Proceedings of the Standing Senate Committee on
National Finance
Issue 16 - Evidence
OTTAWA, Wednesday, June 14, 2000
The Standing Senate Committee on National Finance, to which was referred Bill C-32, to implement certain provisions of the budget tabled in Parliament on February 28, 2000, met this day at 5:50 p.m. to give consideration to the bill.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we have two matters on the agenda tonight. The first is Bill C-32. After we have completed our consideration of the bill, I intend to convene the committee in camera for the purpose of discussing a draft report on our study of Canada's emergency and disaster preparedness.
Bill C-32 passed the House of Commons on June 6 at third reading and received second reading in the Senate yesterday. Our witness is the Parliamentary Secretary to the Minister of Finance, Mr. Roy Cullen, who is the member of Parliament for Etobicoke North.
Mr. Cullen was born in Montreal and worked as a senior bureaucrat in the Government of British Columbia. I am sure the story of how he got from there to Etobicoke North and to here is an interesting one that we could go into if the committee had more time, but perhaps some other time.
Welcome, Mr. Cullen, and please proceed.
Mr. Roy Cullen, Parliamentary Secretary to the Minister of Finance: Mr. Chairman, I will keep me remarks short so that we will have time for questions.
[Translation]
As you know, the Bill implements 10 measures that were announced in the February budget. Three of them, the ones affecting the Canada Health and Social Transfer, the Canada Student Loans Program and child tax benefits, must be passed by the end of this month as Canadians are waiting for these benefits.
[English]
Honourable senators, the first announcement in the 2000 budget involved additional funding for post-secondary education and health care through a $2.5 billion increase to the CHST. This is the fourth time that the federal government has strengthened transfers to the provinces through the CHST. This supplement will be distributed to the provinces and territories on a per capita basis and paid into a trust that the provinces can draw down over four years beginning once Bill C-32 is passed.
Combined with last year's investment, the cash component of the CHST will now reach $15.5 billion in each of the next four years, up 25 per cent from 1998-99. It is imperative that this measure be implemented quickly to ensure that the additional money gets into the health care system as soon as possible to deal with the pressing needs of Canadians.
[Translation]
Bill C-32 also implements changes to the Canada Student Loans Program. The current arrangement whereby Canada Student Loans are administered and delivered on behalf of the federal government by financial institutions expires on July 31.
This Bill ensures that thee will be money available for student borrowers after that date and that thee will be no interruption in service. This new program must be in place by August 1 for those students who need financial assistance in the 2000-2001 school year.
[English]
A third measure concerning child tax benefits is scheduled to take effect in July. The 2000 budget restores full indexation of the personal tax system, a move that will particularly benefit middle- and low-income Canadians, as these are the taxpayers who generally receive benefits under the Canada Child Tax Benefit, the CCTB, and the GST credit.
To help families with the added expense of raising children, CCTB benefits will be increased by $2.5 billion annually by 2004. The government's goal is to increase the maximum CCTB benefit to $2,400 for the first child by 2004.
In addition, Bill C-32 fully indexes the Canada Child Tax Benefit; increases the base benefit and the National Child Benefit Supplement beyond indexation; raises the income thresholds for the base benefit and the National Child Benefit Supplement; and lowers the reduction rate for the base benefits.
Honourable senators, low- and middle-income Canadian families are relying on their CCTB increases and indexed GST benefits to be in place by July.
[Translation]
Another measure focuses on parents of newborn and newly adopted children by extending parental leave under the Employment Insurance (EI) Program and by making benefits more flexible and accessible. The maximum amount of child-related leave will be doubled to one year.
By reducing the number of insurable hours that must be worked to qualify for special benefits to 600 from 700, maternity and paternal benefits will be more accessible. Parents will also have more flexibility in deciding whether one or both of them spend time at home with a new child and only one waiting period will apply.
[English]
In addition, parents can work part time while receiving parental benefits. This income will be treated the same as for regular EI benefits. Further, the jobs of employees in federally regulated workplaces during the extended parental leave period will be protected under the Canada Labour Code.
I will now summarize the remaining measures in the bill. In order to provide better opportunities for Canadians to diversify their personal retirement savings investments, the foreign content limit on RRSPs is being increased to 25 per cent for 2000 and 30 per cent for the year 2001.
These increases also apply to Registered Pension Plans and the Canada Pension Plan Investment Board. A change in the Canada Pension Plan legislation will allow provinces that have borrowed money from the plan to prepay their obligations in advance of maturity at no cost to the CPP. This change is in response to a request from the provinces that was agreed to by the federal and provincial ministers of finance at last December's CPP triennial review for an option to prepay their CPP borrowings to assist provinces who want to pay down their debt.
Amendments to the Special Import Measures Act, or SIMA, will bring Canadian countervailing duty laws into line with recent changes to the World Trade Organization Agreement on Subsidies and Countervailing Measures. The WTO subsidies agreement contained provisions that rendered certain foreign subsidies that satisfied very specific criteria immune from countervailing duty action. These non-actionable subsidy provisions lapsed on December 31, 1999, when the WTO countries failed to agree to their extension. These amendments allow for the suspension of provisions in SIMA that implement these non-actionable subsidy provisions into Canadian law.
With respect to First Nations taxation, Bill C-32 enables 13 First Nations identified in a schedule to levy a 7 per cent GST-style sales tax on fuel, alcohol and tobacco products sold on their reserves. First Nations sales taxes will be collected by the Canada Customs and Revenue Agency, the CCRA, and the federal government will vacate the GST room where the First Nation tax applies. Interested First Nations in the future can be added to the schedule by Order in Council.
