.

Mr. Greg Selinger: I wouldn't for a minute suggest it was an intended outcome or a planned outcome. I think there was a negotiation that occurred between the premiers and the Prime Minister in a setting in Winnipeg, and the recommendation was made to lift the ceiling on equalization for one year as part of a package that improved the CHST. But we have to remember the CHST has been moving historically from an equalized transfer to a per capita transfer. There has been less equality in the transfer according to the needs of the provinces on the specific resources for health, post-secondary education, and social services, which are often forgotten. The CHST also includes what used to be the Canada Assistance Plan, as well as the two programs funded under established programs financing, the EPF, for health and post-secondary education.

As that moved to a more per capita transfer, which advantages the non-recipient provinces, it was our belief in Manitoba that the lifting of the ceiling was an offset to that, in effect. It would allow greater equity when you looked at the program package together of transfers from the federal government. One was becoming less equal in the sense of becoming a per capita transfer unrelated to need or fiscal capacity. The other one, by lifting the ceiling, started to restore the original role of that transfer, which is what the specific purpose of equalization is. The cap on equalization is an artificial barrier to it doing its job. We thought that, by lifting it, we were getting greater equity at the same time when we were building a consensus on what the federal government and the provinces could do together for health and education. To now re-base it back to $10 billion and to contradict the plain reading of the language that was in the letter from the Prime Minister undermines the spirit of that meeting, in our view.

The Chair: Thank you, Mr. Blaikie.

Ms. Guarnieri.

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Ms. Albina Guarnieri (Mississauga East, Lib.): Thank you, Mr. Chair.

Minister, I want to piggyback on an earlier question asked by my colleague Mr. McCallum. In your brief you point to a $100 million shortfall as a result of the ceiling on transfer payments. I know the federal government would argue that if you don't have a ceiling, there's nothing to protect you when the rain falls. I'm sure you've observed in the past critically historical efforts to contain open-ended transfer payments, such as the Canada Assistance Plan. Earlier, in response to Mr. McCallum, I think you graciously acknowledged the importance of any credible minister of finance, who would want not to expose himself to unpredictable escalating factors. So I want to ask you a question I asked your colleagues earlier today.

I certainly think there is a massive impact on consumer confidence when governments are forced to back away from their spending and tax cut plans. How concerned are you that the changes in your budget brought about by, perhaps, a slower economy, combined with the ceiling on equalization payments, might shake consumer confidence and reduce spending and investment in your province? Is that a quantifiable risk?

Mr. Greg Selinger: I certainly think re-basing the cap on equalization back down to $10 billion reduces our fiscal flexibility and increases our risk of not being able to meet our spending and tax targets within a balanced budget environment. You have to know that in Manitoba we have probably the strictest balanced budget legislation in the country. We don't have to balance over three or four years, we have to balance every year to the dollar. At the same time, we have a commitment to reducing the debt. This just reduces our ability to meet those targets, and thus could have a negative effect. We would like that not to be the case. Obviously no government plans for bad news. We're designing our budget expenditures to increase the size of the Manitoba economy, to increase the gross provincial product, and equalization is part of the formula to do that.

Ms. Albina Guarnieri: I would like to ask you to consider a parallel risk to consumer confidence. For instance, if the federal government missed its target and was forced to cut back, would you not consider it most important, in respect of dollars and interest rates and market confidence, that the federal government's predictions be rock solid? Couldn't it be argued that the interests of Manitobans would be well served without any negative impact of the ceiling, that federal stability would mean more to Manitobans?

Mr. Greg Selinger: Certainly, having a strong federal economy and a strong positive climate on a national level is important to Manitoba. We're all in the same boat, presumably. That said, if the provinces are having problems, that undermines confidence at the national level as well. So it's a question of finding the right balance here. You've seen in our amendments proposed by the Minister of Finance from Prince Edward Island what we think is a very reasonable compromise. Re-basing it on the year it was lifted would still allow for predictability on the part of the federal government.

