Proceedings of the Standing Senate Committee on
National Finance
Issue 30 - Evidence
OTTAWA, Thursday, March 18, 1999
The Standing Senate Committee on National Finance, to which was referred Bill C-65, to amend the Federal-Provincial Fiscal Arrangements Act, and Bill C-43, to establish the Canada Customs and Revenue Agency and to amend and repeal other Acts as a consequence, met this day at 10:45 a.m. to give consideration to the bills.
Senator Terry Stratton (Chairman) in the Chair.
[English]
The Chairman: I call the meeting to order.
This morning we are meeting on Bill C-65 and the Honourable Paul Martin, Minister of Finance, is appearing before us.
Mr. Martin and officials, welcome. Please proceed.
[Translation]
The Honourable Paul Martin, Minister of Finance: I want to thank you for inviting me to come here to talk to you about some extremely important Canadian initiatives.
[English]
Honourable senators, I am here to support the renewal of a critical Canadian initiative, a program that gives flesh-and-blood testimony to our commitment to mutual support and shared advantages.
There are other federations in the world -- you undoubtedly know of them -- where if you are born into an economically disadvantaged region, province or state that is not up to the same level of wealth as others, you are destined to receive a level of government service that is inferior to that which the richer regions can offer. This can take the form of second-rate health services, poor education systems, lack of social assistance, and a host of other disparities that tend to feed on themselves and establish a self-perpetuating cycle of poverty.
We do not want that in Canada. We do not have that in Canada because, through measures such as the equalization program, we act to make the chances of all Canadians reasonably equal wherever they are.
[Translation]
Equalization is a financial initiative designed to ensure equity, a typically Canadian value. Renewing this program for an additional five years, the purpose of Bill C-65, enables us collectively to support one of the pillars of Canadian society and to sustain our relations with provincial governments.
[English]
The need for this cornerstone became obvious in the early decades of the 20th century. As provinces delivered the social programs that had become national priorities, it became evident that the tax capacity needed to carry out these responsibilities was not evenly distributed among the provinces. There were have-much provinces and have-less provinces.
In 1937, the Royal Commission on Dominion-Provincial Relations, the Rowell-Sirois commission, was established to look into federal-provincial issues and make recommendations. One significant recommendation in the report that came out in 1940 was that the dominion government, as it was then known, should make annual, national adjustment grants to less prosperous provinces. It was reasoned that this would make it possible for every province to provide its residents with comparable services without having to tax these same citizens excessively.
In 1957, a program dedicated to this purpose was born with the introduction of equalization. Then in 1982, the commitment to equalization was enshrined in the Constitution.
Section 36(2) of the Constitution states:
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.
[Translation]
The bill now before the committee is not only about one program. It affects the character of a people, its moral fibre. Passage of this bill will provide major assistance to less prosperous provinces and will highlight the fact that equalization is a government priority. It will ensure that receiving provinces have adequate financial resources to provide the service their residents want and need.
[English]
This renewal follows more than two years of consultation with the provinces. A considerable amount of technical work was undertaken by both the federal and provincial officials and then reviewed by the ministers of finance at both levels. The proposed legislation before us today introduces amendments of a primarily technical nature to ensure that the program remains up to date, reflecting current tax bases, existing provincial taxing practices, and current economic realities.
It also makes changes to the floor provisions of the legislation, providing protection to less prosperous provinces against large declines in their equalization transfers, as well as changes to the ceiling provisions to ensure that the program remains affordable.
Others before me have gone into the detail of the improvements for equalization being proposed, and I will not repeat what many able senators around this table have already said. I will say in conclusion, however, that by moving this bill forward, we are contributing to a definition of the Canadian federation in terms that speak to our common humanity and our concern. Thank you for allowing me to speak on this defining issue.
The Chairman: For the benefit of people watching this committee, can you define "equalization payments" in layman's terms? It is important that we start off on the right foot this morning and provide a basic understanding for viewers. We have averages and this and that; it tends to be confusing.
Mr. Martin: Mr. Chairman, I certainly understand the problem that you raise. When I first became the Minister of Finance, I was introduced to a gentleman and told that he had to be kept in very good health because he was the only person in Canada who understood equalization.
I want to tell you, senators, that due to the very sound administration that we have brought forward, there are now two people in the Department of Finance who understand equalization.