The final measure addresses the issue of tax revenues being at risk if a GST or harmonized sales tax registrant is allowed the usual remittance period. Until now, the CCRA has been powerless to proceed with assessment and collection action if it suspected tax evasion before the tax becomes due.
Bill C-32 amends the Excise Tax Act to allow the Minister of National Revenue to apply ex parte, without notice, for judicial authorization to proceed with assessment and collection action in cases where revenues may be at risk if registrants are allowed their usual remittance period.
[Translation]
There are no controversial measures in this bill, in my view. As I discussed before, this bill must be passed without delay.
It is essential that the much-needed CHST money find its way into the health care system quickly to deal with the needs of Canadians; it is essential that the Child Tax Benefits and indexed GST benefits take effect next month; and it is essential that there is money available for students entering school in September.
The remaining measures, while not facing the same time constraints, will all contribute to the efficient operation of government.
[English]
Senators, either myself or counsel from the Department of Finance will be happy to deal with any questions you may have. As well, there are other officials here who may be able to assist with your questions.
The Chairman: We will identify the officials as and when they may be called to the table to assist us.
Senator Bolduc: Mr. Cullen. I hope honourable senators will excuse me if I am a bit parochial today. Usually, my focus is on the national interest. This time, however, it will be on the provincial interest.
Would you be kind enough to give us a few details about the fact that the government has said no to Mr. Bouchard's request for parental leave and negotiations? I read in the newspaper that Mr. Chrétien said it was too late. I would like an explanation for that statement.
Mr. Cullen: Negotiations had already started. First, the parental benefits that we announced fall under the employment insurance regime, which is a federal area of responsibility. In 1997, there were a set of negotiations that carried on for some time, whereby the provisions stated that the EI premiums could be reduced if negotiations were successful -- that is, if provinces implemented their own progressive regimes in any particular area at any point in time.
As I understand it, those negotiations broke down after months and months of meetings. The question is: What hope is there that future negotiations will lead to anything fruitful? The province also has the full jurisdiction to launch or expand any provincial programs that it sees fit to expand, but EI is within the jurisdiction of the federal government. That is how we have acted.
Senator Bolduc: A few years ago, the provincial government had a program for student loans and the federal government decided to get into that field. We had difficulties because we thought that the system was working well in Quebec. We decided to ask for the money instead of joining the federal program because we wished to administer the program ourselves. Both the university community and university students agreed with that, but the federal government said no.
The Chairman: Is that the Millennium Scholarship Fund?
Senator Bolduc: Yes. It was not loans program.
For about a year and one-half there was a big bang from the federal government and from the provincial government, and, finally, a deal was struck on the millennium scholarship. Perhaps someone could tell us the actual score in that regard. I ask that question because you told me that no deal is possible on parental leave. I want to show you that a deal is still possible because there was one on the scholarship issue.
Mr. Cullen: We have an official with us today who could help us respond to that question.
Mr. Ted Roseman, Senior Policy Analyst, Federal-Provincial Relations and Social Policy Branch, Labour Markets/ Employment/ Learning, Department of Finance: The scholarship foundation and the federal government conducted negotiations with each of the provincial governments and reached agreement with Quebec, in particular, in December 1998. They have signed agreements in place with each province on the question of delivery and everything else.
Generally speaking, the scholarships are being delivered using the apparatus of the provincial student loans programs and the usual commitments on both sides. The first scholarships were delivered in January 2000 without any problems. The program is working.
Senator Bolduc: It works, although three years ago everyone said that it would not work. However, you are telling us, Mr. Cullen, that no negotiation is possible in terms of parental leave. Do you really think that it is impossible to make a deal?
Mr. Cullen: As I understand it, there were extensive negotiations on another aspect of EI that went on for months and months and years. There is a relief mechanism in terms of EI premiums. Those discussions went absolutely nowhere. If we put government resources into an area where, based on past experience under the EI program, absolutely no progress was made, what would be the basis for the promise on a new set of negotiations?
We have with us a policy advisor from HRDC who could further elaborate on this matter.
Ms Sonia L'Heureux, Chief, EI Policy, Human Resources Development Canada: Negotiations were held for six months in 1997, at which time, in August 1997, the Quebec government withdraw from the discussions. The two levels of government could not agree on some of the details concerning what could be done with the parental benefit program that Quebec wanted to put in place.
Further to that, the Quebec government had not expressed any interest in pursuing that program. Last October, the federal government announced in the Speech from the Throne that it was expanding the program. Since then, we have made several announcements at the federal level, such as the budget announcement where we provided the parameters of the federal program. The Quebec government has since expressed its interest.
The Prime Minister has indicated that the priority now is for the federal government to put in place its extension of the program, presuming that this bill goes through. He has also indicated that it would be a bit difficult at this point in time to look at alternatives for a program that is not even in place now. The situation has changed a bit since 1997.
Senator Bolduc: My last question is about the foreign content limit on RRSPs. You have increased it from 20 to 25 per cent, and next year it will be increased to 30 per cent. Many people stated that they should be able to go to 30 per cent immediately this year, but the Minister of Finance did not agree. This is more or less a technical question because the policy decision has already been made. Is a gradual change necessary to safeguard the exchange rate of the Canadian currency?
Mr. Cullen: There may be some technical aspects to it. I will respond at a policy level, if I might.
Returning to parental benefits, the way the program is structured, there is room to negotiate in terms of reducing EI premiums. It is not designed so that there would be a lump sum $400-million or $500-million payment.
