Proceedings of the Standing Senate Committee on
National Finance
Issue 22 - Evidence
The Standing Senate Committee on National Finance met this day at 11:00 a.m. to examine the effectiveness of and possible improvements to the present equalization policy in ensuring that provincial governments have sufficient revenues to provide reasonably comparable levels of public service at reasonably comparable levels of taxation.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: This is the second of our public hearings on the equalization program. Our witnesses today are the Premier of Newfoundland and Labrador, the Honourable Roger Grimes, and his Minister of Finance, the Honourable Joan Marie Aylward.
Premier Grimes has been premier of his province since February of this year, but he has had quite a long and distinguished career in public life. He was first elected to the House of Assembly in 1989 as member for the District of Exploits, and he has held numerous portfolios in the government. He has been Minister of Labour, and he took over the Tourism, Culture and Recreation department. He has been Minister of Education, Minister of Mines and Energy, and Minister of Health. He is more than familiar with all of the departments of government, including some of the big spending ones.
We are glad to welcome back the Minister of Finance and President of the Treasury Board, Ms Aylward. She is the member for St. John's Centre, and she too has headed a number of departments in the Government of Newfoundland and Labrador, specifically, Social Services, Health, Municipal and Provincial Affairs. She became Minister of Finance and President of the Treasury Board in February of this year. She appeared, as you will recall, before this very committee when we were studying Mr. Martin's bill to raise the cap on equalization entitlements.
I will call on the premier for an opening statement, after which I will open the floor for discussion and questions.
Hon. Roger Grimes, Premier of Newfoundland and Labrador: I would thank you, Mr. Chairman and senators, for this opportunity to appear before your committee this morning with the Minister of Finance and President of the Treasury Board for Newfoundland and Labrador, the Honourable Joan Marie Aylward. I am also accompanied by the Chief of Staff, Mr. Reid, and the Communications Director, Mr. Cooper, as well as my wife, Mary Anne, who is visiting Ottawa with us. Tomorrow evening we will be at the opening of the Joey play, which will be presented here in the Ottawa region and Ontario for the next several weeks. We are looking forward to hosting a reception at that event tomorrow evening and bringing greetings to the opening night audience on behalf of the people of Newfoundland and Labrador. We are proud that a Newfoundland based troupe will be performing in this region and in other parts of Ontario a play that characterizes and highlights the career of one of the Fathers of Confederation, Joey Smallwood, who led Newfoundland and Labrador into Canada, or as we like to say, convinced Canada to join Newfoundland and Labrador in 1949 and was our premier for 23 years. We are pleased to be here for that.
I am pleased to see the attendance and interest of the Newfoundland senators, Senators Rompkey, Doody, Cook, and Furey. I know all the senators and all the politicians in Newfoundland and Labrador, as well as the general public, are tremendously interested in this issue because it deals with the fundamentals of how we participate in a federation of which we are extremely proud to be a part.
I am also pleased see the other senators, including Senator Mahovlich. I asked him whether he would be playing tonight because I met Mario Lemieux at breakfast. I told Senator Mahovlich that he looks to be in just as good condition as Mario Lemieux, and if he can make a comeback, perhaps he would consider a return to his former career. However, he assured me that is not in his plans and that he will stay with this particular venture for a while yet.
I will try to keep my comments brief. The last time I appeared before a Senate committee, it was with respect to a constitutional change regarding education in Newfoundland and Labrador. I very much appreciated the thoroughness of the discussion of the challenges we were dealing with at that time, as well as the time, the energy and the effort that the Senate committee and the combined committee of the Senate and the House of Commons put into that particular issue several years ago when I was the education minister.
Having said that, and promising to be brief, those who were here the last time would remember that the chair, after several minutes, indicated that the committee wanted me to close so they could ask some questions. I will try not to be in that circumstance this morning.
A written presentation has been distributed. I will not be reading that presentation, but I would like to make some comments with respect to four or five issues I wish to leave with the committee before our discussion.
These are issues that I have had opportunities to raise throughout the country since I have been the Premier of Newfoundland and Labrador in the last eight months or so. I had opportunities to raise them at the annual premiers' conference in Victoria where the issue of equalization was at the front and centre of the agenda. Some unanimous resolutions were made by the provincial and territorial leaders at that time, and I appreciate an opportunity today to make some of the same points and discuss them further with this committee.
I would like to make some points about some misconceptions that are still afoot in the country with respect to equalization, what it is all about, how it works and what it is designed to do. I would like to spend a few minutes, as the Minister of Finance, Ms Aylward, did the last time she was here, to remind all of us of the constitutional basis of this program and the fact that it is the only funding program in the Constitution of Canada. It has been debated. As part of the Constitution, it should be paramount in terms of funding programs.
I will comment on how this constitutionally based and important program is dwarfed by other funding programs of the Government of Canada and thereby frustrated in its ability to meet its goals and objectives.
I want to discuss the misconception regarding the requirements for changes to the equalization program. We are led to believe by other provincial politicians in other jurisdictions and by federal politicians - I am not saying this to be critical but rather to be factual - that changes to equalization can occur only if the province and territories agree. I would like to speak about that absolute fallacy and remind people that it is a program of the Government of Canada, completely and totally within its control. I also want to discuss the issue of whether revenues from non-renewable resources should be included in any calculations with respect to equalization. I have been on the public record as saying that this issue is clear, in my view. This came to a head in the country during the summer when some comments were attributed to the now retiring Premier Harris from Ontario, who is a good personal friend of mine. I always add that comment because I appreciate him very much as a person although we have some political differences of opinion. However, he has made a decision to move on in terms of his political career.
Before the annual premiers' conference in Victoria some comments were made that made it crystal clear in the minds of Newfoundlanders and Labradorians, other Atlantic Canadians and residents of other recipient provinces of equalization that many people take the view that equalization works by way of the three have provinces, at this point in time being Ontario, Alberta, and British Columbia, paying into a fund which is then paid out to the have-not provinces. I know that the perception exists because members of the national media have asked me questions that have led me to believe that they have always understood or been led to believe that that is how the program works - that three provinces send in a special levy, and this special levy that is collected from the people in those provinces is then disbursed to the other Canadians who are in a less fortunate economic circumstance.
When discussing the issue of equalization, as this committee is, I believe it is incumbent upon all of us to ensure that we take every opportunity to remind everyone in the country that equalization is a federally funded program that is paid for from general tax revenues of the Government of Canada. The Government of Canada taxes every Canadian individual, corporation and business in every jurisdiction equally, whether it be a corporate tax, business tax, a personal income tax or GST. There are not different federal taxes in Ontario or Alberta and British Columbia than there are in Newfoundland. The same taxes are paid at the same rates for the same purposes across the country.
From that general tax base which makes up the full federal revenue source, the Constitution of Canada states that the Government of Canada must put aside some of that money for an equalization program. It is the only program that is actually defined and spelled out, not in terms of the amount, but in terms of its guaranteed existence in the Constitution. It is not paid for from any special levy. Whatever the income flow for the Government of Canada in any one year, they are obligated by the Constitution to take some portion of that money and put it into an equalization program. That is spelled out in the Constitution. It is the only program for which there is a constitutional reference dictating that the Government of Canada must spend some money on something, and the "something" is equalization and the "some money" is determined completely and totally by the Government of Canada.