Essentially, equalization takes account of the fact that provinces have different taxing capacities based on their own economic realities. The best and most clear example would be the strength of the automobile industry in Ontario, which gives Ontario a greater taxing capacity than, say, the Province of Newfoundland.
Equalization attempts to even out such disparity. Essentially, we examine the taxing capacity of five provinces. We look at their ability to raise money and calculate an average level. Then we ensure that all provinces are brought up to that average level. We look at some 30 different indicators of taxing capacity in order to find that average.
The Chairman: As I understand it, the five provinces used are Ontario, Quebec, British Columbia, Manitoba, and Saskatchewan. If you were to use all 10, you would drop Alberta, because of its oil revenues, and then drop the lowest end, too. The provinces are arguing that all 10 should be used. I can appreciate that argument, with that exception of Alberta; its oil revenues would skew the calculation.
How do you respond to the question for Newfoundland? Why not use an average over nine provinces, or use a mean calculation, dropping the highest and the lowest first? What would be the reaction to that?
Mr. Martin: You have actually answered the question yourself, Mr. Chairman. Alberta, which is the one province to which they would look, is dropped simply because of the great volatility in oil and gas prices. The provinces have said that predictability is very important to them.
These are economic indicators and sometimes the information comes in a year or two years later. Then provinces suddenly find that they have been overpaid or underpaid and that throws them off. If we included the tremendous fluctuations in Alberta, then a province might suddenly find that, for reasons of oil pricing rather than for general economic factors, their equalization payments had dropped substantially. That is why we have gone to this standard.
You also suggest dropping Alberta but including all other provinces, some with much lower levels of income. Ontario would then not be the dominant factor, as it is within the five, and in fact the poorer provinces would lose out.
The Chairman: I appreciate that.
Newfoundland has also complained that they have a problem for two reasons. First, the population of the province is dropping. Second, their offshore revenues from Hibernia are now coming in and the economy is growing. They feel they receive a double hit, the first from losing population, because equalization is based on population. It is similar to a person who has been on welfare, then gets educated and finds a job, only to be laid off. Are they penalized in Newfoundland because they have a declining population and increasing revenues?
Mr. Martin: I do not believe so. There is a payment made on a per capita basis. However, there are a number of other indicators in addition to population that are taken into account.
The second issue arises all the time in strong, natural-resources-rich provinces. For that reason, an Atlantic accord was signed that protects Newfoundland against a dramatic drop in equalization payments arising out of increasing resource revenues. To a certain extent, we have attempted to take that into account with a separate accord adjacent to the equalization formula.
Senator Kinsella: The principle of equalization as you just articulated it is a core value we share as Canadians. Some of us are distressed when we see that some members in the House of Commons do not seem to grasp the fundamental importance of this constitutional value that speaks to the family of Canada and of Canadians. We in the Senate have been supportive at second reading of the principle of the bill, because we fully embrace the constitutional value of equalization. I was curious as to why five years was chosen as the time line for this renewal rather than four or six or some other number. Will you speak to that?
Mr. Martin: With regard to your first point, I agree with the sentiments you expressed. I am not quite sure of the rules. Am I allowed to refer to the other place? The Reform Party has indicated that they would cut equalization back and the two provinces that would suffer the most as a result are Manitoba and Saskatchewan. When you take a look, for the sake of discussion, at what is currently happening in the farming industry in Western Canada, it shows a lack of understanding by the Reform Party of what equalization is all about and the degree of solidarity that it brings. I very much share the view that you just expressed.
Why five years? It is sort of that mid-point. What we have done here is ensure that the economic indicators that we use are kept up to date as much as possible. To go beyond five years would run the risk that those would become time-dated. On the other hand, we will start renegotiating equalization payments after the bill is passed. Ms Anderson will begin renegotiating with the provinces very quickly. It takes a long time to negotiate and therefore it is not an arbitrary period of time.
Senator Kinsella: Our attention was drawn to those issues that more directly affect our areas. As a senator from New Brunswick, I was pleased with the new approach to forestry value and happy to see that included.
I have questions about subclause 2(2), where revenue sources will now be inclusive of revenue that flows from gaming. There are those who think that gaming is not helpful to the societal structure. Many argue along the line that it affects all levels of economic status in the province, but that it affects the economically disadvantaged disproportionately more.
