Proceedings of the Standing Senate Committee on
National Finance
Issue 5 - Evidence, March 31, 2004
OTTAWA, Wednesday, March 31, 2004
The Standing Senate Committee on National Finance met this day at 6:20 p.m. to examine the Main Estimates for the fiscal year ending March 31, 2005.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: As you know, in the rubric of the Main Estimates for 2004-05, we decided to revisit the subject of equalization on which this committee, several years ago, made a report with a number of recommendations. Equalization is in the news and will be front and centre in public policy discussions for several years to come in the overall context of federal-provincial fiscal relations.
As you know, Mr. Goodale, in his budget, announced that legislation for a renewed five-year equalization program was imminent. As senators representing regions, we want to update the recommendations that we made several years ago and perhaps add some new advice and assistance to the minister and the government on these matters.
Tonight, we expected to hear from two witnesses. One is the Deputy Minister of Finance for Nova Scotia. She and her colleagues bailed out as recently as yesterday because they have a budget coming up and the officials were required to stay in Halifax for that purpose.
When we come back after Easter, we will hear from Professor Tom Courchene of Queen's University and from the Ministers of Finance of Prince Edward Island, Newfoundland and Manitoba. We look forward to that.
For tonight, we give our undivided attention to our first witness on this subject, Professor Harvey Lazar. Professor Lazar was educated at McGill, UBC and the London School of Economics. He has a Ph.D. dating to 1975. He is director of the Institute of Intergovernmental Relations at Queen's. He had a long career in the Canadian public service including assignments as deputy chairman of the Economic Council of Canada and senior ADM, Strategic Policy, Human Resources Development Canada. His current research interests relate to Canadian and comparative federalism.
Quite recently, he has headed up the federal-provincial fiscal team, if I can call it that, for the Romanow commission. He does not come here purporting to be an expert in equalization, but he is certainly an expert in intergovernmental relations, federal-provincial fiscal relations.
Welcome, Professor Lazar. Please proceed.
Dr. Harvey Lazar, Director, Institute of Intergovernmental Relations, Queen's University: Mr. Chairman, I appreciate the opportunity to appear before your committee. My introductory comments will be related mainly to the purposes of the equalization program and the challenges in determining whether it is achieving those purposes.
When I examine equalization, I am uncertain whether it is in fact meeting its objectives. Looking back 15 to 20 years ago, the program as a share of gross domestic product was then about one third larger than it is today. This relative decline in the program may be cause for celebration, in the sense that it may reflect progress in satisfying the objectives set out in section 36 of the Constitution Act. Among the arguments that support this view are those that point to a narrowing of differences in the revenue-raising capacity among provinces, at least if oil and gas revenues are excluded from the analysis.
The section 36(2) constitutional provisions do not point to differences in fiscal capacity alone. They also imply attention to need. Moreover, section 36(1) commits federal and provincial governments to, among other things, ``promoting equal opportunities for the well-being of Canadians'' and ``providing essential public services of reasonable quality to all Canadians.'' Thus, a narrowing of disparities in revenue-raising capacity among provincials is not, in and of itself, evidence of success in relation to these constitutional provisions.
In recent years, there has been a growing emphasis on determining whether government programs are meeting their objectives — that is, whether taxpayers are getting their money's worth. This typically requires making objectives explicit, determining which indicators are useful for measuring progress toward those objectives, and then collecting and analyzing data that are relevant to the indicators. In the case of equalization, the provisions of section 36 can perhaps be considered the objectives.
Assuming that that is the case, the way in which the equalization program is designed implies that measurements of fiscal capacity are in themselves a proxy for whether these objectives are being met. In other words, there is a kind of hypothesis that the need for public services is similar all across the federation. This may be true. However, I am unaware of any evidence that documents that. Thus, I find it hard to know whether to celebrate or be concerned about the relative shrinkage of the equalization program because I do not know whether provinces are becoming progressively more able to provide reasonably comparable services at reasonably comparable tax rates.