As I say, it would appear that the Quebec government seems to have some difficulty in negotiating around those terms. What the future holds, I cannot say.
In terms of the RRSP provisions, no, I do not think they are related necessarily to the exchange rate with the Canadian dollar. Although there is a good debate about whether there should be any limit at all, the policy rationale is that if people are able to make the retirement investments they wish and if they are done through the RRSP, they are supported by the Canadian taxpayer. There is a certain policy logic to saying that the investments should be made largely in Canada. Having said that, in moving from 20 per cent to 30 per cent, there was some consultation in terms of the markets and the impacts that moving more quickly might have. The best advice we received was that it would be more prudent, in terms of the financial markets, to move 5 percentage points at a time.
Senator Banks: I, too, will ask a parochial question. I think that is our job, Senator Bolduc.
I am from Alberta. I am sure you are familiar with the health care concerns of Albertans. With respect to transferred funds, including the new $2.5-billion transfer, even though one cannot paint dollars pink once one puts them into the top of the system, how comfortable and certain are you that the dollars which are supposed to go into health care, in the view of the Government of Canada, and which we will claim as having gone into health care are in fact going into health care, as opposed to some other purpose, since they are not earmarked?
Mr. Cullen: If you go back one year to 1999, when the federal government increased the CHST by $11.5 billion, there was a similar concern about how we knew the money was being invested in health care. The premiers and territorial leaders provided undertakings that the $11.5 billion would be spent exclusively on health care. I suppose one can take premiers at their word, but there are monitoring mechanisms and ways to corroborate those undertakings. The $2.5 billion in this year's budget does not have those same undertakings.
Let us look at the CHST, which was a move the government made to deal with funding in a more global sense. There is a notion that under the old regime, under the Established Programs Financing and under the old CAP program, which related to 50-cent dollars for the provinces, there was a closer trail in the sense of where the money actually went. However, having worked at the provincial level, I am not sure that there was any greater assurance under the old EPF as to where exactly the money was going.
Senator Banks: Is that an admission of flim-flam at the provincial level?
Mr. Cullen: I know our government has said that we are prepared to make more investments in health care, and we know it is a top priority of Canadians. Minister Rock is working with the provincial health ministers and territorial health leaders to come up with some form of accountability measures, some results- focused performance measures, so that Canadians understand fully what is being spent on health care and what results they are getting out of the health care system. If we look at the demographics of the older population that is developing and at the impacts of technology, most Canadians understand that health care costs, if not managed properly, could get out of control. It is an area we must be very serious about, and I am hoping that the discussions with the provinces and the first ministers are fruitful and that we can end up with a common agreement.
Senator Banks: I have a question regarding the reference in this bill to the GST-like tax to be collected, in effect, by the Government of Canada and/or its agents on behalf of the First Nations. You are familiar, no doubt, with the Nisga'a treaty, which has in it, among other things, a provision that eight years from now they will be subject to GST. Does this provision apply to the Nisga'a treaty? I am separating it out from all other treaty arrangements because it is unique as among all other treaty arrangements in that and other respects. Does this provision apply now and then stop in eight years, or will they be paying 14 per cent tax in eight years?
Mr. Cullen: I will turn that question over to Mr. Medd, but before I do, I will say that the bill has a schedule which identifies authorized First Nations. Thirteen First Nations are included in the schedule to this bill, and other First Nations can be added later.
The Chairman: For the information of committee members, Mr. Ken Medd is senior tax policy officer in the First Nations taxation section at the Department of Finance.
Mr. Ken Medd, Senior Tax Policy Officer, First Nations Taxation Section, Intergovernmental Tax Policy Division, Tax Policy Branch, Department of Finance: The budget implementation bill will enable 13 First Nations to levy this sales tax. These First Nations are not engaged in a land claims process or in a self-government process, so their situation is quite different from the situation of the Nisga'a. The arrangement reached with the Nisga'a provides that they will be paying tax eight years in the future for transaction taxes and 12 years in the future for income taxes. When that day comes, Canada will be making tax room available so it is not another layer of tax that will be paid. Does that answer the question?
Senator Banks: It does. In the interim, you do not contemplate a circumstance in which the Nisga'a would be added to this list.
Mr. Medd: No. As a matter of fact, the Nisga'a, as I understand, have not expressed an interest in taxing their citizens. For all the First Nations that we are talking about in Bill C-32, the First Nations tax will apply to their citizens.
Senator Banks: Thank you.
Senator Stratton: I know you talked about the fact that there are no controversial measures in this bill and requested that this bill be passed without delay, but I am always curious when someone comes to us pleading for swift passage. Why did you not bring this bill to us earlier? Year after year, it is the same thing.
The HRDC report on plans and priorities said that even with the changes in this bill, the EI fund will have a surplus of $6.8 billion this year, running up the cumulative EI surplus to just under $35 billion by next March 31.
When calculating the tax savings from this budget, the government assumed that EI premiums would drop to $2.30 next year, $2.20 in 2002, $2.10 in 2003, and $2 in 2004. You have done those forecasts for the drop in premiums.
What will happen to the EI surpluses over those years? Will they continue to grow or will they flatten out? If you do projections for dropping the premiums, you must surely do projections for what you end up with at the end of the year.
Mr. Cullen: I am sure all honourable senators are aware of the history of EI. There is no actual EI surplus account. It is a notional account that, on the recommendation of the Auditor General in 1984-85, was included with consolidated revenue at a time when there were --
Senator Stratton: If I may interrupt, if that is the point, is that part of the government's $8 billion surplus, or is it a separate line item?