Is there any public policy principle in the back of your mind that says, yes, we will put that in, and if it serves as a dissuasive feature, then perhaps that is all to the good. On the other hand, if it was simply a desire to tap every source of revenue in a province, it raises another kind of a question in my mind. If provinces are using gaming as a source of additional income, are you not penalizing them for attempting to be more self-reliant when you factor that in? That is a new factor in this bill.
Mr. Martin: Senator, there was no policy bias in the decision to expand the definition. Gaming has always been there and in fact lotteries were always a part of it. We have not attempted to cast a judgement on either side and have tried to be as agnostic as possible. It was simply that the definition of gaming, which only included lotteries, had to be modernized to take into account the substantial increase in other forms.
With regard to your second question, I do not think it is a penalty; I think it is simply the recognition of a reality.
[Translation]
Senator De Bané: Mr. Minister, recently on the occasion of your last budget, I was sorry to see that my province's government was the only one to criticize the very generous federal transfers awarded not only to the Quebec government, but to the governments of the other Canadian provinces as well.
On looking at the amounts awarded to the Quebec government, I was struck by the fact that several billion dollars were involved, with half of the funds earmarked for health care and the other half for equalization, which you have defined in the documents handed out to us this morning. Equalization payments are unconditional payments made by the federal government to the provinces which they can use as they see fit.
With respect to health care transfers, the Quebec government said it was humiliating to receive funding tied to any one program in particular. It also expressed the same opinion about equalization payments, which are unconditional transfers. Obviously, it cannot advance two contradictory arguments. You are right in saying that you are not interested in squabbles. In my opinion, the Quebec government is not being logical when it criticizes these two programs, namely the health transfers and unconditional equalization. That is my first comment.
Second, Mr. Minister, with respect to the draft legislation, it deals not only with equalization and stabilization payments, but also personal income tax revenue guarantee payments as well as the Canada Health and Social Transfer.
Do you feel it is wise for the government to continue providing equalization to provinces in the form of unconditional transfers? That is something I would like us to reflect upon. Should we continue providing transfers without setting specific objectives? As you indicated, equalization was designed to help individual provinces adjust their tax base, ostensibly to provide their residents with comparable levels of services.
However, as we well know, some provinces have used the unconditional transfers they received to open consulates abroad, and still others, to ensure that their public servants were the highest paid in Canada. Other provinces have used the funds to freeze tuition fees for 25 years. Fundamentally, the program's stated objectives have not been met. The rationale seems to be that if we administer our affairs poorly, the other provinces will subsidize us even more.
Admittedly, members of the European Economic Union do make transfer payments to other countries. However, they do so with the proviso that these funds must go to the poorer regions, and not to other sectors.
For a country as vast as Canada, the largest on the planet, where people are not united by a single language, religion, history or tradition, it seems like an extraordinary idea to me to want to unite everyone by providing them with equal opportunities in life. However, does this not make certain governments that receive unconditional transfer payments somewhat dependent, instead of encouraging them to improve their economies, and does this not have them thinking that the poorer the job they do administering their province, the more help they will receive from others?
When the next fiscal arrangements are negotiated, Mr. Minister, I would like you to consider the advisability of tying these transfers to certain underlying program objectives. That is my suggestion.
Mr. Martin: First of all, you must understand that it is somewhat difficult for me to respond to the questions of a former minister who, as we have just seen, has a very broad understanding of this issue. There is no question that the message being conveyed by the PQ government is contradictory. Judging from all of the press that this issue has received and from public opinion in Quebec, clearly the message being conveyed has been seen as very contradictory.
Regarding your second point, I think it is preferable to rely on the good will of the provinces and to transfer these funds to them unconditionally. Ultimately, the province's voters will decide the government's fate. It is indeed a fact that one province in particular has crowded hospital emergency rooms, while at the same time, it is busy opening consulates everywhere. You are right to wonder if this situation reflects the priorities of that province's residents.
However, ultimately the electorate will decide and it is not up to us to set conditions. That is how I see things. Your comments are, however, quite valid.
Senator Bolduc: Mr. Minister, welcome to our committee. It is not everyday that we have a Finance Minister in our midst. I have several questions for you about the issue currently on the table, namely equalization. However, perhaps later, during a second round of questioning, I might ask you some questions about other aspects of the government's economic policy.