To be sure, there are arguments on both sides. Leaving aside Alberta's hydrocarbon revenues, disparities in revenue- raising capacities among provincials have been narrowing, as I mentioned. This narrowing is suggestive of the idea that the program's decline in constant dollars may be evidence of progress towards meeting section 36 objectives. Conversely, tax effort is generally higher in the equalization-receiving provinces, suggesting that the opposite might be the case.
One way of coping with this deficiency in our knowledge about the effects of equalization would be to build some measure of need into the provincial equalization calculations. This could be based, for example, on demographic differences from one province to another. I am aware that the committee has examined variations of this concept in the past and recommended against doing so, apparently judging that the added complexity associated with this would outweigh any benefits that might be anticipated.
Even if this committee decides not to recommend that some measure of need be included in the equalization program itself, it surely does make sense to have some sense of performance indicators that do take account of need for purposes of program evaluation. If you do not have this, then we are thrown back to the proposition that it is hard to know whether or not this program is successful in relation to the provisions of section 36.
In considering the effectiveness of the formal equalization program, it is also worth noting that this is not the only program that equalizes the capacity of provinces to provide reasonably comparable services and that promotes equal opportunities for the well-being of all Canadians. For example, the Canada Health and Social Transfer provides equal per capita transfers to all provinces. As the revenues the federal government collects are not equal per capita from one province to the other, one impact of this transfer is in fact an equalizing provision. In other words, in deciding whether and to what extent equalization is meeting its constitutional objectives, it makes sense to also take account of other large transfer programs that have an equalizing component in them.
I am aware that with this broad issue — the purposes of equalization and whether it is meeting its objectives — is not front and centre in today's political discussions around equalization. Issues like the treatment of natural resource revenues, ten-province versus five-province standards, ceilings and floors, macro formulas, smoothing provisions and similar issues are what people are partly concerned about today. I claim no special insight into any one of those issues. As the chairman mentioned, I do not come here purporting to be an expert on equalization.
My argument to you, however, is that it might be easier to reach consensus on some of these technical issues if the indicators for determining whether the constitutional goals were being achieved were made explicit, if you had something concrete to look at. Some of you may be wondering if I have a particular agenda on the future of equalization. I would say only that I have the impression that this has been a relatively worthwhile program over the years, that it probably has been useful relative to section 36. My instinct is that it should be maintained and possibly strengthened, but the words I used — ``impression,'' ``probably,'' ``instinct'' and ``possibly'' — are not ones that should guide Parliament when precision is practical. My argument is that it is time for Parliament to examine the effectiveness of this program against agreed performance indicators.
I should like to add a few additional comments about the broader system of fiscal federalism. First, in the widest sense, there has been a trend for governments to become more autonomous on fiscal issues over the last couple of decades. Provinces now raise more of their revenue than was the case 25 years ago. The federal transfer programs that remain are less conditional than they once were. Provinces that remain within the tax collection agreements have considerably more policy flexibility than they once did. The coordination of the budgetary processes of federal and provincial governments has weakened in recent years.
Some analysts would applaud that trend as a good one for reasons related to the doctrine of fiscal responsibility, the desirability of clarifying accountability relationships and the division of legislative authority in the Constitution. Others might deplore this trend as wrong-headed in a world of growing interdependence and perhaps even as inconsistent with elements of section 36(1). I would observe that both federal and provincial governments talk the language of collaboration a lot when it comes to line programs — health programs, social programs, environmental programs. When line departments are being urged to collaborate while finance ministers are becoming more autonomous, somewhere along the way we can expect collateral damage.
That is one way of understanding the mind-numbing federal-provincial dispute regarding the size of the federal fiscal contributions to health care and the adverse implications that dispute has had for the cause of health care reform in Canada.