Mr. Cullen: No. The EI notional surplus account, if you like, is part of consolidated revenue. Any surpluses that the government has include those as of the year the notional EI account, as it then was, was consolidated with consolidated revenue.
Senator Stratton: You are telling me that the surplus in the EI account on an annual basis, even though it is notional, is part of the government's surplus of $8 billion. If the surplus is $5 billion this year, the reality is that the government's surplus is not $8 billion but something in the order of $2 billion or $3 billion; is that right?
Mr. Cullen: I would not agree with that, senator.
Senator Stratton: You just told me that it is rolled into the overall revenues of the government. Surely to goodness you have to account for it at the other end.
Mr. Cullen: By the same token, the account itself was in deficit in 1984-85 to the tune of $5 billion or $6 billion. When it was consolidated, the surplus of the government decreased. In fact, over the last 12 to 13 years the notional EI account, or the real account before 1985, has been in deficit the majority of the time.
Senator Stratton: We know that. We are now in a surplus position. You and I could flog this to death. Let us say that you and I fundamentally disagree.
I would like to have an idea if the notional surplus in the EI account will be $35 billion on March 31 of this year. You have forecasted that premiums will drop from $2.30 down to $2 in 2004. What will be the surplus year over year in that notional EI account? You have had to calculate those numbers.
Mr. Cullen: Yes, but I do not have them at hand. Perhaps someone here does. Suffice it to say that they will be large. Suffice it to say also that since we came into office, the premiums have come down dramatically year over year. The premiums are basically recommended by the commissioners of the EI board. Those are the recommendations that the government has adopted.
Senator Stratton: My figure, may I suggest, would be about $50 billion.
Mr. Cullen: I do not think it is that high, senator.
Senator Stratton: It will be in 2004. Could you supply the committee with that information, please?
Mr. Cullen: We do not have that information here.
Senator Stratton: If you have done projections for the drop in the premiums for the years 2001 to 2004, you have to come out at the other end with an idea of where you will be or else you would not drop the premiums. You have to have that.
Mr. Cullen: The fact that it is consolidated with consolidated revenue makes it somewhat academic. I think the figure is around somewhere, but I do not have it at hand.
Senator Stratton: I understand that. Could you supply the committee with it?
Mr. Cullen: If it is available.
Senator Stratton: Surely, if we have this information year over year as to how much the surplus will grow, then there have to be projections as you drop premiums. What will happen is that The Globe and Mail will report it for us. I think we have a right to know from your officials.
Mr. Cullen: If the information is available, and I think it might be, we will provide it to senators through the chairman.
Senator Stratton: My next question has to do with the National Child Tax Benefit clawbacks. This issue has been bothering me because the bill improves the benefits available under the National Child Benefit Supplement. It also stiffens the clawback rate faced by families with three or more children to 33.4 per cent. I will give an example concerning Manitoba. Perhaps I am wrong, but I would like to be corrected if I am and then determine where we go from there.
I should like to place before you the concerns a Manitoba wage earner, a father of four with an income of $31,000 per year, who is offered a chance to earn $100 working overtime on a Saturday morning in 2002. On our analysis, the first $24 will be taken away in federal taxes, $15.60 will be lost to Manitoba provincial taxes, and the Manitoba family tax reduction would be clawed back by $1. The EI and CPP net of tax credits will take about $5. From the following years' tax credits, this person will lose $33.40 of the National Child Tax Benefit, $5 of the GST credit and $5 of the Canada Child Tax Benefit. That all adds up to about $89 from this $100 of overtime earnings.
While we are offering increased child tax benefits, why are there onerous clawbacks on such families?
Mr. Cullen: The tax package in the 2000 budget provides the maximum benefit to middle- and low-income Canadians and those with families. The clawback provisions of the benefit are subject to agreements with each individual province. The monies have to be reinvested in like programs, and there is a policy rationale for doing that.
I will ask Mr. Alan MacNaughton to respond more specifically to your question, senator.
Mr. Alan MacNaughton, Director, Tax Policy Branch, Personal Income Tax Division, Department of Finance: The clawback rates of the National Child Tax Benefit and the National Child Tax Benefit Supplement are an issue that the government wishes to address. The five-year tax plan does contemplate reductions in those clawback rates. You can expect to see announcements to that effect in future budgets.
Reform of the Manitoba provincial tax is going on as well, which would also affect those rates, in particular the low-income tax reduction. However, I do not have figures with me as to what exactly is happening with that reduction.
Senator Stratton: Could you take my example of a person with four children, who is earning $31,000 and is picking up an extra $100 on a Saturday, and get back to us?
Mr. MacNaughton: We can certainly check those figures, yes.
Senator Stratton: If you need the paper I can give it to you.
Mr. Cullen: That would be helpful. Once the 2000 budget is fully implemented, a family of four at that level of income will pay no tax at all. In fact, they will receive a tax rebate.
Senator Stratton: Our researchers say otherwise. It may be an aberration that can be corrected. I will not hammer you over the head for this. Things happen, but I do not think they should happen, especially with a family of four or more kids. It kind of hurts.
Mr. Cullen: We will certainly look at those numbers, senator.
Senator Stratton: My next question has to do with the intensity rule.
Is the government planning to announce major changes in the EI rules as they apply seasonal workers caught up in the intensity rule? In other words, does the intensity rule mean that they go back again and again to use EI?