Regarding the equalization formula, is its purpose to measure the relative wealth of the provinces in relation to one another, or to measure the current ability of a provincial government to raise revenue from a similar tax base, or the effort that each province makes? Perhaps Ontario's ability to raise revenues is greater than that of Quebec. However, do both provinces make the same effort? Is this factor taken into account? Does the formula take into account respective economic policies which result in taxes being higher in some provinces than in others?
Apparently, people tend to look to the government to redistribute wealth according to a specific formula. My question is this: Does the government take into account revenues, wealth and the overall effort made, or rather does it weigh fiscal capacity along with the efforts made?
Mr. Martin: The program does not pass judgment on the fiscal policies of individual provinces. In other words, the government does not penalize those provinces that have higher-than-average or lower-than-average taxes. It merely considers a province's fiscal capacity in relation to another province. That is the only criteria. Effort does not factor into the equation.
Senator Bolduc: Consider the province of Quebec. Its fiscal capacity may be lower than that of Ontario, because its economic policies are perhaps more interventionist. As a result, its growth rate is lower and it takes in fewer revenues. As such, it would seem therefore that implicitly, you are endorsing each province's economic policies.
For example, Alberta's policies are more conservative, while Quebec's are more interventionist. Still other provinces take different approaches. It is all rather confusing.
It all comes back to what the senator said earlier. If the provinces have poor policies in place, then a climate of uncertainty prevails. Perhaps I should not be saying such things because I am originally from Quebec and that province receives a large share of equalization payments. Nevertheless, I ask the question because someone has to ask it. It ties in with what Senator DeBané said. The incentives associated with this do not preclude that provinces have a certain responsibility. Basically, if government policies create a climate of uncertainty, fewer people will be willing to invest in that province. Quebec has been a case in point for the past 20 years, as everyone can plainly see. Fewer investments have resulted in a lower growth rate and consequently, Quebec receives equalization, courtesy of Alberta and Ontario.
I admit that there are regional disparities in Canada. As Senator Kinsella so aptly said, some regions are less prosperous than others. However, between that and wanting to be less prosperous, that is an entirely different matter.
Mr. Martin: Senator Bolduc, your question does indeed tie in with what Senator De Bané said. There is no question that Quebec has been penalized because of the political uncertainty that has led to economic uncertainty. Clearly, that has been the case. Since the government was elected, aside from the budget, all we have heard about is the consulates being opened abroad. We hear talk of winning conditions, not for the economy or for the welfare of the people, but of winning conditions for a new referendum. Without question this has had a negative effect. As far as equalization is concerned, I do not think that we can pass judgment on provincial government policies, even if these policies have had the effect you describe.
The current PQ government is trying to some extent to hide the impact of equalization, which is positive. For example, Mr. Landry has said that he is dissatisfied with equalization which he equates with social assistance. That is not true. Equalization reflects Canadian solidarity. He argues that equalization should be combined with the Canadian social transfer because then it would be hidden. Payments under the equalization program clearly come from the rest of Canada. To some extent, this is symptomatic of a general malaise and of the fact that Quebec's policies are more political than economic and adversely affect the province's economic future.
Senator Bolduc: I would like to focus for a moment on the issue of incentives that are implicit rather than explicit. On the one hand, the objective is to improve equity or solidarity in Canada. On the other hand, however, there is something divisive about equalization. Certain groups are being asked to pay for others. It is in the nature of the political process to make transfers between groups. However, it is always the same people who pay. If I were a resident of Western Canada, that is the argument I would advance. When officials or ministers get together to talk, I do not know what goes on, but I would argue this point. It may not be politically correct for me to say that, since I come from Quebec, but nevertheless, that is how I see it.
Mr. Martin: This program is a true reflection of Canadian solidarity and Canadian vision. I have been the federal Finance Minister for six years and as such, I have met with my provincial counterparts. Some squabbles do occur, but I have never heard a minister from Ontario, Alberta or British Columbia complain about equalization. They support the program because they appreciate what it represents.