Fortunately, the arguments about equalization are not yet as counterproductive as the struggle about the health care numbers. The arguments about ceilings and ten-province versus five-province standards, and so forth, are in some respects stalking horses for bigger issues — whether the program on equalization is big enough or too big or should be bigger, whether the distribution among provinces is appropriate, and so forth.
Those larger issues may be difficult to put on the agenda when finance ministries have become more autonomous. The world around us has changed dramatically in recent times and yet, by and large, the equalization program's components remain pretty much as they were in 1982. You could ask yourself: Is this because the program is meeting its objectives? Is it because the program is being managed to fit the needs of the federal fisc? Is it because the dialogue on big issues of federalism is less possible in a world where finance ministries, federal and provincial, are seeking to enhance their autonomy? The answers to these questions are not mutually exclusive, of course, but they are worth pursuing.
I can only imagine that, for the federal Finance Minister and his officials, proposals for program improvements for equalization must be examined in relation to many other demands for more money or tax relief from every conceivable interest in the country. While provinces are certainly more than interests, when weighing provincial demands for a richer equalization program, Finance Canada would also be considering the simultaneous demands that the federal treasury help offset an alleged vertical fiscal imbalance.
The issue of vertical fiscal imbalance is one that I helped to examine, with colleagues, when working for the Romanow Commission. On that occasion, we thought there was a vertical fiscal imbalance. However, we also thought it was less relevant for our purpose than the disequilibrium that we saw between the amount of policy influence that the federal government was seeking to exercise in relation to health care on the one hand and the amount of cash Ottawa was transferring to the provinces for health care on the other hand. To the extent that more federal cash has since been invested in provincial health care, and that more may be coming, whether this is for reasons of vertical fiscal imbalance or the policy fiscal disequilibrium that I mentioned, this presumably would have implications for the tasks assigned to the equalization program.
Determining the goals of the equalization program, or the fiscal arrangements more generally, is an appropriate role for Parliament and the government. Whether the design of the technical features of these programs is best handled by Parliament and the Finance Canada is something you may want to examine at some time in the process and the fact that several other federations have independent commissions to perform the technical work associated with equalization.
That concludes my remarks, Mr. Chairman. They were intended to encourage the committee to cast its net broadly before honing in on particular issues. I am ready to answer questions where I have particular knowledge. Where I lack the expertise, my response will be that I do not know, and not bluff it.
The Chairman: Thank you, Professor Lazar. You have us off to a good start, with the many questions you have raised.
Senator Comeau: Professor Lazar, you have not opened the discussion with dry formulas that calculate 33 different kinds of revenues, which pleases me for one evening.
I cannot help but refer to your opening paragraph, in which you mentioned that it may be time for celebration, although you hedged that comment by saying ``or maybe not.'' I am glad you are not completely celebrating, however, because I think of one part of my area, where there is a hospital and where every now and then I will see a sign that says, ``No doctors on call this weekend.'' The next hospital is about 120 kilometres away. I do not think there were those types of signs 10 to 20 years ago.
Whether there is cause for celebration, those signs, in certain rural areas, point to the fact that the celebration is not quite where it should be.
I am intrigued by your suggestion that we should measure the efficiency of the equalization formula and not just determining whether the formula is well calculated and whether section 36(1) of the Constitution Act, 1982 is meeting its objectives. I would imagine that that would lead us to other formulas, or could we do this without using more dry formulas?
Mr. Lazar: I used to be a public servant. When departments where I worked has programs, our feet were always held to the fire to make the objectives clear, to set out the performance indicators for the objectives, to collect the data and to, somehow, justify it.
I have seen none of this in the case of equalization, because the formulas, as they are now created, have an embedded implication that the comparable services are available all across the country. When I say ``all across the country,'' I do not mean between urban and rural, but rather from province to province.
My guess is that the reason you did not support the idea of including a needs basis for equalization in your previous deliberations in this committee had to do with the fact that that promised to add additional complexity to the calculations — and as you say, 33 is more than enough, thanks very much.