Over the years, there has been a series of changes when the Government of Canada has decided that those changes are in the best interest of the Government of Canada and, in their view, in the best interest of the people of Canada, including those in the recipient provinces and territories. In fact, there have been changes over time in terms of which jurisdictions receive equalization and which ones do not. For example, in some years, Saskatchewan has received equalization and in others years it has not. Newfoundland and Labrador has always, unfortunately, been in a circumstance to receive equalization ever since it has been part of the country.
It is good in opportunities like this to remind ourselves and anyone who would listen and want to hear of the constitutional basis of the program and the fact that it is funded from the general broad-based revenues of the Government of Canada, that no one in any one jurisdiction pays more towards equalization than anyone else. When we pay our regular taxes, we do not know how much of that will go into CHST, into a federal-provincial infrastructure program, or into any other program, or to run which services. The Government of Canada makes those decisions.
At this point in time, they have made a decision that the equalization program should be in the range of just over $10 billion. The rules governing the program will determine who actually receives some of that money and how much each of the recipient provinces receives. Who receives it has changed from time to time, and how much is determined by what we all recognize to be a fairly complex set of rules.
A certain fundamental notion has been stated to this committee repeatedly, and I do not mean to bore you with it because I know the members of this committee know it very well. The fundamental proposition, which is also stated in the Constitution, is that that defined program is intended to and is supposed to be designed to make sure that Canadians, no matter where they live, have access to reasonably comparable levels of programs and services such as health care, education, basic infrastructure and so on and that those things should be available no matter where you live at reasonably equitable levels of taxation. That is not the exact wording, as you know, but those concepts are in the Constitution of this country. As we all know, the issue has been debated at length. One of the underpinnings of our whole federation is that we have a program, the objective of which is to accomplish those two goals.
I have left information with you in this presentation that shows that, despite 30 or more years of attempts through this program, the gaps have not narrowed, the program has not succeeded, and if we continue in the way we are doing things today, it will not succeed. We will merely have another transfer program that takes money from the federal coffers and sends it to some provincial coffers but which does not achieve its objectives. If we continue on as we are today, there will be someone sitting here in another 30 years saying exactly what I am saying today. "We have had a program now for 60 years, and it still has not worked." We have been saying that repeatedly and vigorously. I appreciate the opportunity to say it again as the premier of the province, even though you have been gracious enough to hear from Ms Aylward as the Minister of Finance for our province.
The difficulty is, as I explained fully at the annual premier's conference in Victoria, that we have other programs that used to have an equalizing component.
The understanding of the Government of Canada through all the years, up until just a few years go with the current administration, was that if you are going to send funding to the provinces for health care and the costs associated with providing health care, there are differentials already in the provinces that should be taken into consideration. Newfoundland and Labrador has a population that roughly equates to the size of the city of Winnipeg. If we had the revenues that we have today and we were serving those between 500,000 and 600,000 people in one small geographic location, we would not have a problem. We have more than enough revenue to handle that circumstance. However, we have one of the biggest geographic areas to deal with in the country. We have over 600 communities scattered over an island that is much larger than anyone realizes, and throughout a vast land in Labrador. We have to provide services to those people somewhere reasonably close to where they live. It costs a whole lot more to service half a million people scattered in 600 communities than to service the same half a million people in one town or city. The rules do not take any of that into account.
I am an ally of this particular government. I am a Liberal; they are Liberal. I support them in federal elections, and I hope they will support me in provincial elections. However, that is politics, and we will not talk about that today. In any event, this particular administration decided that, with health care and post-secondary education, they would eliminate just about every single equalizing component and do it on a per capita basis. I will explain the frustration.
The last portfolio I held before becoming premier was Minister of Health. Just to use an example, the CHST, the health and social transfer, is a program that is almost twice as big money-wise as equalization. We are trying to pay health care professionals, whether they be nurses, technicians, technologists or others. We get money on a per capita basis to help us provide those services all over Newfoundland and Labrador. It is $18 billion or $19 billion now, and it will go up to $22 or $23 billion in five years time. We get that money on a per capita basis. Our professionals are being paid at a rate that is 20 per cent lower than the national average and 10 per cent lower than the average in the rest of Atlantic Canada. The challenge every day is to try to keep nurses and technologists and technicians working in Newfoundland and Labrador, because they are highly skilled and highly trained and they can make 10 per cent more just across the Gulf. They can make 20 or 25 per cent more if they go to Toronto. When our neighbouring province of Nova Scotia went through a very difficult time with their nurses in the spring, recruiters from Alberta were in Nova Scotia asking the nurses to come to Alberta to work, telling them they would be paid 30 per cent more, that their transportation costs would be covered, and that their spouse or significant other would be provided a job.
Per capita funding drives that circumstance, and that widens the gap because in small population bases we can never catch up. There is then an equalization program with half as much money that gives you roughly $20 billion to widen the gap in the first place, and then you are given your share of $10 billion to try to narrow the gap. I was a math teacher for 15 years. I know it does not work. You cannot narrow a gap with half as much money as what widens the gap in the first place. It is impossible.
That is the circumstance prevailing in the country today. We have lobbied hard and prevailed upon the Government of Canada to look at putting those equalization components back into other funding programs. They do make exceptions occasionally. I understand that a new national roads program is being discussed, although no decisions have been made yet. Again, the original thinking was: Let's do it on a per capita basis. If Prince Edward Island receives this funding on a per capita basis they will get approximately 50 cents per capita. You cannot pave many roads with 50 cents per capita. As I say, they do sometimes make exceptions.
They have agreed, because of the small size of the province, that they should get at least some floor amount of, say, $3 million or $4 million from the program. Therefore it will not be on a strictly per capita basis. If equalization is the constitutionally provided program, the only one, and if the objective is to narrow the gap, then all of the programs should take into account disparity in the first instance.
That is the biggest disappointment we have with respect to the Government of Canada and the change they made about four or five years ago. I have discussed at length with the Prime Minister, with the Minister of Finance, with our own federal representatives in the cabinet and with our own MPs, and we have made no progress towards change.
With regard to equalization itself, an issue is being debated fully and openly in the country now, and I am pleased that it is not let led by politicians. It is lead by economists and people from think-tanks, such as the Atlantic Institute and others, who are saying with equalization it makes no sense to include in the revenue calculations revenues from non-renewable resources. I use this example in Newfoundland and Labrador all the time, and I use it every chance I get. We cannot, and no government can, provide fundamental and basic services to its people in health care, education, clearing roads in the winter and those kinds of things that must be done every year, based on revenue that will disappear next year or the year after. The reality of a mine - and we are talking about a Voisey's Bay project that we may or may not be able to undertake in the near future - is that the first day you dig a shovel into the ground is the first day towards the closure of that mine. It has a time limit. It is a non-renewable resource. The same applies to oil and gas and the revenues generated from those resources.