As I indicated earlier to your colleague, if the GDP starts slowing down, it automatically factors into the formula and it's re-based—the floor is re-based annually. So I don't think you'd be locked into expenditures that were unsustainable with slower revenues. This program would adjust according to the fiscal capacity of the federal government. All we're suggesting is that what you're getting on the downside with an annual adjustment we get on the upside with an annual adjustment.

I'm not necessarily one who believes in symmetry. I think there are lots of arguments for asymmetry in a country as diverse as Canada. But with your colleague it might be a good argument that at least on the top end and the bottom end, there should be some symmetry, with annual re-basing, as opposed to lock-ins at $10 billion for five years at a time. I think that would be a reasonable proposal and wouldn't put your government, which is our national government, at any undue risk.

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Ms. Albina Guarnieri: Thank you for your candour. I take it we're assured that Manitobans' financial interests are going to be aggressively pursued by you.

The Chair: Thank you, Ms. Guarnieri.

You have a final question, Mr. Epp.

Mr. Ken Epp: Thanks.

I picked up on something you said earlier. In regard to the CHST, which has been to a large extent now changed, so that it's based on per capita, would you not agree that the cost of delivering health care is in fact a function of the population to a large degree? I would think there is a component that is fixed, especially for smaller populations. To build a hospital and to staff it costs x number of dollars whether it's providing a service to 100 or 300 people, but on the larger scale, it would certainly be a function of the population. In that sense, a province that has a larger population has a larger cost for health care, education, and other things like that.

Mr. Greg Selinger: Actually, I would disagree with you on that, Mr. Epp.

Mr. Ken Epp: But you said it.

Mr. Greg Selinger: I would say that the cost drivers in health care are not strictly the number of people only. There is a demographic factor. The Minister of Finance from Newfoundland indicated this morning that some provinces have a higher proportion of senior citizens than others. Some provinces have populations spread over much wider territories.

For example, we have 45,000 citizens in northern Manitoba. Many of them are in first nations communities. Even though it's a federal responsibility, we pay the cost of transporting those patients down to proper facilities. We've done some things this year that we probably shouldn't have done if we wanted to play by the rules and not go into federal territory. We're putting dialysis units into first nations communities to meet the needs of those people and not incur the cost of having to fly them out to more expensive facilities. We're trying to provide treatment and support right in those communities.

Every province has a different set of demand factors driving their health budgets—population, poverty levels, geographic dispersion of the population, availability of a concentration of where your medical specialists are. For example, in Manitoba most of our specialists reside in Winnipeg. In fact, 65% of the population resides in Winnipeg, so it's hard to get specialists out to the smaller communities. We're looking at solutions there, such as telemedicine, the use of video, new technologies, to get that kind of treatment and that kind of expertise available.

So the cost pressures are different. The Minister of Finance for New Brunswick said that delivering health care in the city of Calgary, which is about the same size as New Brunswick, is much more cost-efficient than it would be to deliver for the same population in New Brunswick, which is much more spread and dispersed and much more difficult to service with proper professionals, proper specialists. It is more difficult also attract professionals to some of those smaller communities and retain them. The cost pressures are really different, and they're based on multiple factors, not population alone.

Mr. Ken Epp: Okay. That then raises this very interesting question. If there is this disparity in the actual costs of delivering a program, our present equalization system doesn't address that. Our present equalization system, instead of looking at the actual costs or the estimated costs or the projected costs, looks at the potential of raising revenue if you had a similar tax system to the other provinces.

Mr. Greg Selinger: You make a very interesting point. You would like to consider looking at how equalization could be shifted from an average tax capacity basis to a needs basis, which could be, in an ideal world, a way to go. My colleague, who has worked on this for a couple of decades, says it's very hard to get that expenditure focus quantified in a way everybody can agree to. That could be something for provincial and federal officials to look at in a go-forward position.

We're here today simply to focus on the ceiling and how that can make a step forward for everybody. These more difficult questions we can continue to work on in a spirit of cooperation as we go forward. But that's no reason to stop the improvements that are being suggested today.

Mr. Ken Epp: Yes, I agree with that. Just by way of comment, if your colleague has been working on this for a couple of decades, he must have started when he was 10.