I was going to bring this up in the House. Now, you are giving me the opportunity to do so here before a Senate committee. One day, although I forget the exact circumstances, the Leader of the Bloc Québécois made the following comment: Why should Quebec pay for the other provinces? I was astounded. Not only is this not true, but I have never heard anyone from Ontario, Alberta or British Columbia say this. They have always said that they are proud to be Canadians and to share the country's wealth.
Having said this, I fully agree with you about the effects of political uncertainty.
Senator Ferretti Barth: Mr. Minister, as you know, I am new to the Senate. I perused your summary of Bill C-65 and I understand your explanations perfectly. You are correct in saying that the federal government is fair to the provinces. I have met with many people in different provinces and I have never heard anyone say that equalization is unfair. I have been told that a greater effort needs to be made to ensure that wealth is shared among the provinces.
In the summary of the bill, you call for a phasing-in of tax base changes over the period from April 1, 1999 to March 31, 2004. You also call for adjustments to the definition of "revenue to be equalized" and "revenue source." Could you define for me "revenue to be equalized"?
Mr. Martin: If I understand the question, a total of thirty economic indicators, or indicators of fiscal capacity, are used to determine this revenue.
Senator Ferretti Barth: What sort of calculation is done to determine how much money is distributed to the provinces in the form of equalization? That is what I would like to know.
Mr. Martin: I am not certain that I quite understand your question. Let me give you some examples of revenue sources. One source is personal income taxes. Another is business taxes. Then we also have general taxes and sales taxes, tobacco and fuel taxes, liquor taxes and so forth. There are thirty such indicators.
Senator Ferretti Barth: And a portion of these revenues are earmarked for equalization.
Mr. Martin: We consider these thirty indicators and measure a province's fiscal capacity, Quebec's, for example, against the standard of the five other provinces and then, we ask the following question: Given these indicators, is the province's fiscal capacity higher or lower than the standard? Then, we proceed to do the calculations.
Senator Ferretti Barth: Among the proposed changes, Bill C-65 will take account revenue from gaming, for example, from casino operations. Did you know that the Montreal casino generates revenues for the provincial government? We never hear about casino revenues which, to my knowledge, are very substantial. No one talks about this.
Now you want to take these revenues into account in determining equalization. Until now, where has this money gone?
Mr. Martin: As a rule, we review our figures two or three times and these are approximately one or two years out of date. Are you asking me if the federal government has this information? I do not have the figures for 1996-1997 on casino revenues in Quebec or in any other province. If I had this information, would I be in a position to disclose it to you? I would have to check into that. If I can share this information with you, then I will do so.
[English]
Ms Susan Peterson, Assistant Deputy Minister, Department of Finance: Each province puts out revenue statements from all sources of revenue. I do not know if they are able to pinpoint the revenue from a particular casino, but provinces do show how much they make through gaming activities.
Senator Ferretti Barth: Do they put this money into social services, education, or elsewhere?
Ms Peterson: The money goes into general revenues.
Senator Ferretti Barth: We do not know if they buy the hat, the shoes, or the coat.
Mr. Martin: I have been somewhat harsh in my comments on some of the things that the current government in Quebec has done. However, as a Minister of Finance, I must say I have sympathy with the idea of taking the money in and not identifying exactly where it goes. Basically, we look at it as an ocean of water.
Senator Tkachuk: I would like to continue the philosophical discussion started by Senator De Bané and Senator Bolduc on how we deal with the question of transfers. You are right, it is a very difficult subject to analyse.
I notice in this particular agreement that Newfoundland wanted significant changes to the way the formula treats offshore oil. I assume that as they will be receiving extra revenue from that, there will be some consequences to suffer.
A number of years ago, our premier in Saskatchewan, under pressure on the reduction of the sales tax, said: "If I reduce the sales tax, I will lose equalization payments." How would that work?
Mr. Martin: Senator, the problem you raise, which some people call the "perversity factor," is a real one and I will address it. I do not believe, however, it would have arisen in that particular case. If Saskatchewan had the capacity to raise sales taxes to a certain level, that would end the debate. What they actually did would not enter into the calculation. Regardless of whether they actually lowered or increased their sales taxes, we would simply look at their sales tax capacity.
The fundamental issue you are raising is this apparent penalty. If I receive so much money for equalization, and all of a sudden I start to do better, then my payments will be reduced. For every dollar I gain, do I lose a dollar? Why would I make the effort?