Hibernia has been on stream in Newfoundland and Labrador for two years. The reality is that it is now two years closer to the day when it will close. That means that we cannot put in place health care systems, education systems and other fundamental systems that depend on that revenue because the day Hibernia closes down is the day we must close our schools, our hospitals, and stop providing services.
We have suggested to the Government of Canada that revenues from those sources should be channelled into debt servicing so that if we eliminate the 15 per cent or so that our Finance Minister is paying every year on debt servicing with the one-time revenues, we will have 15 per cent more every year that we can use to provide services for our people on a sustainable basis.
We will not have the oil and gas revenues. We will not have the mining revenues. They will not exist. We have had a mine in Baie Verte that has been closed for 10 years. We had a mine in Daniel's Harbour that has been closed for 15 years. We had a mine in Buchans that generated employment revenues for a period of time and that has been closed now for 20 years. The mine in Belle Island was a big economic generator in Newfoundland and Labrador for 25 years and that has been closed for 25 years or more. The monies from those cannot now provide services on a continuous basis.
The purport of the ongoing debate is that, in equalization, we should broaden the revenue base for the sustainable revenues of any jurisdiction from regular tax bases - income taxes, consumption taxes, other taxes - that the government can control and will have into the future. The government can manage one way or another to keep them at a certain level so that income is guaranteed. We cannot control how long a mine will last. We cannot control how long oil and gas will generate revenues. We should be taking those revenues, paying down debt, and building some infrastructure on a one-time basis so we can diversify and broaden our economy, and those should not be the basis of any calculation.
Finally, when it is convenient to the Government of Canada - and on this one they have argued both sides - they have argued in Atlantic Canada that oil and gas revenues must be included because all revenue sources must be included. That is an issue that Premier Hamm and I will bring forward in another forum, and we will continue to raise it with respect to the clawback issue.
In regards to Alberta, where there is tremendous revenue from oil and gas, they have decided to take that out of the equalization calculation since that determines the average in the country. If you include the revenues from oil and gas in Alberta - which they are insisting we must include - that raises the average too high. Therefore, it is not convenient for the Government of Canada to use oil and gas revenues in Alberta because it would drive the up average we are all trying to attain. They keep the average and standard artificially low by making a unilateral decision to take Alberta out of the equation and use a five-province standard instead of a 10-province standard.
The Finance Ministers have asked for a 10-province standard so that we have a real standard as it relates to the average economic circumstance in Canada, not an artificially created one from only five jurisdictions. The premiers agreed with that position at the premiers' conference in Victoria. We talked about removing the ceiling.
We have a chart in our written presentation that shows the percentage of GDP and the actual percentage of income that the Government of Canada is contributing to the constitutionally provided equalization program. That contribution is smaller today than it has been historically. We have the only constitutional program around, and the fiscal effort put into funding it by the Government of Canada is smaller than it has ever been.
Then we have the issue of what revenues to count. We say you should count all the revenues on an ongoing basis that any province generates. I am referring to income taxes, consumption taxes, and user fees. Again, the Government of Canada today says that it does not agree that we should include user fees, but every province can institute user fees for certain items whenever they want and thereby raise their revenue whenever they want. They cannot open a mine whenever they want. They cannot determine if it closes or not.
Those are the issues that we have presented to the federal government. I know those issues have been discussed before this committee previously. We are tremendously disappointed that further progress has not been made as a result of our representation to the Government of Canada. The premiers of all 13 jurisdictions agreed unanimously at the premiers' conference that the cap should be removed. Even the Intergovernmental Affairs Minister, Mr. Dion, in response to an article from Mr. Crosby a week or so ago, suggested that they cannot make any changes without the approval of the provinces. That is not the case.
In any event, if that were the case, then the converse of saying changes cannot be made without the approval of the provinces is that, if all the provinces agree, then changes should be made. All the provinces agree that the cap should be lifted and that the program should reflect the economic circumstances of the provinces.
It is an issue that frustrates us a bit, though I hope you do not sense any frustration in my voice. I have tried to clearly lay out some points that might engender discussion. Thank you for providing this opportunity.
Senator Rompkey: I want to welcome our witnesses and thank them for this presentation. I should tell the committee, particularly Senator Mahovlich, that Roger Grimes was no mean hockey player himself. Roger Grimes played defence for the Grand Falls Cataracts. Even Senator Doody who is a fan of the St. John's Capitals will acknowledge that the Grand Falls Cataracts were a force to be reckoned with in Newfoundland hockey. Senator Mahovlich, if there are weaknesses in defence, particularly on the Pittsburgh Penguins, perhaps we have a candidate here.
To be serious, I want to deal with the most fundamental questions and those are: What do the words say; and what is the reality? In my opinion, those questions should underpin the committee's deliberations. Let us underline the words which are included in the premier's brief which are: "...to ensure Canadians have access to reasonably comparable levels of public services at reasonably comparable levels of taxation."
Would the premier tell us whether that is happening? If it is not happening, it should happen because that is what the words say. That is the fundamental point. Is it reasonable for our province to spend 111 per cent, 112 per cent, or 120 per cent of the national average for an education system? Is it fair?
We have mines that will be opened up, and we will need qualified people and trainers to train people in the skills required for that operation. We know there is a correlation between education and jobs and the amount of money one can earn. If we must spend 120 per cent of the national average - and the exact percentage does not matter - then we may not have an inferior system, but we do not have a superior system. Newfoundland has a good system of education, but it is costing us more than the national average. That is not reasonable. I want to give the premier an opportunity to comment on that.
Mr. Grimes: That is the fundamental issue we discussed at the annual premiers' conference in Victoria. It was the principal issue that I discussed at length with Premier Harris from Ontario. I used both education and health care as examples. In Ontario, teachers' salaries are 25 to 30 per cent higher than we have been providing in Newfoundland and Labrador. The CHST funding does not go into the K-12 system. It is used for post-secondary education. They have been getting per capita funding under CHST that they can put into post-secondary education and health to increase salary levels for university professors and others. At the same time, they have a very aggressive tax reduction program.
This is where the problem is compounded. We are left to compete in a tax environment where we are trying to attract businesses and companies and investors to Newfoundland and Labrador. One of the major frustrations felt by our Minister of Finance and others is that they are told by businesses that they cannot consider locating in our jurisdiction because our tax structure is not competitive. How will we ever get into a competitive tax environment when we almost need to raise our taxes to get the money to pay our professionals in health care and education so we do not lose them? If we lose them, we will be unable to provide the services. It is costing us, because of our geographical circumstances, about 20 to 25 per cent more to provide the same service, not a superior service.
The Government of Canada and the bureaucrats who work on the equalization program understand that, but they have not incorporated it into the program. They understand that there is a fundamental basic difference in the cost of providing the service to a geographically dispersed location.
The equalization program is leaving us far behind. This report I have shows that perhaps once in 30 years we have made it to 70 per cent of GDP. The program is designed to ensure that we come close to the national averages, but we have not budged, despite everyone's best effort.