Mr. Cullen: I know that the intensity rule has been a contentious issue, particularly in Atlantic Canada. Likewise, the clawback provisions have been another contentious issue. I know the government is seized with those particular issues.
I would make one comment and turn to Ms L'Heureux. An objective of government would be to ensure that people are able to redeploy into the workforce, and we believe that some of the steps we have taken with EI have been sound, from a policy level.
There are opportunities when one needs to revisit issues such as intensity and clawback. For example, if we are able to move people back into the workforce in Atlantic Canada with training and with new technologies that can be developed, then perhaps that would be a preferred way to go.
Ms L'Heureux, would you comment?
Ms L'Heureux: At this time, the minister has been made aware of everyone's concerns, particularly those in the Atlantic provinces. Working groups were formed with representatives of the federal government, provincial governments and seasonal workers to develop options to address seasonality and the problems experienced by these people, specifically in the Acadian Peninsula and in the Gaspé area. These groups have produced reports with suggestions on both Part I of the Employment Insurance Act and Part II of the program as well, which are the active measures. The department at the federal level, as well as the provincial government, is working in the communities to develop options for these people, finding opportunities and maybe some capacity building at the local level.
Senator Bolduc: Do employers also sit on these committees or working groups? After all, if there are major companies in the area, this issue can be very sensitive for them. When the rate of unemployment goes down a bit, they are squeezed into a straitjacket because if we raise the employment benefits, the employers cannot get those people. It is tough for them. We cannot expect people to invest if they cannot get workers. It is also not easy for employers to import people.
Did you look at that aspect, Ms L'Heureux?
Ms L'Heureux: I cannot remember whether employers are represented on these committees, but I know that our people in regions do consult with employers as well. I am not sure if employers are on these working groups specifically. They might be, but I just cannot remember.
[Translation]
Senator Bolduc: I mention this because this is of immediate interest not only to employees wishing to receive benefits, but to employers as well. If they are unable to find people because there is no enough of a gap between the remuneration that can be paid and the benefits employees receive, then they will find themselves caught in a straight jacket and they will invest elsewhere.
Mr. Cullen: We will get that information for you, Senator Bolduc and turn it over to the chairman of the committee.
Senator Bolduc: All members are very sensitive to this issue. It affects workers as well as the unemployed, not to mention employers who need a labour force. This is not a partisan matter. It concerns all coastal regions. It is an important problem which, in my view, deserves careful consideration.
[English]
Senator Stratton: To ease the problem in the Maritimes, I think Manitoba should advertise. We need people. We have the lowest unemployment rate in the country.
You can encourage people who want a good future to come to Manitoba.
One last question or two, if I may. How much would it cost to eliminate the EI intensity rule if you just got rid of it?
Ms L'Heureux: It would cost $250 million.
Senator Stratton: How much would it cost to eliminate the $39,000 level at which EI benefits are clawed back or raise it to a higher level? Have you any idea? You can get back to us.
Ms L'Heureux: It is very vague in my mind.
Senator Stratton: I do not want you to guess unless you feel comfortable with guessing.
We have the government contemplating changes to the EI rules that apply to seasonal workers caught up in the intensity rule. Can we expect an announcement in the fall just before the election?
Mr. Cullen: No. As I said, we know the intensity rule and the clawback provisions have been somewhat contentious. The dilemma is that in terms of the reforms we have made to EI, we think the general direction has been good and sound. We certainly do not want to back out of those commitments, but whether there is some tweaking or other ways to come at the issues is something with which the government is seized. These issues are under review all the time. They are important issues.
Senator Stratton: What is amazing is that there are clawbacks in almost everything now: EI, child tax benefits, seniors' pensions. What gets announced is not reality because the old claw comes out and takes it back. The announcements really are misleading, I think.
The Chairman: Let me raise a couple of matters. First, for clarification, is the question raised by Senator Banks with regard to the CHST. When the Trudeau government, in the mid- to late 1970s, I believe it was, decided to move away from cost-sharing of health and post-secondary education and into block funding, the rationale that Prime Minister Trudeau gave at the time was that provinces should not have their spending priorities dictated by the federal government; rather, they should be able to decide themselves where to spend the money and be responsible to their electors for it.
A few years later, I believe in the early 1980s, the federal Parliament passed the Canada Health Act, which provides for the imposition of penalties on provinces that do not abide by the Canada Health Act. In order to impose penalties, there had to be an identifiable fund to be withheld. Therefore, the federal Department of Finance made a calculation as to what portion of the then EPF was destined for health care, but the calculation was and is, I think, purely notional.
Officials will come to the table and correct me if I have misstated either the history or the situation in any material way.
Mr. Glen Campbell, Senior Policy Analyst, Federal- Provincial Relations and Social Policy Branch, Policy Development and Research, Department of Finance: I wish to make a point of clarification with respect to whether we control how the funds are actually spent, in particular, referring to Alberta.
Earlier this year, prior to the budget consultation, the premiers had a meeting in Quebec City and sent a letter to the Prime Minister stating that any funds that would be provided through the Canada Health and Social Transfer this year would be provided for the purpose of health and social programs. We take them at face value in a mature federation. Assuming that Bill C-32 is passed, it will have the legislative authority of Parliament. The provinces are, therefore, accountable to the residents with respect to how that money is spent.
The Chairman: That was what you might call an ex gratia commitment on their part. They have made that commitment and that is fine, but I have never heard any expression from any province of a desire to return to the old rubric in which there was explicit cost sharing for these programs. Have you?
Mr. Campbell: No.