First, in the case of Newfoundland and Nova Scotia, we signed the Atlantic accord, which mitigated that problem somewhat.
Second, that is not a dollar-for-dollar loss. It does not mean there is no loss, but it is not dollar-for-dollar. The problem on the other side, senator, is that this is compensation because you do not have the fiscal capacity of a richer province. If you do end up improving your fiscal capacity, then it would be unfair to other provinces not to take that into account. That is where we end up.
Senator Bolduc: On the other hand, in one way, you give richer people in poorer provinces a partly free ride. Not completely, because the taxation in Canada is very high. In one way, you solve the problem on an interprovincial basis, but not within the province. I also receive health care in the province of Quebec.
Mr. Martin: I understand that argument, but to be honest, I have difficulty with it. We have a progressive taxation system. The argument Senator Bolduc is making is essentially this: Is a poor person in Ontario subsidizing a richer person in Newfoundland? I do not believe that is the case for two reasons.
First, the richer person in Newfoundland is paying taxes on a progressive basis. Thus, the person in Ontario is paying a much lower level of taxes than the richer person in Newfoundland. Second, our money goes to the Government of Newfoundland and hopefully back into better services. That is part of the discussion we have been having here.
I have difficulty with the argument, senator.
Senator Tkachuk: If we go to the heart of the matter, which is the question of revenue transfers, if we took away the $9 billion, how would the country be different? Do not get me wrong, I am just posing this question from a philosophical point of view because many of these things trouble me.
I look at Alberta and Ontario and see that they have lower taxes. In other words, we would like everybody to get to the same standard as those provinces or higher. The fewer provinces that fall behind, the better it is for the whole country and everybody makes more money.
For years, Alberta and Ontario have consistently been givers, not receivers. What would happen if we cut federal income taxes by $9 billion and did not make any transfer of funds? How would the country be any different?
Mr. Martin: Senator, before the meeting started, I was speaking to Senator Bolduc and Senator De Bané. I do not know if this is correct, but I believe that both Alberta and British Columbia have, at one time or another, received equalization. There is a bit of up and down in this particular debate.
I understand the spirit in which your question is asked. If we were to cut $9 billion in taxes uniformly across the country, the taxes would go down as much in Alberta as they would in Nova Scotia, for the sake of discussion. Alberta has the financial capacity to take its taxes lower than Nova Scotia, New Brunswick, or any other province. Already there is a built-in advantage that Alberta can use and is utilizing. At the same time, if you had a situation where, for example, Nova Scotia or New Brunswick was cutting back on its hospitals or education systems because they were receiving no equalization payments, Alberta's advantage would become an insurmountable obstacle. Quite quickly, you would begin to see a real downward economic spiral occurring.
Senator Bolduc: My first question relates to the progress, or lack thereof, in terms of the international surveillance of national financial institutions following what happened in Mexico and Southeast Asia. I know that you have proposed something at the International Monetary Fund level. How is that evolving?
Mr. Martin: Senator, I am glad to deal with that question.
You are fully aware of it and we have spoken about it, but 30 seconds worth of background would help.
One of the things we learned came out of the fact that, after the Mexican crisis, everyone talked about the need for more consistency and transparency in countries' financial statements and private sector financial statements. At that point we said, "Transparency is not enough. There must be some way of enforcing the rules." That idea was not bought forward initially, although Canada suggested it. After the Asian crisis, when the failure of one small bank in Thailand set off a domino effect that side-swiped us substantially, the recognition grew that we had to put a much better system in place.
If I could quickly summarize, we have spent 75 years domestically in Canada, the United States, and Europe, building up those regulatory systems that make the market system work, whether it be the Superintendent of Financial Institutions or the Quebec or Ontario securities commissions. Suddenly, we now have this global economy. We have capital flows that are five times greater than commercial flows, and none of those institutions are in place. Canada has worked hard. About six months ago, the G-7 finance ministers asked the president of the Bundesbank to look at the possibility, based on a Canadian idea, of putting together some kind of coordinating mechanism that would ensure that if, for instance, either Thailand or Canada was not doing its job on bank regulation, we could identify that and then get the system going. I am delighted to say that when he reported three weeks ago in Bonn, not only did the G-7 immediately endorse the idea, but it asked the head of the Bank for International Settlements to put together a secretariat. I think we are on our way. It is a modest start, but I believe that we will be able to build the kind of regulatory structure that we require.