There is the issue of additional cost and whether that cost will be factored into other programs. Equalization does help but, in its current form, we can never narrow the gap because other programs are widening the gap on a daily basis. Equalization cannot make that up. We are spinning our wheels and even losing ground.
A fundamental discussion must take place in the country about equalization and any funding program that transfers monies between the Government of Canada and provincial jurisdictions.
Senator Furey: Premier Grimes, I certainly agree with you that the ideal goal for any of these programs is equality. If we are to make any headway in attaining that goal or any aspect of it, the grounding for those policies and programs has to be equity and fairness. The delivery of health care in Newfoundland is not on the same level as the delivery of health care in Ontario or Alberta. Yet, when we look at the CHST distribution of funds, it is done on a per capita basis. Newfoundland has a declining and aging population, so the health care system will be even more burdened in the near future than it is today. We still dole out CHST money on a per capita basis to provinces. The gap will never narrow as long as we have that kind of distribution process.
Premier, have you made the case to federal officials and to the federal minister that this must change? If the underpinnings of these programs are to be equity and fairness, equality across this great nation, we must start somewhere. Things must change. We need a formula that involves a needs consideration or a consideration of other factors such as those I have named.
Mr. Grimes: I appreciate the question and the commentary. We have made the point repeatedly. I am pleased to be here today to reinforce the point. You have described the situation exactly as it has been described by myself, the Minister of Finance and other representatives from Newfoundland.
I do not mean to belabour this, but it was the focal point of the premiers' conference this year. In Victoria, Premier Harris was saying, "We need to have increases in CHST because we cannot afford to fund health care in Ontario at the levels required." I was saying, "I cannot agree to be part of a premiers' conference that asks for increases in CHST which widen the gap between Ontario and Newfoundland and Labrador unless we are also going to talk about the appropriate changes to equalization, which is the program that is supposed to narrow the gap and provide for equitable services."
Of course there was a lot of ballyhoo about that in the days leading up to the conference, and the position at the end of the conference was that the premiers asked for both. Being politicians, of course, we asked for a removal of the cap, unanimously. We asked for changes to the other bases of the equalization program, meaning a broader-based revenue coverage and a 10-province standard instead of five so that we can try to bring services and programs up to a real Canadian average instead of an artificially described one. We asked that there be increases in CHST because all of us are in a circumstance where we are receiving less money, including Ontario, Alberta and British Columbia. Every province, regardless of its own circumstance, receives money through CHST. Every jurisdiction receives transfers to help pay for the cost of health care, post-secondary education and some social services programs. That is the basis on which the Government of Canada has concluded that, since it is for everyone, it should be per capita. However, the whole debate was about the fact that that funding, as it increases, only further frustrates the objectives of equalization.
If we continue to do that, it means that we do not take our Constitution seriously. In the constitutional debate, everyone decided which articles were going to be included, which items would be important for the whole of the country, which things would be highlighted as being integral parts of what being Canadian and being Canada is all about. Guess which was the only one that was included based on financing? It was equalization. We all said that we believed that we should be working towards more equitable levels of programs and services at fairly equivalent taxation levels. However, that is not happening, and it is not happening largely because efforts are being frustrated by artificial caps on the equalization program. Absolutely fundamentally arbitrary decisions are being made by the Government of Canada to contain and control its own fiscal circumstance and to have balanced budgets. Those are all good objectives that we all work towards and love. Paying down debt is something we all want to do, and making sure we are fiscally responsible is something we all have to be, but that has become the priority instead of dealing with the one financing funding program that is in the Constitution that is aimed at providing comparable levels of public service and equal tax rates.
Like Ontario, Alberta and British Columbia, we receive fewer actual dollars from the Government of Canada for health care, post-secondary education and social services than we did five years ago. The transfers from the Government of Canada to Ontario, never mind equalization receiving provinces, to help support education, post-secondary education, health care and social services is less in actual dollars today than it was in 1996. We are all being challenged to provide a broader base of services to a wider range of people with bigger demands and we are receiving less money from the Government of Canada. That is because they chose, as a priority, to put their own fiscal house in order and to pay down debt and other things. That decision is laudable in its own right, but they have left provincial jurisdictions struggling to meet the health care and education needs of the people we serve.This constitutes a fundamental disagreement between ourselves as the provinces and territories and the Government of Canada. One of the most frustrating aspects for equalization recipient provinces is that the other funding programs actually frustrate the objectives of the equalization program.
Senator Furey: Premier, you indicated that at the last premiers' meeting all parties agreed that the cap should be removed. Last night we heard from the newly minted Minister of Finance from New Brunswick, who was kind enough to spend some time with us, and I touched very briefly on this particular question. What, if any, support did you get from your fellow premiers on the issue of excluding revenues from non-renewable resources?
Mr. Grimes: That is a good question, and I am glad to deal with it. I am sure there was no pun intended by referring to the new Finance Minister as "newly minted." I hope he is enjoying his position and working well with my colleague Premier Lord.
The issue is, at this point, largely misunderstood. The biggest concern for all provinces, not only equalization recipient provinces, is that they have been led to believe something that is not true. Premier Hamm and I have been working to convince them that what they have been led to believe about how the equalization program works is not the truth. They have been led to believe that, if a province like Newfoundland and Labrador or a province like Nova Scotia is permitted to keep the revenues from non-renewable resources such as offshore oil and gas, in our case Voisey's Bay, that somehow they will lose some money. That is why there has been no acceptance or broad based support for this from other jurisdictions.
Our ministers of finance in Atlantic Canada are meeting again with the representatives of the Department of Finance and Intergovernmental Affairs to point out to them that the real issue is whether or not the Government of Canada receives some revenue, not whether they make the equalization program bigger or smaller, because that is entirely up to the Government of Canada. If the Government of Canada decides next week that the equalization funds will not be $10 billion or $10.5 billion or $10.8 billion, but instead $7 billion, then they can do that. We will all complain but they do not need our consent to do that. If they see that as a fiscal priority in the country at the time, because of changing circumstances, they can do it. They have done it in the past. They determine that completely and totally unilaterally. If we have a program that is $10.5 billion, maybe $11 billion next year, and if in fact the Government of Canada decides that is how much it will put into the program from their $700 billion or whatever its budget is, and I understand it is in that range, then that is up to them. There is a preponderance of view from economists that it should not be done on that basis, because it is to be based on the goal of the equalization of services and programs. It should not be part of the calculation.
We are talking about the Government of Canada, with brand new revenues coming on stream. Do you know how much revenue the Government of Canada is receiving from Voisey's Bay today? None. Why not? It has been determined to be a very valuable resource that is in the ground. There has been no development, so there is no money in it for the Government of Canada. There is no money in it for Newfoundland and Labrador, and there is no money in it for the proponent. There is no money in it for anyone. It has been identified as being very valuable. Under the current rules, if we develop it the Government of Canada will take about 90 per cent of all the revenue that flows to governments from it. Instead of having $710 billion, they might have $712 billion or $715 billion, and they can then decide how much to put into equalization and how much to put into CHST and someplace else.