Determining needs in a precise way would be complex, but it can be done. Short of that, you could probably rely as a proxy for that on such things as what proportion of the population of a province is urban versus rural. As a simple example, a province that has an above-average older population would have higher demands on its resources than a province with a younger average-age population. By using some demographic proxies, you could at least begin to determine an estimate of the relative needs from one province to another without necessarily using highly technical calculations.
Senator Comeau: I would hope that the committee's reluctance to include the question of need in the last study was precisely what you said — not to complicate the formula even further. I agree with you completely that the question of need should be measured.
Nova Scotia has made a case in the past on this. It has looked at the age of the population in the province, which is apparently demographically higher than in the other provinces. Hence, Nova Scotia is trying to make the case that they have a greater need.
That would not necessarily need to be a part of the formula; in fact, it would probably be better if it were not part of the formula. It could be an entirely separate measurement that would then create the need to examine a different formula.
Mr. Lazar: In my comments, I offered two options: first, to embed it in the Fiscal Arrangements Act; and second, if that is too complex, to have the government negotiate a set of performance indicators for the program that are linked to section 36 of the Constitution Act. These would be bound to take some account of differences across the country, whether they are age-related or geography-related or for another reason.
From my point of view, it is important that Parliament get a handle on whether this program is satisfying the objectives for which it was set up. That is crucial, and I would encourage the committee to focus on that.
Senator Comeau: In your comments, Mr. Lazar, you mentioned other federal jurisdictions, including Australia and India, that have established commissions to follow the evolution of the equalization redistribution.
I do not know if we have time now to further this right now, but I am interested in the subject. It is beyond the capacity of our committee to look at this in the usual way. Rather, we might want to look at the idea of a commission, in respect of both the formula and the need.
Should the committee consider that, Mr. Lazar?
Mr. Lazar: One thing I could do for the committee is provide the committee with some information about these commissions and how they operate. You could judge for yourselves whether they are helpful to your deliberations. If they are helpful, then you could find expert witnesses who could provide you with greater detail.
I have colleagues who know a great deal about them. If that is of interest to you and is a line you want to pursue, I could accommodate that.
Senator Comeau: I should like to obtain that information from you, professor. I am indeed interested in learning more about this.
The Chairman: That would be very interesting. I can tell you a little bit about Australia. They have a Commonwealth Grants Commission. In Australia, more than 70 per cent of government revenues are raised by the central government. The redistributive function of the central government is extremely important to the states. The Commonwealth Grants Commission travels to the various states periodically to assess needs.
One state told us, perhaps apocryphal, perhaps not, is that when the Commonwealth Grants Commission arrives, they put them on a bus and take them over the worst roads they can find in the state as a way to emphasize their great need for more money.
Senator Comeau: Do they travel past hospitals that display signs that say ``No doctors on call?''
The Chairman: If there are such hospitals in Australia, I am sure the commissioners have been taken there.
However, that anecdotal line is not going to satisfy you or the committee in terms of substantive information. Professor Lazar, I think, is in a position to let us have something along those lines, not only for Australia but also for South Africa and India — the other two federations that he mentioned.
Mr. Lazar: I might add, Mr. Chairman, that, in the case of Australia, the equalization is to a much higher level than it is in Canada. It is really to 100 per cent equalization. There is virtually no difference. They use both fiscal capacity and needs in their calculations.
The Chairman: I will come back to the needs later.
Senator Banks: I will happily defer to members of the committee.
The Chairman: You are a member of the committee tonight, senator.
Senator Banks: In his previous life, Paul Martin appeared before this committee. When he was the Minister of Finance, we were asking him during the course of our study about equalization. Mr. Chairman, as you may recall, when we asked him a question about it, he said, ``That there was a guy here about 20 years ago who understood equalization, but he left.'' I think you must be the person he was referring to, because you seem to understand what it is about.
I, too, am interested in hearing about the needs and how that could be quantified and worked into a formula. I will leave it to others to ask that question.