The Chairman: It would be interesting to ask them.
Mr. Campbell: It is an interesting question.
Mr. Cullen: I wish to interject briefly on the question of the federal contribution to health care because I know it has been a contentious and somewhat hot issue. There are some who say that the federal government's contribution to health care used to be at the level of 50 per cent. Of course, it was 50 per cent only of certain insured services, such as hospital services or medical plans, so it never reached anywhere near 50 per cent.
The other aspect that has caused some confusion in the mind of the public is the question of tax points. In 1977, the federal government moved out of certain taxation. It made room for the provinces. Federal taxes were reduced 13 per cent for personal income and 1 per cent for corporate income taxes. The provinces immediately took up that tax room and there was no delay in so doing. It was totally transparent to the taxpayer. The vacated tax room was in contemplation of the provinces spending that money on health care, post-secondary education and social services. In the debate, the provinces sometimes ignore the tax points, which is not really factual because those tax points were vacated and the provinces immediately moved into them. Some have said that provincial income taxes have gone up and down since then, when the reality is that the federal government's income taxes have gone up and down. That is not the point, however. When the federal government vacated that tax room, the provinces immediately took those tax points from the federal government and in contemplation of the programs that I have just mentioned. That is why the federal government always includes the tax points as a logical contribution to the provinces and territories for health care, post-secondary education and social services.
The Chairman: I remember making that same argument myself. I am no more convinced hearing it from you than I was when I made it myself, namely, that all these many years later, those tax points should be counted as part of the federal contribution.
Senator Stratton: I should like to go back to transfer payments.
Cash transfers to the provinces under the old Canada Assistance Plan and the Established Programs Financing amounted to some $19 billion in 1994. This bill brings funding levels back up to $15 billion, or $4 billion less than the level of six years ago.
Can you advise this committee as to what the level of cash transfers this year would have been under the EPF and CAP had the restraints on those programs been lifted on schedule? If you cannot answer that now, I would appreciate having an answer later. We hear from the provinces that under the old formula they would have been here, with the restraints off, and now they are down here. I would like to know this for the committee's sake because the government's side has to defend its position and we on this side would like to attack the position. We would like information as to what the level of cash transfers would have been.
Mr. Campbell: The province used a $4.2-billion dollar shortfall figure. That goes back to 1994-95, when the combined EPF and CAP cash transfers amounted to $18.7 billion. They exclude, in that $4.2 billion, the last of two supplements, namely, $3.5 billion for 1999, as well as the $2.5 billion that we are hoping to legislate here. The real difference is $3.2 billion.
To answer your question specifically, all else being equal, the cash transfers would have been $18.7 billion or $18.8 billion -- hence, the $3.2 or $3.3 billion dollar gap. I must also acknowledge that when tax transfers are combined, given that they have grown so dramatically in that time, the total value of the Canada Health and Social Transfer is at an all-time high.
When I said "all else being equal," in the interim, we instituted a cash floor in 1996 of $11 billion, which was then increased again in 1998 to $12 billion. The cash transfers were going to decrease. Given the dramatic increase in tax transfers, the government decided to increase the cash floor to ensure that did not happen.
Senator Stratton: You took that as a tax cut, too. As I understand you, the level was $19 billion in 1994. What is it today?
Mr. Campbell: The cash transfer?
Senator Stratton: Yes; one number.
Mr. Campbell: It is $30.8 billion. That is the one number for the CHST. If you are comparing the $18.7 billion, the cash number is $15.5 billion.
Senator Stratton: We are $4 billion short, then.
Mr. Campbell: It is $3.2 billion in cash. I am trying to be factual.
Senator Stratton: When the provinces scream, is this what they are screaming about?
Mr. Campbell: That is correct; cash.
Senator Stratton: That is a big number for a province like Manitoba -- that is, 4 per cent of the population, 4 per cent of $4 billion.
Mr. Cullen: If you add the cash and the tax points, the CHST is actually higher on a combined basis than it was in 1993. In fact, it is over $1.2 or $1.3 billion, comparing 2000-01.
Senator Stratton: Why are the provinces still screaming, then?
Mr. Cullen: Because they always want more money.
Senator Stratton: We know that.
Mr. Cullen: Unfortunately, it has become a highly politicized and partisan discussion. The provinces conveniently forget the tax points. It is unfortunate because Canadians are probably very confused about this. If you say cash transfers are down, well yes, but the tax points are up. In fact, in aggregate, the total CHST is up. It is a matter of picking out whatever information you want, focusing on it and excluding other information. We put our best foot forward as well, but the reality is that the CHST in total is up. What should be the federal contribution to health care costs in Canada is a good debate, and we are now having that debate. Another area of concern has to do with what the health care system should look like in the future. Those are the issues on the table.
Senator Stratton: There was an interesting article by, I think, Jeffrey Simpson in The Globe and Mail today reporting on the escalation numbers by the provinces. They had done some calculations of 5 per cent per year for the next three years. They calculate that by 2023 or 2025 health care costs will have gone up from $50 billion today to a factor of 2.4 or 5, taking us to a staggering sum of money. What is your response to their analysis? Do you agree?
As I understand it, the Prime Minister is negotiating directly with the premiers to increase payments to the provinces for health care as long as there is a process whereby the provinces account for each increased dollar spent. Are those negotiations in progress as reported? If so, what are their status? Will there be an announcement in time for the election in the fall, or are we just assuming that, like other politicians, he is trying to negotiate an increase as long as there is accountability?