All we are saying is that they should not expect any additional revenue from these non-renewable resources. Those revenues should be left in the provinces and the territories. Then, with that kind of money, this Minister of Finance can probably pay down the provincial debt by $20 million, $30 million or $40 million a year. That would free up some money on an ongoing basis that would be included in the equalization calculation and reduce that calculation because of a stronger tax base and because of the fact that we have more ongoing annual revenue from normal sources rather than one-time revenue that will come in for an estimated 15 or 18 years from a nickel deposit. When it is over, in 20 years time or 25 years time, the Government of Canada would have received all the money. The 10 per cent that we get to keep helps us minimally and marginally to try to build up our level of programs and services to a Canadian standard, and we all lose.
As I said before, someone will be back here in 20 years time saying: "The mine just closed. We are still on equalization. We are still as far behind as we were 20 years ago. The Government of Canada now has $750 billion a year to spend", and, "There is still only $10 billion being put into equalization." It is tokenism of the highest order. It is not working and it does deserve the large amount of attention that I appreciate this committee will give to the matter. I hope someone will take it seriously and do something. This has been frustrating people now for 30 years, and it will frustrate people for another 30 years unless there is a fundamental recognition that it is not working, it is not achieving its objectivities, and it needs to be changed so that we live up to the intent of the Constitution. That intent is to try to affect a different Canada from what we have had in the previous 30 years in terms of equitable levels of services and equitable levels of taxation.
Senator Doody: Mr. Premier, it appears to me that the Canada Health and Social Transfer payments are almost equally divided now between cash and tax points. There was a time when it was practically all cash and over time the tax point component has become bigger. Does the Province of Newfoundland and Labrador find the tax points are as useful as the straightforward cash?
I know we used to cry for more cash and suggest that they keep the tax points. They are great for Alberta and Ontario but they were not much good when we had a much narrower tax base. Do you have any problems with this?
Mr. Grimes: I am glad you raised the subject of tax points, senator. I know you dealt with it many times over in another life. I do know about the representations and presentations you made on behalf of the people and the Government of Newfoundland and Labrador. It is an issue we discuss at meetings of finance ministers and at premiers' conferences. It demonstrates the problems we have in the country. A transfer of tax points is probably the answer in Ontario, Alberta and maybe British Columbia. It is not the answer in any jurisdiction that has a limited economic base. You can give us all the tax points you want but, if you have a small base, 50 per cent of zero is not worth any more than 3 per cent of zero. You can give me the tax points, but if I am taxing nothing then I can't raise revenue. The whole issue is to give us a chance to broaden and diversify the economy with sustainable funding so that we have sustainable funding and a broader and bigger tax base.
We have been trying to accomplish that in Newfoundland and Labrador since Confederation. We have had some very limited successes, but we continue to strive to succeed.
We need to step outside of the tax issue box completely. If we talk about transferring tax points as the real answer, and talk about the issues I raised about how CHST even on a per capita basis continues to frustrate people, then people need to open their minds to an even bigger proposition. We have the Government of Canada providing funding for health care and post secondary education in a manner that is complicating the issue and widening the disparity. If the Government of Canada is spending $23 billion on CHST over the next five years, why do they not step out of the tax business to the tune of $23 billion, reduce taxes of whatever sort - pick a tax or several taxes that apply across the country - and give up taxing people to the tune of $23 billion and let the provinces and territories keep their share? It does not come equally from every quarter. That is revenue that does come on a per capita basis. There is more tax coming from Ontario because more people live there. There is more tax coming from British Columbia because more people live there. There is more tax coming from Alberta because they are taxed at a higher bracket because they have more money. There is less tax coming from Newfoundland and Prince Edward Island because we have fewer people and a smaller economy.
Get out of the tax business to the tune of $23 billion. Abolish CHST all together and let every jurisdiction run their own show, and then put in a real equalization program that allows everyone to run what they can from their own resources. We do not need to put in money for health care or post-secondary education but we need to put in money now to see whether or not health care services in every jurisdiction are equitable. We need to put in money to see whether or not post-secondary education services are equitable. That money comes through the provisions of the Constitution that deal with equalization.
I do not think people are willing to think that way.
The Chairman: Do not be too sure, premier. Do not be hasty. Many people might be willing to consider that. Perhaps my friend, Senator Bolduc, would like to take it up.
In the next breath, however, I might say that you have been telling us that you and nine other provinces, it appears, are to be inveigled into a national roads program, which will be cost shared, I presume. Would that be 50-50, 60-40, 70-30?
If you do not want to tell us about that, we know that historically those cost-shared programs on highways in Newfoundland have been cost shared 60-40, 70-30, even 80-20 in some parts or 90-10 in some, as Senator Rompkey reminds me, in the days when we were really flush. The temptation for you to spend those 20 cent dollars or 30 cent dollars, whatever they are, is almost irresistible. You have been talking a great deal about the Constitution, but roads are under your jurisdiction. Why would you not tell the federal government to get lost with its roads program and enrich the equalization program and you - the duly elected Government of Newfoundland - will decide whether your priorities are to spend more money on roads or more money on education or on something else?
Mr. Grimes: We would be tempted to go there. If we ever thought or believed that the Government of Canada would put in place a real equalization program, instead of what I have described as tokenism today, then we would gladly enter into that debate, but the biggest fear for politicians like myself, and all those who have preceded me, not only in Newfoundland and Labrador but in the recipient provinces, is that the very minute you say not to a roads program they will not increase equalization. We would not dare say that we would not participate in a roads program because fundamental infrastructure, like roads, is important for nation building. At the turn of the century, the railway was the answer. You must have the fundamental transportation infrastructure that glues the country together.
The Chairman: When we took the railway away we gave you a pile of money for roads.
Mr. Grimes: Absolutely. As a matter of fact, it runs out this year, and the politics of Newfoundland and Labrador are such that I must say that my good friend Senator Doody and others did not get enough. They did not strike a tough enough deal, but that is just politics. Actually it was a good arrangement and it was the right idea. The railway in Newfoundland and Labrador was being under-utilized and, in fact, the better transportation mode for us was the improved highway system that we now have. However, the fundamental structure of the Trans-Canada, at least, is of national interest, and the Government of Canada should participate in the parts of the highway system that are of a national interest.
We have that distinction in the province now. Every jurisdiction, like our own, has a provincial roads program. We agreed that Canadians should be able to drive and transport goods by road from St. John's in Newfoundland to Victoria in British Columbia. Some people sometimes forget and say Halifax to Vancouver, but a few other components are in there that are equally as important.
The Chairman: On behalf of the National Finance Committee, I want you to know thatwe appreciate receiving this advance notice of this new federal program. We had not heard much about it from federal ministers. We will look into it.
Mr. Grimes: It is under discussion as we speak, probably in another room just like this one, with a smaller group. It has not been announced yet. I know because we are one of the jurisdictions involved.
The Chairman: It has been announced today, and we thank you for that.