Senator Bolduc: Would that secretariat have the function of certifying the national financial institution, or would they take the word of the national financial supervisor?
Mr. Martin: It is too early to tell.
Senator Bolduc: We have had an experience with the International Monetary Fund. Obviously, it is not efficient to try to inspect or supervise the whole world. It must go somehow through the financial inspection agency of each country. On the other hand, perhaps it is not possible to do that in Indonesia or other countries like that.
Mr. Martin: That is a good question. You have now asked the central question in the debate. Some countries would like to go as far as you have just described; many others do not want to see that.
The Canadian idea is this: It is clear that many countries do not want either the IMF or the World Bank to certify their statements. We have suggested a system of peer review and I think we are making some progress. For the sake of discussion, I will use Canada as an example. Bank regulators from, for example, France, the Philippines, and Argentina would come in and look at the system of bank regulation in Canada and would then state whether it was satisfactory or not. You would not have a large, monolithic institution but it would be peer review.
We have said that it could be done either by utilizing bank regulators from different countries, or, for the sake of discussion, the ASEAN nations might want to do it among themselves. You must have an outside source testifying to the capacity.
Senator Bolduc: That is also assuming that there is a kind of international standard of accounting that is respected all over the world; otherwise, people can hide something here and something there.
Mr. Martin: You are absolutely right, and I think we are making good progress on the international standard question.
Senator Bolduc: My second question is a little more embarrassing. You have said no to a merger between the Bank of Montreal and the Royal Bank. I understand that the major banks in Canada are in the process of a major overhaul of their organizations -- they call it "reengineering" -- so that a lot of jobs will be lost anyway.
In two or three years, we may end up with the same number of people employed that we would have had if there had been a merger between the two banks. What do you think of that?
Mr. Martin: We will be coming out with a policy statement in the late spring/early summer on the whole question of the future of the financial services industry and its relationship with government.
On the specific question you pose, we are monitoring it closely. There may well be job losses as banks rationalize their operations, but I do not believe that that loss will be anywhere near what it would have been had the mergers gone ahead.
[Translation]
There will be some job losses because the banks are in the process of changing the way they do business, but this is nothing compared to what might have happened if the merger plans had been approved.
[English]
Senator Bolduc: I say that because in France, they are apparently visualizing a major world bank, including the Bundesbank and others.
How is it that the Minister of Finance of Canada decides that question? Why in that business and not in the others? Why not between Chrysler and Daimler-Benz, for example?
Mr. Martin: It is specified in the Bank Act that it is the decision of the Minister of Finance.
Senator Bolduc: I know, but is it not troubling for you?
Mr. Martin: Yes. I looked around to see if someone else would like to join in.
It is because the banks are regarded as being integral to our economic process. It is argued that they are in the private sector and should be allowed to run their own affairs. Essentially, it was felt that they were absolutely key to the development of the rest of the economic sector in this country, and therefore the decision fell to the Minister of Finance.
Senator Kinsella: As Senator Bolduc was opening up these other frontiers, the thought went through my mind that I had better seize the opportunity since the minister is here. There is discussion in some quarters on the fact that there is the daily transferring of some trillions of dollars internationally. I think it was James Tobin who, some years ago, made the proposal for a tax on that. Do you have an early view on that idea, minister?
Mr. Martin: Yes, I do. There is no doubt that the huge amounts of speculative, short-term capital flowing in and out of countries that do not have deep capital markets -- and Thailand is the best example -- is a serious problem. It is one that this whole issue of the economic architecture that I was discussing with Senator Bolduc is designed to answer.
I do not believe that a small tax, as recommended by Tobin, would stop that kind of speculation. I do not think it would be a factor. If it were large enough to become a factor, then I think it would become a major obstacle and would be self-defeating.
Having said that, I believe that a Tobin-type tax to raise money for overwhelming international obligations such as the environment is an idea worth considering, not to stop speculative capital but to raise money. I put that idea forward at the G-7.
The problem is that the Germans and the British specifically have made it clear that they would not go along with it. Unless it has universal application, it will not work. That is the basic problem.