To get to something that is more easily quantifiable — and I suspect you may have addressed this question. If we went back to the 10-province standard — we have talked about that; I suspect you have read our committee's report.
Mr. Lazar: Yes.
Senator Banks: By way of example, what do you think off the top of your head would be the difference in what would accrue to the Province of Nova Scotia, for example, under such a change?
Mr. Lazar: There was a report done by the provincial and territorial ministers of finance in September of last year — I will actually look at it, but it is my suspicion that they have calculated that. Even if they have not, I think the usual numbers that I hear is that the program would cost about $3 to $4 billion more under the 10-province standard.
A part of my message to you tonight is I have not got a clue as to whether that is a good thing or not — another $4 billion. I really do not know if the program is achieving its objectives or not. I have some suspicions on the matter. However, it would make a considerable difference for all recipient provinces, an average of about 30 to 40 per cent.
Senator Banks: I think that is about the number that we found, was it not, Mr. Chairman?
The Chairman: I am looking for it here in the table.
Senator Banks: It sounds familiar. Professor, for our part on this side — by the way, I should tell you where this next question is coming from. We do not admit there is a fiscal imbalance. In fact, if you do the simple arithmetic, add up the money the provinces have to spend in the aggregate, after transfers have taken place, the provinces in the aggregate have quite a bit more money to spend than does the Government of Canada at the end of the day — particularly in light of the fact, as you mentioned in your opening remarks, that the federal transfer programs are less conditional than they once were.
Have you thought about that question?
Some of us know that grants that were made under the rubric of health and that were intended to buy equipment, by which was meant MRIs, et cetera, ended up being used to buy lawn mowers and things like that. Are you generally in favour of, or opposed to, the idea of conditional strings being put on transfer payments?
Mr. Lazar: As a generalization — and I suspect I will make myself unpopular with the government side — I would prefer to see larger block transfers with less, rather than more, conditionality.
For example, in the case of health care, under almost any set of conditions, provincial governments will be paying 75 or 80 per cent of the costs. There is a huge incentive for them to do a better job than they have been doing so far in managing their health care costs effectively. The idea that the federal government — putting in 15 or 20, or maybe one day 25 per cent of the cash component of that — would be in a better position to figure out how to run provincial health care systems, I guess you could colour me sceptical.
I think I understand the motivation that lies behind the federal concern. It presumably has to do with the huge rate of increase of health care costs, the fact that costs appear to be out of control to many observers and the sense that in a sense, if the federal government signs blank cheques, the money just seems to disappear into the health care maw.
For my part, I think the federal government has a choice. It can continue to try to be a major player on policy around health care — in which case, in my judgment, it needs to take some of the political risks and some of the financial risks of being that partner — or it can choose not to be a partner. However, the idea that the federal government can be at the table like a shareholder — a shareholder has a vote — but put its money in like a bondholder, without any risk, seems to me to be what has been going on in recent years. I think the distribution of risk is unfair to the provinces. That may be a longer-winded answer than you wanted, but it is my sense of it.
Senator Banks: It is a mug's game question, but if you fold the amount of money that the Government of Canada puts into things like medical research, all of a sudden the percentage is not 15 or 16 anymore. Do you think that we should — it is a mug's game question so I will not bother asking it. I will come back on a second round.
Senator Ringuette: Professor Lazar, I very much enjoyed your presentation and the interrogation that you have made to us in regard to the success of the program. In the last 25 years, the general population is asking for more accountability as far as their tax dollars are concerned. That trend has required the federal government to enter into specific and focused federal-provincial agreements — for instance, the five-year health care plan and the infrastructure program, et cetera — so that the population can also be more focused on where their tax dollars are going, federally as well as provincially, whereas the transfer payments is an unconditional item.
In regard to Senator Banks' comments on medical dollars for equipment being used to buy lawn mowers, that happened just a few years ago in my own province of New Brunswick. You can understand that, personally, I want to know how those funds are invested.