I have one last question to do with choices. Every province has a treasurer or a minister of finance, and they have to come up with their projected revenue from all sources and look at the way they're going to spend that money on behalf of the citizens of that province or territory.

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Would it be helpful to the provincial financial people if, instead of having an equalization program such as we have with ceilings and floors and and these projections and everything, which to some degree are unpredictable, it could be based on some other formula that is not as changeable and is more predictable?

I'll use this example. Manitoba actually lost, I think, $50 million in equalization the year they brought in the lottery, because the potential for earning money from lotteries in Manitoba was considered large. Yet from what I know of Manitobans—at least my relatives who live in Manitoba—they don't buy lottery tickets, just on principle. I think there are literally thousands of Manitoba people who don't buy lottery tickets. So Manitoba loses $50 million from the federal government on this formula because of the inclusion of lottery tickets, yet they don't get the revenue from their citizens to that degree because they don't buy the tickets. It's based on potential. It should, it seems to me, be based on actuality rather than potential.

Mr. Greg Selinger: We take your point. My colleague would like to talk to you about the specifics of the comments you've made with respect to lottery tickets, because it's a little more complicated than that. But we take your point that the program should address the real needs of citizens in the regions that would benefit from the transfer.

I would just like to conclude by saying that this program is a kind of insurance policy for the citizens of Canada. Some provinces are prospering right now. Historically, some of those same provinces were also suffering at other times during their careers. This insurance policy ensures that all provinces have a chance to prosper regardless of the circumstances as we go forward, and historically it has proven to be very effective in achieving that result.

Mr. Ken Epp: Okay, and I agree with that general statement.

Mr. Chairman, I'm done.

The Chair: It looks like you're not going to be the last questioner. Mr. Brison is going to have a five-minute round.

Mr. Scott Brison: Thank you, Mr. Chairman.

Minister, on your last point about the notion that there's a mobility within equalization, and some provinces have been successful in that regard, the leader of my party, Mr. Clark, who represented my riding at one point last summer, made the statement during the by-election that Albertans need to remember that before Albertans had the vision, foresight, and wisdom to put oil in the ground, Alberta was a have-not province. So I think that underlies that principle.

In terms of the argument made by some members opposite that this is an issue of federal government predictability of expenditures, that there needs to be an ability to predict exactly or almost exactly what those expenditures will be and that this cap helps to achieve that, I think it's a somewhat specious argument, because there are very few budget items that are completely and utterly predictable in absolute terms. In fact, the Auditor General has criticized this government for erratic spending and going outside of projections in some cases. Be that as it may, the principle of being able to absolutely predict or control expenditures in a fluid economy is, I think, a fairly specious argument.

That was just a comment I had. I'd appreciate your feedback on that as someone who has to manage a budget on the provincial level.

Mr. Greg Selinger: There's no question—and I made this comment earlier—that neither all the revenues nor all the expenses are within the control of the government. In particular, they are not in the control of the Minister of Finance. They can manage with certain amounts of those issues, but they can't completely control them.

What I said earlier was that the way this program is designed, the amount that is transferred goes up or down depending on growth in the GDP. So it has an automatic protector for the federal government built right into it, which might render the notion of a ceiling redundant. The ceiling artificially holds back the value of this transfer below growth in the GDP, which means there's a windfall to the federal government to the disadvantage of the provinces. So they experience a greater risk, even during good times, because of the way the ceiling is being put on, and during times when there are enormous pressures on such fundamental programs as health care and education.

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It seems to me to be unfair for one level of government to be the beneficiary of an artificial cap while other levels of government are struggling to pick up responsibilities that used to be funded 50-50 by the federal government.

Mr. Scott Brison: Thank you.

The Chair: Minister, I have one final question, and perhaps I'll give you an opportunity to get on the record your response to those individuals who may say that equalization has grown by 33% since 1993-94, with entitlements reaching approximately $10.8 billion. And I'm talking about the national level, the highest level. In contrast, other federal program spending, excluding transfers to the provinces, has grown at 2.6%.

What do you say to those individuals who may think the growth of 33% is substantial?