Mr. Grimes: We have not been at all satisfied with the proposition put forward so far as to how much money will be in it and who will pay for what. It is under discussion.
The Chairman: Premier, health, social assistance and education are also in your jurisdiction. If it were decided to do away with all these programs and simply have a gigantic equalization program to help you finance those services, what would become of the Canada Health Act and the national criteria or, dare I say, national standards?
Mr. Grimes: Having been in that particular portfolio, it is an issue, and the Government of Canada has a right, a role and an obligation to oversee that the obligations and responsibilities of the Canada Health Act are met. It has decided, through CHST and other mechanisms, to perform its role as a fiscal watchdog and force people into compliance by threatening to cut off the money. I do not know what other mechanism it could use. On that issue, I am one who has not done enough thinking outside the box to say what mechanism it could use other than just morally and politically persuading every jurisdiction to live up to the spirit and intent of the act in terms of accessibility to service, affordability and other things. The mechanism that has been used is a fiscal hammer. All you ever hear when there is a dispute with respect to the Canada Health Act in Canada is the Government of Canada telling a province that some of the transfers will be withheld if the province does not provide services in a certain manner. If the province provides services in a manner the Government of Canada thinks is contrary to the act, it will stop sending the money. Fiscal leverage has always been used.
If the people of Canada have a continuing debate about publicly funded health care and what is really included and intended in the Canada Health Act, again coming back to my theme, I would point out that there are some misconceptions. In Newfoundland and Labrador, for example, people have been led to believe - and I believe this applies across the country - that every medical service that is available is paid for under Medicare. It is the furthest thing in the world from the truth. Medicare is actually very narrow in its scope, and it started with anything related to a service in a hospital and a service provided by a doctor. Think of the things in our health care system today that are taken for granted: early diagnosis; early intervention with children and so on that do not happen in institutions; all kinds of care of the elderly that is only provided in personal care homes that are private operations; home care, a huge issue confronting the country; and access to prescriptions, medications and drug plans, a huge issue faced by every provincial and territorial jurisdiction in the country. None of these services is directly related to the Canada Health Act or what people understand to be Medicare. However, people understand - because we say it all the time when we are comparing ourselves to our neighbours in the states - that one the great advantages of being a Canadian is having free health care.
The Chairman: Premier, I think I reproached your minister when she appeared before us some months ago. She was the first provincial politician we had heard from for a while on this issue. Before the last federal election, not to put too fine a point on it, the federal government wanted to keep the health issue off the table for the period of the campaign. It convened you, the premiers of the provinces, and it made you an offer that, apparently, you could not refuse. Collectively, the provinces had an opportunity to make some of the very points that you have made this morning. You had an opportunity to insist on an agreement on standards and some of the important issues that concern you. Instead, you took the money and ran.
I understand, because I was on the other side of the table a long time ago, the pressures on provincial governments very well. However, I do not see or hear the provinces collectively coming together with an alternative plan they are prepared to put before the federal government and before the people of Canada and argue for it.
Perhaps this will somehow evolve in the course of the hearings by the Senate committee under our friend, Senator Kirby, or the Romanow commission that has been appointed by Prime Minister Chrétien. However, it would be more helpful for public understanding and for those of us who are engaged in politics here if we had a clear idea of what alternative policies the provinces collectively have in mind, if they can come to an agreement.
Mr. Grimes: That is a very good point. It is the other issue that dominated our discussion at the premiers' conference in Victoria this summer. We recognized that the public view was that we had taken the money and run. I was in the position of being able to tell people I was not at the meeting. I was not the premier at the time, but that is neither here nor there. I was the health minister at the time and I had the ear of the premier, and we did collectively take the money and run.
There are two issues, however. We now all have a fundamental disagreement with the Government of Canada. It was linked to changes in equalization. The meeting before the federal election, and the communiqué - and you can check this out - was linked to promises directly from the Prime Minister of the country that there would also be changes to equalization. As to the CHST reinstatement, that schedule is being adhered to. The equalization changes have not occurred. It was a package deal, and only one half of it was carried out. The rest of the recipient provinces signed on because they believed they would get enhanced equalization through changes that we are still fighting for and are discussing here: the 10-province standard, a broader revenue base and removing the cap.
Conveniently, just before the election, the cap was removed. As soon as the majority government resumed in its offices, the cap was back on tighter than ever, and it started at a lower base.
In Victoria there was a sense that we had been a little defrauded - and I use strong language sometimes - over that issue. We are very disappointed about it. We all agreed, again, unanimously, that the cap should be removed. It was promised, and it is in the communiqué. It did not state that it would be removed forever, and conveniently, it was done for one year and then the cap was reinstated. There is a little bit of trickery in that.
The premiers are convening in Vancouver in January to do exactly what you just described. There is a range of issues to deal with that are provincial jurisdictions, and we should show leadership in how we will deal with issues for which we have responsibility. Premier Campbell, as our chair for this year, challenged all of us to bring together our officials in health care, finance, intergovernmental affairs and other departments in January. The date is already set for either January 24 or 25 or January 14 and 15 in Vancouver, so that the premiers can lay out exactly what you just described. That is to say, a common approach, as far as we can agree to it, for seizing our own responsibilities and telling the people of Canada generally what we will do collectively with the issues that are ours to manage and to deliver on.
We have accepted that challenge. It will be the focus of the follow-up meeting in Vancouver to the annual premiers' conference. That will happen in a couple of month's time.
We recognized that there was a broad-based public view that the premiers, the provinces and the territories probably had the federal government on the run a bit about the health funding issue. However, the federal government did not want it to be the predominant issue during the campaign. The issue went away because the premiers were patting the Prime Minister on the back in photo opportunities and thanking him for the CHST reinstatement. All the optics and all the politics played out as you described. It was clear that people suggested, as you just did - and, it has been described to me before, as well as to the other premiers - that we missed an opportunity to take a leadership role ourselves. We missed the opportunity to demonstrate how we could, through coordination and cooperation, manage the provision of services for which we are responsible in every jurisdiction.
The issue that I raised was in the context of health care and educational professionals. I have pleaded with my colleagues across the country to stop raiding each other. What advantage is it to us, as Canadians, to have Alberta or Ontario come to Newfoundland and take our nurses simply because they can offer them 30 per cent or 40 per cent more and can offer their significant other a job and pay their transportation cost? That might serve the needs of Alberta in the shorter term, but what does it do to the rest of us in Canada? We are doing that to ourselves because this is an issue that comes under provincial jurisdiction. Those who have some fiscal ability are actively recruiting in the areas that are most vulnerable. They are recruiting our highly trained and very skilled people in Atlantic Canada. Our training institutions, our post-secondary institutions and our schools, are providing some of the best-trained and best-qualified health-care and education professionals available anywhere in the country. We are being raided by our colleagues because they have a greater fiscal capacity than we do at this point. Our people are being enticed to go somewhere else. It all comes back to the root of the program we are talking about and whether or not we believe in equalization.