Mr. Cullen: Minister Rock is basically responsible for this initiative to reach some kind of agreement with the provincial and territorial health ministers. We are all hopeful that some agreement can be reached on the accountability framework.
To my mind, and I think in the mind of the government, that goes beyond simply accounting for every dollar we send being spent on health care. There is some confidence in a vision for a strategic view of health care in the future. We want to manage health care costs with some accountability measures and some performance measures so that Canadians know what they are getting from their health care system.
Unfortunately the vision gets embroiled in partisan issues. I am not at the table to speak for Minister Rock, but there seems to be a tendency for the health ministers to defer to the first ministers in the sense of simply pushing for more money now and figuring out how to spend it later. I am hoping that the discussions will lead to more productive conclusions.
Senator Stratton: Offering more money is a great carrot to improve accountability, one would think. The voters want accountability. I do not really understand, though. If the government is offering increased funding, as it must, according to the provincial numbers anyway, then surely they would be quite willing to go along with requests for accountability.
Mr. Cullen: I would think the same thing. We are pushing for that on all fronts.
Mr. Campbell: The federal government is still reviewing that study. We have only had it in our hands for a couple of days, but I can speak to the issue of the cost driver of 5 per cent. That is not an unreasonable figure in and of itself.
The numbers Mr. Simpson referenced were cost accelerators in addition to that. Like any other policy issue, doom-and-gloom scenarios can exist. There are opportunities to reform the system that can both decrease the cost and improve health care. Those goals are not mutually exclusive.
Senator Stratton: As I understood the breakdown, it was 2 per cent for inflation and 2 per cent for the aging boomers.
Mr. Campbell: If I recall, and not commenting on the report per se, it was less than 1 per cent for aging. They broke down the other factors -- inflation, aging and technological drivers.
The Chairman: Let me ask a question about the notional EI fund. There is an officer, an actuary, I think, who advises the governors of the fund as to the size of the surplus that should be prudently maintained in the fund, given expected levels of unemployment. Is that the case? Who does that person advise? Is it the governors of the fund? What do they call themselves?
Ms L'Heureux: The chief actuary will advise the EI commissioners on the status of the responsibility under the Employment Insurance Act and the premiums generated. He will do some actuarial projections and that will be given to the EI commissioners.
The Chairman: That becomes public knowledge very quickly. I do not need his name, although if Senator Mahovlich wants it, we can put it on the record.
Ms L'Heureux: It is Mr. Michel Bedard.
The Chairman: How far ahead is the actuarial projection? Do you know?
Ms L'Heureux: I think he looks over 15 years, but I am not sure. He looks at different scenarios of economic growth, and those are also linked with Department of Finance projections.
The Chairman: Then he must have indicated for the next couple of years -- Senator Stratton's request for information goes out to 2004 -- the level of surplus that would be prudent in the fund. Do we know that?
Ms L'Heureux: I do not remember, but he has projections based on the different scenarios, going through those years. We could get the report for you.
The Chairman: That would be helpful to Senator Stratton.
On the intensity rule, someone asked what it would cost to do away with it entirely. You said $250 million. I am not denying that is a tidy sum of money. Is it a fact that the intensity rule brought in with the changes to EI in 1994 was brought in not just for fiscal reasons, but supposedly for other reasons related to labour markets?
Ms L'Heureux: The rule was brought in with the reform in 1996. It was to break the reliance, year after year, on the system. The EI program is an insurance program and, like any other insurance, the more you use something, the more you pay.
The Chairman: Four years later, would you say that it has had the desired effect?
Ms L'Heureux: It is hard to tell because the rule works on a five-year span and, at this point, we have had only three years of observation data. The impact of the intensity rule is not fully in place. We must look at the claim history of a client over five years and, currently, we do not have those five years.
The Chairman: We should not expect any changes in the next year or two then, is that it?
Ms L'Heureux: That is really a political discussion.
The Chairman: Yes, I thought you would say that.
On the question of parental leave, Mr. Cullen has testified that the previous negotiations on this matter with Quebec failed and that there is no basis to hope or expect that they would succeed now, so there will be no negotiations. If that is the reason for not holding negotiations, I take it there is no principled reason why the Government of Canada would not enter into an agreement with Quebec or any other province on this program.
Mr. Cullen: Senator Murray, as I understand it, there is a provision that would reduce the EI premiums if there were a like or comparable program. I do not think there is a provision for a lump sum, opting-out payment. That is what the Province of Quebec is looking for. If they have expressed no interest in negotiating under the framework available to them, we are not prepared to negotiate on lump sum opting-out provisions in this particular context. Perhaps the officials could expand on that.
Ms L'Heureux: I do not have much to expand on really, except maybe to indicate what the act says. Section 69(2) of the act specifies that when a province implements a program that generates savings for the EI program, we will reduce premiums commensurate to the savings generated by the provincial or territorial plan. That was an issue in 1997 and it was not resolved. That is what the act says we can do. At the time, Quebec wanted something different, and we were not able to meet their request without contemplating changes to the EI legislation.
The Chairman: I will not ask you for the legal opinion that has been furnished to the department on this matter, but you will have seen the media reports this morning that the HRDC has a legal opinion to the effect that they are required to do what Quebec is asking for under the law. I will not ask you about the opinion. I can ask, but I know that I cannot expect an answer. Does the difference of opinion on this matter hinge on the section of the act to which you have just referred?
Ms L'Heureux: I am not sure exactly where Quebec is at this point. As you know, there are no negotiations now. We have their proposed bill. I have not looked into from where their source of funding would come exactly or whether they would institute their own premiums.