In your opinion, does the fact that the population is requiring more accountability and more transparency around where their tax dollars are going have a certain impact in regard to federal-provincial agreements?
Mr. Lazar: I agree with your statement. I think it is an accurate one, but it is in a bit of tension with the provisions of the Constitution, which assign certain powers to provincial governments and certain powers to the federal government. The federal government has taken an interest in areas of provincial legislative competence through the use of its spending power, which is not the case for equalization but is true in other areas.
There is more than one way to hold the federal government accountable for its expenditures. To the extent that that is done by building detailed conditionality into transfers to the provinces, which are done under the federal spending power, I believe there is a point beyond which you go or they will be found ultra vires. The courts will rule that the federal government can go too far in this area, which has happened in the past. The more the federal conditions begin to look like a legislative scheme, or a regulatory scheme, the greater the risk that they will be found outside the constitutional authority of the federal government.
In the case of the equalization program, what I am arguing is that the kind of accountability you are calling for can be achieved through Parliament establishing clear objectives, which can be the constitutional objectives or something within the framework of those constitutional objectives, deciding what performance measures are relevant, for knowing whether those objectives are being achieved, and then ensuring that the necessary information is collected to know whether those indicators are being satisfied. That does not require you to impose any conditions on the provinces. It means that you are looking at the effectiveness of the program.
My reading of section 36 of the Constitution Act is that the way in which the money is transferred now, the absence of conditionality, is consistent with those provisions, but you want to know whether they are working. You want to know whether services are becoming more comparable across the country, or not.
I do not know, and I suspect that no one on this committee knows. Some may have suspicions. I have suspicions, but suspicion is good enough for $10 billion a year.
Senator Ringuette: I agree with what you are saying.
Over the last few months, I have been reading the document from the welfare groups that are examining how the provinces are taking care of their population that is financially in need. It is astonishing that some provinces believe that an individual can survive on $450 a month.
If we want to look at comparable levels of service, needs must be looked at in regard to the difference between providing services and the cost of providing those services within urban areas where you have more population, where there is more density, so therefore the cost is less to provide health services, or education or otherwise.
However, there is more to it than that. If the provinces are not accountable vis-à-vis providing that comparable level of service, then all our study and all our needs measures will be blown in the wind.
Mr. Lazar: My reading of section 36 does not take me in that direction. Section 36, as I understand it, says that provinces have to have sufficient revenues to be able to provide comparable services. It does not require them to provide comparable services.
In fact, it is easy to imagine two provinces of equal wealth, one of which has generous social assistance and one of which has poor social assistance, for needy people. That is within the constitutional power of those provinces. The fact that both have comparable financial capacity is what is required to satisfy the constitutional provision. If you want to go beyond that, then I would suggest that you are really in provincial jurisdiction.
Year ago, someone at Queen's University did a study wherein a comparison was made of social assistance regimes in the 10 provinces. They varied widely, and they did not vary only on the basis of the wealth of the province. They varied based on the ideology of provinces. It was common, for example, to find that single people who did not have kids would get very little money and a single woman with children would get proportionately substantially more money, which reflected the ideology of the province and its perspective on what it should do. I do not criticize that. I am simply remarking that that was a choice that a provincial government was making. I can think of one Atlantic province that kept the rate for single people without children remarkably low, a lot lower than your $450 a month.
In terms of the constitutional provision, the thing that is relevant for equalization is this: Do the provinces have sufficient funds to provide reasonably comparable services? Whether they choose to do so or not is their choice. That may offend your sense from an accountability point of view relative to Parliament, but you have a Constitution and, until you amend it, I think you have to live within it.
Senator Ringuette: The trend that has been embarked upon in the last two decades in regard to focussed federal- provincial agreements on specifics is serving this purpose of accountability and transparency and providing, I would say, more equal treatment for citizens.