The Chairman: You would like to see a number of the Newfoundlanders and Cape Bretoners that are already in the oil patch out there return, would you not?
Mr. Grimes: Thankfully, that situation is going the other way. The highly skilled and highly trained Newfoundlanders and Labradoreans who contributed to the oil patch in Western Canada, in the gulf states and elsewhere, are now finding opportunities in Nova Scotia and in Newfoundland and Labrador. They are delighted to be coming back home. That switch will occur over time, and we look forward to continuing to participate in it.
Senator Tunney: Your presentation has been revealing and well expressed, in traditional Newfoundland-Labrador fashion.
I should like to know about out-migration at this time. I also have questions about your per capita debt in comparison to other provinces or provincial capital debt. My last question is this: If you could benefit from increased federal funding - and by that I mean from provincial transfer programs - where would you use that money? Would it be in the manner of increased development, probably industrial, and debt reduction, or would some other preferences take priority over those?
Mr. Grimes: Those are three very important issues. Out-migration ties into some of the components that we discussed earlier in this session, for example, the frustrations of programs such as the CHST and equalization. There is a population trigger in the equalization formula which states that if you lose population, you lose entitlement to equalization.
Over the past 10 years, particularly since the drastic change in the fishery with the cod moratorium in the early 1990s, there has been significant out-migration. The population actually declined by several thousand. Our population used to be about 570,000, but our latest calculations indicate it was down to about 550,000. In the last year, 16,000 Newfoundlanders and Labradoreans left Newfoundland and Labrador; 14,000 returned. Most of the 14,000 who returned were coming back to newer industries. They came back to take advantage of oil and gas opportunities and information technology opportunities. They did not coming back to work in the fishery or in the logging industry. We have a changing economy and a changing circumstance.
The major contributing factor regarding population right now is not out-migration. That is level or almost flat. If our province has 1,000 people here or there in any one year - either coming into our province or leaving it - that is equivalent to having 4 per cent of our population unemployed. However, 1,000 one way or another is considered to be balanced and equal.
What is most frustrating to us is that the birth rate in our province has gone from the highest in the country one generation ago to the lowest in the country. I will use my own family as an example. I come from a family of 14 children, 12 of whom are still living. I am the eleventh of 14, so I am one of the younger ones. Anyone who sees my older brother thinks he is my father. People will say to me, "That must be your dad." That is fairly typical of my generation in Newfoundland and Labrador. Many of us come from large, extended families. That is true also in other parts of the country. Of the 12 of us who are still living, one of my brothers and his wife has six children; one has three; and the rest of us, like myself, have one child. In a single generation, we have gone from having large extended families to having what we call the, "Canadian-Americanized family." For the first time in history, we have working couples who are dedicated to their careers. They choose what size of family they want and work from that. It has impacted tremendously upon the population base and its stability in Newfoundland and Labrador.
The Minister of Finance is better equipped to give you the numbers of the per capita debts. Those numbers are in the report that we left with you. Ours is significantly higher than other Atlantic jurisdictions. In fact, it is higher than most other Canadian jurisdictions. We are at about $9 billion if you add everything together, hydro debt, debts respecting Crown corporations, and other things. That is a significant number for a small population.
I am glad you asked the last question about where we would put the money, because I had referenced it in passing before. If we were in a circumstance to keep the non-sustained, non-renewable revenues from oil and gas and from the offshore, it would take some political will and leadership but I believe - and we have made this suggestion to the Government of Canada - that we would be willing to sign on to a legislative commitment to take those kinds of funds and put them into buying down the debt. The only money you could use on an ongoing basis would be the money you freed up from debt service costs. Also, building some fundamental infrastructure is important. If we are asked to put in more fibre optic cables to have more information technology opportunities, we might invest in that. By so doing, it will allow us to grow and to diversify our economy. If we need better road networks into certain parts of the province so that an economic opportunity can be realized there, then we should fund that. We would have to maintain it afterwards but the large part is the capital investment to build it. If we need some improved ports and harbours so that we can transport goods and services in and out to recognize ongoing economic opportunities, we would be willing, as a provincial jurisdiction, to enter into a legislatively binding contract with the Government of Canada on those issues.
The big fear is that the provinces will take the money and spend it on whatever they like, and that they will be back in a few years saying they got nothing. We are willing to go down that road. We are willing to lead the issue politically with the public in our province. We would gladly stand shoulder to shoulder with anyone else in the country that wants to sign that pact along with Newfoundland and Labrador.
The Chairman: That is a very important point. When you tell some people in the federal government that they should not be treating revenue from non-renewable resources the same as other revenues, and make the argument that it is in the nature of the sale of a capital asset, their answer sometimes is: "Why not? The provincial governments treat those revenues the way they treat all other revenues. They use it for various purposes. Why make a distinction?"
I am very interested in the point you just made.
Senator Tunney: I appreciated your presentation more than you could imagine.
Senator Cook: I will not comment on equalization, because it has been well documented, except to offer my own personal opinion, which is that I think it is punitive.
I want to go outside the box. What if we could dream a little and open up the Atlantic Accord? That would not impact on any other province or cause anyone else any distress. I would also suggest that the funding formula with the per capita criterion is unworkable. What basic national formula could we use that would be fair for Canadians and would preserve the essence of Confederation?
Mr. Grimes: The fundamentals of what we are trying to accomplish and have constitutionally committed to accomplish are attainable with some reasonable and proper revisions of the equalization formula and with a proper amount of money being dedicated to that. Canadians must challenge ourselves to deal with the issue of whether revenues from non-renewable resources should be counted.
As an example, we firmly believe that revenues that accrue in Newfoundland and Labrador from the forest industry sector should be counted, because if you implement the proper silviculture and harvesting programs, in 35 or 40 years you can recut the same area. Forests are a renewable resource. The same is true with hydro projects. As long as the rain falls, there is the prospect of revenues from a hydro project. They should be counted because they will exist forever and governments should use those resources to fund services for people.
We are releasing a report in our province today with respect to the export of fresh, clean drinking water in bulk. If we generate revenues from the export of drinking water in bottles or in bulk, that should be counted because we will have the resource as long as the rain falls.
However, that makes no sense with mines or oil and gas. If we continue with the current program, under which the Government of Canada takes 80 per cent or 90 per cent and we take 10 per cent, we will use the 10 per cent because we are strapped for cash. We cannot afford to use the 10 per cent to pay down debt because we cannot even pay our nurses or teachers appropriately. Back home we are currently negotiating with out nursing and teaching professions, both of which have a shortage. That is not because we have not trained enough teachers and nurses in Newfoundland and Labrador but because as soon as they are trained at our expense in Newfoundland and Labrador a percentage of them leave to earn a living elsewhere in Canada or in the United States because we cannot pay them enough to keep them.
On the non-renewable side, we would accept the challenge today to take those funds and pay down the $6 billion or $7 billion in debt. Newfoundland and Labrador would have approximately $500 million a year every year that we could put into programs and services if we were not paying the debt. We would sign an agreement to that effect. We would spend some of the money on fundamental infrastructure, which would create some defined economic diversification opportunities.