The Chairman: You have seen, I presume, the resolution that was passed unanimously by the National Assembly this week, Mr. Cullen.
Mr. Cullen: I personally have not seen it, senator, no.
The Chairman: Then I will not ask you about it.
Is it the position of the government that this federal initiative is in no way covered by the social union agreement that was signed a year ago?
Mr. Cullen: I certainly am not a constitutional expert, senator, unlike yourself. My gut reaction would be that it does not fit within the social union.
The Chairman: Does anyone have a view?
Ms L'Heureux: I am not familiar with the social union, per se. However, within the EI legislation, we do have the constitutional power for these parental benefits. It is a federal head of power within the Employment Insurance Act.
The Chairman: I know that. However, in the social union agreement, there was an agreement that effectively restrains the exercise of the federal spending power in the field of social policy. Is that not the case?
Are you aware of any consultation that took place, never mind Quebec only, but with the provinces generally on this parental leave program before it was brought in?
Ms L'Heureux: There were different discussions held at the deputy minister level with our social services ministers in general.
The Chairman: When was that?
Ms L'Heureux: There were some in January and some in November. Through various forums, we have been talking to the provinces on a regular basis. Certainly there were occasions to discuss these issues between the announcement in the Speech from the Throne and the February announcement in the budget.
Senator Banks: I am asking this because I am new here and naïve. I am always flabbergasted by how long it takes things to happen. I note that the parental leave provisions under this legislation will come into place on December 31, 2000. Am I right?
Mr. Cullen: That is correct, yes.
Senator Banks: That is six months hence, assuming that we are able with some alacrity to pass this bill, notwithstanding that we received it only a short time ago.
First, I am amazed it would actually take six months to set up a system and to make those kinds of changes which, after all, are not changes in principle, but only in times and amounts.
Second, I am wondering whether the government, in drafting that part of the bill and deciding on that effective date, took into account the emotions and the reaction of a woman or family in which the woman is pregnant whose baby is born on December 29, as opposed to the next door neighbour's baby who is born on January 1? The benefits in such a case under this program will be markedly different. Was a phase-in period considered that would be more gradual? Will it really take six months to do this? It seems to me like it is like punching a few buttons.
Mr. Cullen: In terms of the timing, I will ask one of our officials to comment on that.
In terms of tax policy, we often run into this issue. We had it with the capital gains tax and the reduction in the inclusion rate. What date do we make it effective? The whole five-year tax package contains a range of different implementation dates, and it is hard to be half pregnant. You either have a baby or adopt a baby at a certain date. I do not know if easy transition rules could be adopted or reviewed, but perhaps Ms L'Heureux could comment.
Senator Banks: My question is: Will it really take that long, or is it merely convenient administratively because of the tax regime to have it coincide with the calendar year.
Ms L'Heureux: There was a fair bit of lead time required to adjust the systems. The Employment Insurance Act, as you probably know, is fairly complex. The computer system that calculates these benefits needs to be reprogrammed and tested. We need to train the staff. Even though we say it is a doubling, there are other considerations to this act. We are changing the number of hours required to qualify. We allow working while on claim.
Senator Banks: Pardon me. I am only talking about the parental leave part.
Ms L'Heureux: It is part of that.
Senator Banks: The principle and the mechanics are already there. We are only talking about changing the amount of time, are we not?
Ms L'Heureux: No, we are not, which is why it requires a bit more time. There are also regulations that need to be amended to ensure that every parent has access to this extended leave.
Senator Banks: It is not just a matter of convenience, then.
Ms L'Heureux: No.
Mr. Cullen: The number of insurable hours has dropped from 700 to 600. Also, there are opportunities to split the benefit between parents. There is a range of technical issues to adapt to this new regime.
The Chairman: I am glad you brought that matter up. I just want to advise the committee. I have received a letter from the Canadian Teachers Federation asking that we move to make this provision to go down to 600 hours retroactive to January 1, 1997.
Even were we disposed to do so, I believe that it would not be possible for the Senate to amend the bill in that respect. I will, on your behalf, write to the CTF and let them know.
Thank you very much, Mr. Cullen. Mr. Cullen has already been through something of an ordeal as the chief witness with our friends in the Standing Senate Committee on Banking, Trade and Commerce downstairs. We appreciate his forbearance and stoicism on so many issues that have come up here.
Mr. Cullen: Thank you very much.
The Chairman: Let me also thank the many officials who have made themselves available for this evening's meeting for the usual thoroughness with which they have replied to our questions. We are expecting some further documentation, as the officials have noted. Thank you all.
Is it agreed that committee move to clause-by-clause consideration of Bill C-32?
Hon. Senators: Agreed.
The Chairman: Is it agreed to stand the title?
Hon. Senators: Agreed.
The Chairman: Is it agreed to stand clause 1?
Hon. Senators: Agreed.
The Chairman: Colleagues, this bill conveniently lends itself to division into groups of clauses. If you agree, I will follow the outline of the bill. To begin, shall clauses 2 to 11 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clauses 12 to 16 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clauses 17 to 22 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clauses 23 to 34 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clauses 35 to 36 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clauses 37 to 41 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clauses 42 to 47 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clause 1 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Is it agreed that this bill be adopted without amendment?
Hon. Senators: Agreed.
The Chairman: Agreed.
Is it agreed that I report this bill at the next sitting of the Senate?
Hon. Senators: Agreed.
The Chairman: Thank you, senators. We will now continue in camera.
The committee continued in camera.