Mr. Greg Selinger: I would agree with them. I would say the growth has been substantial. I think the evidence before us today is that it has not been a hardship for the federal government in terms of the surpluses they've been able to generate. So I think the point you're putting in front of me illustrates exactly what we're saying. This has not broken the bank at the federal level, yet it has been a substantial program that has allowed provinces to prosper and provide services where they are now funding... For example, in Manitoba we fund 85% of our health care now. We used to fund only 50% of it.

So we are taking on more responsibility as the result of some of the reductions in program expenditure in other areas of the federal government. This transfer has been a source of support to provinces that have had to take on that additional responsibility, and it has not been an impediment to the federal government accumulating large surpluses and being able to provide Canadians tax reductions.

So I think your point is a very important one because it illustrates in bold letters why it is a good program, how it has provided essential resources to provinces and the citizens of those provinces without being a millstone around the neck of the federal government.

The Chair: In your province I think the growth is higher than 33%. Is that correct? It's probably around 42%.

Mr. Greg Selinger: My able official says it probably has been higher, but we think it has been proportionate and maybe even less than your growth in revenue during that same period of time.

The Chair: So it's been higher.

Mr. Greg Selinger: Yes—

The Chair: But what does “maybe” mean? Is it higher or isn't it?

Mr. Greg Selinger: It's higher.

The Chair: Okay.

So it's just not enough then, 40%, 42%, whatever? That type of growth is not enough to offset the extra burden that you have, for example, as the minister was saying, on health care and education, and that kind of thing. Is that what you're saying?

Mr. Greg Selinger: Yes.

The Chair: Okay.

Mr. Hubbard.

Mr. Charles Hubbard (Miramichi, Lib.): Thank you, Mr. Chairman. I have only a comment, and maybe the Minister would like to give a bit of a rebuttal.

You refer in your arguments to major federal surpluses. Now, the Government of Canada has had a tremendous deficit, and with the annual need to pay interest on that deficit, I find it strange for you to argue that we shouldn't have a surplus. If we never have a surplus, we're never going to get that debt down, and we're never going to have the money to give the services that Canadians need.

I don't really see that as an argument. I can see it in terms of where we want to spend our money, but to criticize us and imply that we shouldn't have a surplus of $10 billion or $12 billion a year certainly doesn't bode well for the future of the Canadian federal system.

Mr. Greg Selinger: I wouldn't want you to interpret my comments as saying that you shouldn't have a surplus.

Mr. Charles Hubbard: If we do have a surplus you think we should give it to the provinces, is what you're saying.

Mr. Greg Selinger: No, I'm not saying that you should completely hand your surplus over to the provinces. I'm saying the equalization program should be allowed to do its job. By lifting the ceiling, as a preferred point, and as an accommodation, to at least let it be re-based at the level it grew in the year that you did lift the ceiling, would offer more support to the provinces.

It would be desirable that all provinces and the federal government have a surplus to pay down their debts to invest in the future. We shouldn't be entering into beggar-thy-neighbour policies one way or the other. It's a question of finding the right balance.

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I wouldn't want you to take my arguments as being an attempt to pick your pocket to our benefit, or vice versa, to suggest that it's appropriate for you to artificially hold down revenues to the provinces to your advantage. It's a question of finding the right balance, and we think we've put forward a sensible position today, based on the agreement that was reached in Winnipeg on the eve of a federal election, where the ceiling was to be lifted for a year, and then the transfer was to be allowed to grow consistent with growth in the GDP after that. We think that was a reasonable position, honourably arrived at by the premiers and the Prime Minister. We think this legislation undermines that agreement, and we would like the legislation to more accurately reflect the mood, spirit, and accomplishments of that meeting.

Mr. Charles Hubbard: Thank you, Mr. Chair.

The Chair: Minister, on behalf of the committee, I'd like to thank you very much. We will, of course, review this bill in the spirit that, as Canadians, we do share the risks and benefits of our common citizenship. We will remain true to that spirit as we review this bill.

Mr. Greg Selinger: Thank you.

The Chair: The meeting's adjourned.