Senator Mercer: I am a bit out of my league here in talking about finances; however, I am in my league when I talk about politics. I want to go back to Senator Banks' mug's game for a moment.
One of the problems with the transfers is that they are between governments — which is a fine thing. The problem is that both ends of the transfer are politicians.
Governments, no matter their stripe, like to get credit from their constituents for the money they spend, because governments want to get re-elected — not those of us around this table but for our colleagues in the other place. It is important for them to receive credit when they are the party in government.
It seems to me that the issue is this: How do we recognize the contribution made by the federal government — because I am here on the federal side — in the money it transfers to programs, through transfer payments, as well as recognize — it has always amazed me over the past number of years how we transfer tax points and suddenly we do not get any credit for that any longer, that that no longer is part of equation. It is almost a temptation for purists to say, ``Let's go back to the way it was when we had all the tax points and all the money.'' Then our percentages shoot up.
Is there a way that we can do this? My other question is this: Should we do it?
Mr. Lazar: The question you raise is a thorny one; it troubles me a lot. I am searching for the answer as much as you are. I am not here to tell you the answer. I can, perhaps, share my musings with you, but they may not take us very far.
At one level, not as a university researcher or as a former public servant, but just as a citizen, it makes me annoyed when the federal government complains that it does not get enough credit for the money it transfers. I want to tell the federal and provincial governments to grow up and stop this business — but then I have not had to get elected, so I accept your point on that, and I find myself going back and forth.
It seems to me that, as a minimum, when programs are jointly financed there is no reason why provincial governments could not, in a very explicit way, make clear that these services are provided thanks to the financial contribution of both orders of government. That might not be sufficient to satisfy your needs or other political needs — you see it when you drive down highways: ``This improvement has been financed by A, B, and C.'' The federal government does attempt to do that in some of its transfer programs. In the labour market development agreements, I believe there are provisions that federal contributions be noted.
You are really asking me a political question, and I suspect you are better than I at answering that particular question. I am fond of saying that of the last 27 or 29 elections I tried to forecast accurately, I got 32 wrong. I do not feel I have any good instinct for that.
On the question of whether intergovernmental transfers are a good thing, politics comes in again, but in a different sort of way. It is noteworthy that the federal governments in recent years — and I think this is true whether it is a Liberal or Conservative government — have put increasing priority on items that, if you look through sections 91 and 92 and so forth of the Constitution Act, are in provincial jurisdiction. Health care and education seem to be priorities, and sometimes other social services. If the federal government, reading the sense of what the public wants, believes it needs to go into those areas — and I think this is generally accepted that this is what the public wants — then it is investing its money in areas that are otherwise provincial jurisdiction.
To the extent that this involves cash transfers, money, then there are ways the federal government can do that — through refundable tax credits and so forth — where it does not impose seriously on provincial programming. However, if you are talking about services — health care services, educational services, social services — it is the provinces that run the service networks, and the federal government has to find a way of doing this that provinces find acceptable. If that is not the case, then you are just into federal-provincial squabbling, which does not serve the needs of the people involved.
There is a tough political issue for all political parties, and for the public as a whole. The public, in response to public opinion data, seems to be consistently saying that it wants the federal and provincial governments involved in health care, in education, in social services, and does not want them squabbling with one another. That is all very nice, but we do not have a Constitution that makes it all that simple. Trying to struggle with that dilemma is, I believe, a part of what you are raising.
Whenever I am in doubt, I go back to the law, not to public opinion polls, as my starting point, and the Constitution is the foundation. I am inclined, for the federal government, to the extent that it feels itself driven down that particular direction, to give a lot of weight to what the provinces are saying.
Senator Mahovlich: Does the absence of equalization in the United States give that country a more competitive advantage?
Mr. Lazar: That is a good question, Senator Mahovlich. There is no formal equalization program in the United States; however, the federal government makes a lot of grants to state and local governments in the United States, the effect of which is similar to equalization. The U.S. federal government does target money towards some of the less prosperous regions of the country.