We do not necessarily have to think completely outside the box, but I like the thought process that involves, so I try to do that quite often. If we stay narrowly focused about where we are today, there is no doubt in my mind that someone will sit with a committee like this in 10 years time and give you the same message, and again in 20 years time, and again in 30 years time.
I hope that we will have an opportunity to speak openly and at length about this and to be challenged about it. It is to be hoped that we will do something about it in the shorter term rather than the longer term.
Senator Cook: Returning to the Atlantic Accord, if we could a renegotiate that for the short term, would that make us a have province instead of the have-not that we are today?
Mr. Grimes: Without even renegotiating the Atlantic Accord, there would be opportunities for both Newfoundland and Labrador and Nova Scotia if we lived up to the intent of the accord. Premier Hamm and I have been promoting this issue, and we will continue to put it forward. We will seek opportunities to meet with the Government of Canada and perhaps even yourselves about this soon.
The fact that there is a pen pal relationship going on in the media between John Crosbie and Minister Dion means there is not now the political will to listen to the argument. They seem to want to debate it and fight over it rather than listen to it.
The courts ruled that offshore oil and gas revenues belong to Canada and not to the provincial jurisdictions. In spite of that ruling, the Government of Canada could, if it wanted to, decide to give it to Newfoundland and Labrador and to Nova Scotia, just as they gave lands and territories to Alberta and other provinces 30 or more years ago. Those lands were under federal jurisdiction. They were transferred as part of Confederation to the provinces, and now, because they are on those lands, the resources belong to the provinces.
If the Government of Canada were politically inclined to do so, it could say that it would be better for Canada if it were owned by the neighbouring jurisdiction, and that we could manage it as if it were our land. The federal government has decided not to go there.
The Atlantic Accord states that the revenues from it will be treated in such a manner that the provinces will be the principal beneficiaries. The current circumstance demonstrates that 70 per cent of the revenues accrue to the Government of Canada and 30 per cent of the revenues accrue to the two provinces. I would invite you to consider those numbers and the words "principal beneficiary" and convince anyone that they make sense. If I taught math and tried to convince one of my students that the person who got the 30 per cent is the principal beneficiary instead of the person who got the 70 per cent, I would have been disbarred and lost my teaching licence. That is the fundamental fact of what is occurring,
Hibernia is expected to last another 20 years approximately. Terra Nova, which is a smaller project, is just starting. It might last for 20 years. White Rose is about to be sanctioned in the next month or so. It is also a smaller field that might have 15 or 16 years in it. Then we have Hebron Ben Nevis, which is smaller again, and that might have 15 or 16 years in it, depending on when development starts. They are all very time limited. They can generate significant amounts of cash for short periods of time. We would sign on to take the cash, pay down the debt, free up the money that we have in debt servicing on an ongoing basis, and then use that to build our program base.
Meanwhile, the Government of Canada wants to argue with John Crosbie over what "principal beneficiary" means instead of having a meaningful discussion about whether we can make some fundamental change. The projections are that within a couple of decades, given the opportunity, two more provinces will probably not be recipients of equalization. Twenty years from now, if the Government of Canada continues to put in $10 billion, they will be splitting that $10 billion among five provinces instead of seven. It is not a matter of anyone losing any money or that the Government of Canada has to put more into equalization. They will just decide on the size of the equalization payments and pay that out to those provinces are not up to the national standards. Currently, seven of us are not up to national standards and, therefore, we qualify for the receipt of some funds under the program.
Senator Mahovlich: Mr. Grimes, you said that what brought Canada together was the railways and now it will be the highways. I always thought hockey was the common denominator. Newfoundland has been a major contributor to that.
I understand that the generic solution provides an incentive by excluding 30 per cent of provinces' revenues when calculating equalization payments. Some people argue that all the natural resources revenues should not be included when calculating equalization payments. What would be the impact on your province's equalization entitlements if there were a reduction in the number of revenue sources used in the calculation?
Mr. Grimes: I think you are right about hockey. I did meet Mario Lemieux at breakfast this morning and indicated I am supposed to root for the Penguins tonight because one of my executive assistants who is not here is a huge Pitsburgh Penguins fan and a Mario Lemieux fan. I called him at the office to tell him I had just met his hero at breakfast. He was more disappointed than ever that he was not on this trip. Hockey does unite us.
I mentioned the railways and highways because we all recognize that the east-west connection in Canada is a forced relationship. People on the East Coast particularly recognize that. For my parents and the generation before them, all the natural connections were north and south, which is why the NAFTA was a natural step forward. All three of my aunts married American men, one in Boston, one in New York and one in northern Florida. The connections were by sea, north and south. The natural connection was not up the St. Lawrence Seaway. People who lived on the East Coast would travel to the New England states and even to the Caribbean. Those linkages are there. It is always a challenge to keep Canada together, because Newfoundlanders are a whole lot closer to people who live in Florida than they are to people in Victoria. It is a tough situation for Canada. The railways and the highways maintain the east-west connection.
We know that, if we retained funds from the one-time resources, it would naturally lead to a reduction in equalization. If we were allowed to keep the monies from the one-time resources and did pay down our debt, the revenue available to run programs and services in Newfoundland and Labrador would be increased by $150 or $200 or $300 million a year. We would not be paying debt servicing, and that amount could go into the equalization formula. Obviously we would not receive the same amount in equalization, because we would have these fully sustainable ongoing monies for ourselves. We understand that is the fundamental basis of the program.
We accept what Premier Harris said, and that is that no province should expect to receive money if it can pay for a service from its own money. That is how equalization works. If a province has the ability to pay, then it does not need to receive the money from another government. We are talking about the real measure of ability to pay. The real measure of ability to pay is the money you can count on year after year after year to run your schools and hospitals and to provide fundamental public services such as clearing highways and cleaning up after floods. You must be able to provide those services. It cannot be done with money you only have for one year, so that you turn around to people and say, "Next year we cannot do that because the mine closed."
The issue is to keep the one-time revenues and not count them in the formula. I agree with the argument 100 per cent. I believe it is the right one. I believe it is the common sense approach to what should happen. The provinces need to sign on to pacts and even legislative obligations, if that is the way we want to go, to say that they will not use their one-time money for programs and services but that they will use it to built infrastructure and pay down debt so that they can strengthen their economies and increase their annual guaranteed monies every year. However much that goes up, obviously that will decrease their entitlement to equalization. There will be more money left in the equalization pot to give to someone else. It will work that way. It will achieve its goals and objectives. As it is being done today, it is not working, it has not worked, and it will not work.
The Chairman: Premier, thank you for your excellent and wide-ranging and very candid perspective on these matters from the point of view of a person who is trying to run a government in Newfoundland and Labrador. This has been a very stimulating morning. The members of the committee and I wish you continued success and every satisfaction in your heavy duties as Premier of Newfoundland and Labrador. I would thank you and your minister for this presentation.
Mr. Grimes: I thank you for the extended time you allowed me. Thank you for listening to my "very brief" answers.
The committee adjourned.