Senator Kinsella: In clause 6 on page 8 of the bill, reference is made to "the prescribed manner". Is that prescribed manner referred to in the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act or in the Canada-Newfoundland Atlantic Accord Implementation Act or is it somewhere else? Where is the prescribed manner for the making of the election determined?
Ms Peterson: It is prescribed in regulation.
Senator Kinsella: In current regulations or regulations to be made?
Mr. Frank Vermaeten, Chief, Policy Development and Research, Federal-Provincial Relations Division, Department of Finance: Current. They will say the same.
The Chairman: If there are no other questions, I thank the minister on behalf of the committee.
Senators, we will now proceed with our clause-by-clause consideration of Bill C-43.
Senator Carstairs: I move that the committee complete clause-by-clause consideration of Bill C-43.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: How would you like to proceed?
Senator Tkachuk: On division.
The Chairman: For the entire bill?
Senator Tkachuk: Yes, for the entire bill.
Senator Lavoie-Roux: Last night, one of the last witnesses we heard from raised the issue of the anxiety of the personnel regarding this bill. Did you further examine that issue during the evening, or do we leave it like that and it does not matter what happens to the personnel?
The Chairman: The current situation is that we have completed our hearings, as far as witnesses are concerned, as a result of a motion passed in this committee last week, and we are now to complete clause-by-clause consideration of the bill today.
Before we have a motion for approval of clause-by-clause consideration, my advice from the clerk is that we need to have the title and clause 1 postponed.
Is it agreed?
Hon. Senators: Agreed.
The Chairman: As far as the balance of the clauses are concerned, I need a motion.
Senator Carstairs: I move that we approve all the remaining clauses of the bill.
The Chairman: Is there any debate?
Is it agreed, honourable senators?
Hon. Senators: Agreed.
Senator Bolduc: On division.
Senator Cools: Can we include in that motion all the clauses identified from this to that inclusive, so it is clear?
The Chairman: That would be clause 2 to clause 198.
Senator Cools: They have all been approved on division. I just wanted that on the record.
The Chairman: Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clause 1 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Senator Cools: The entire bill has been carried. We need a motion to report the bill this afternoon.
The Chairman: Would you like to move that?
Senator Cools: I so move, Mr. Chairman.
The Chairman: Any discussion?
Senator Lavoie-Roux: I am a little astonished that we would report the bill without amendment when that fundamental question of the personnel has never been discussed here. We did not get any proper explanation on the anxiety of the personnel.
The Chairman: That is why it is on division.
Senator Cools: You have chosen to do it this way, senator.
The Chairman: There is a question on the floor. Any more discussion? On division?
Hon. Senators: Agreed.
The Chairman: There is a housekeeping matter with respect to Bill C-65. I understand that you would like it completed next week.
Senator Carstairs: I think I can speak for the government -- and indeed the opposition -- in saying that if we do not complete it next week, the provinces will not get their first equalization payment.
The Chairman: I understand that, but honourable senators asked for other witnesses. The only other potential witnesses are the provincial finance ministers. We have written to them but have not received any responses thus far. In addition, appendix I in our rules mentions provincial representations to Senate committees. I want to read this rule so that we all understand, because I think we can deal with the bill and report it next week without a problem.
This is an extract from the Second Report of the Standing Committee on Standing Rules and Orders from May 28, 1985 and adopted on May 30, 1985:
The Standing Committee on Standing Rules and Orders recommends that the following be observed by committees of the Senate as a general practice:
That, whenever a bill or the subject-matter of a bill is being considered by a committee of the Senate in which, in the opinion of the committee, a province or territory has a special interest, alone or with other provinces or territories, then, as a general policy, the government of that province or territory or such other provinces or territories should, where practicable, be invited by the committee to make written or verbal representations to the committee, and any province or territory that replies in the affirmative should be given reasonable opportunity to do so.
As this is a fairly significant bill for the provinces, that is what I have done. We have given sufficient time for a response by Monday.
We cannot put this off to another day. I am referring to the logistics of this issue. We must report the bill Tuesday afternoon to give the provinces ample time to respond. We need a meeting on Tuesday morning, if possible, to deal with the bill. It will take perhaps 20 minutes to half an hour at the most.
Is it agreed, honourable senators?
Hon. Senators: Agreed.
The committee adjourned.