Senator Mahovlich: If there is a catastrophe, they have a tendency to help that state, do they not?
Mr. Lazar: That is correct. The question you are raising implies a broader question. If you spend less money and you have lower tax rates, are you more competitive? I do not know the answer to that question. Many people assert that to be true. Some of the more prosperous countries of Western Europe have relatively high tax regimes, and they seem to have done relatively well. I am not sure I can say much more than that.
Senator Hubley: I will ask a question that our researchers have put in front of us. It concerns fiscal federalism. A book entitled ``Canada: The State of the Federation, 1999-2000: Toward a New Mission Statement for Canadian Fiscal Federalism.'' I believe that is something that you wrote, sir.
You wrote that the Canadian fiscal federation has lacked a strong sense of purpose. I believe you also alluded to that in some of your statements today.
Could you tell us what is meant by Canadian fiscal federalism, and why you feel it lacked a strong sense of purpose?
Mr. Lazar: Coming out of World War II, there was a strong sense of purpose that the country did not want to go back to the horrors of the Depression and the agonies of the war years. All governments in the Western world, on the allied side, for sure, felt compelled to promise something better to their citizens than what had gone before. For 25 years or so after World War II, there was a strong sense that it was important to build a system of social insurance and social welfare so that people were not damaged by the contingencies of unemployment or old age or illness or injury, so that economies were managed in a way to maintain high employment or full employment.
That particular vision was captured by a lot of what happened in Canada from 1945 through to the mid-1970s or thereabouts. During that period, we had strong economic growth, unemployment was relatively low, social services and safety nets were improved. In retrospect, it was a period of considerable achievement by the Canadian state, federal and provincial, with similar achievements in a number of other countries.
In the 1970s, some of the optimism started to go by the wayside. There was a period we called stagflation. We had rising unemployment and low inflation. People began to worry that governments were no longer doing as well as they had once done.
By the time we got to the early 1980s and the serious recession of the early 1980s, much of the optimism about the state had disappeared. We often used to hear about market failures. You started then to hear about government failures.
My personal take on the period from the early 1980s, till perhaps today, or until very recently, was that there were many criticisms of that earlier period, the earlier programs — inappropriate work incentives and savings incentives, taxes that may have been too high, and so forth. There were lots of criticisms of what was wrong, but there was no consensus of what that new vision should be. As a consequence of that, we have had governments making decisions one at a time, each time doing its level best to make the right decision, taking account of the circumstances and contingencies of the moment, but without an overarching sense of where they were headed.
For example — and I am not criticizing any particular minister or any particular government. This is a general comment. In 1995, the Minister of Finance announced that it was important to give the provinces more flexibility within the framework of transfer programs. The old transfer for social assistance, the Canada Assistance Plan, was rolled together with the transfer for health care and social services into what is now known as the CHST. There was a clear philosophy on that to provide the provinces with more flexibility, which I might say is in conflict with what your colleague was saying a few minutes ago.
Fast-forward seven or eight years. One is talking about taking that Canada Health and Social Transfer, because it lacks transparency and accountability, and decomposing it into a Canada health transfer and a Canada social transfer. That tells me that there is no sense of what the nature of this federation should be. Is it a federation that is significantly centralized and where the federal government can in fact transfer money to the provinces and hold their feet to the fire? That is one vision of the federation. It is not right; it is not wrong. It is a vision. Some of you will hold to it; some of you will not. Others will say that that is not the constitutional deal, that that is not what the constitutional pact in Canada is about.
One of the other senators referred earlier to politics. That is big politics. That is the politics about the vision of the federation that you personally embrace — or some of your colleagues embrace.
I would say that, over the last 20 or 25 years, there is no settled sense of what this federation is about. We see governments moving back and forth on these particular issues, reflected most recently over the last one or two health accords in the somewhat conditional transfers, when the incremental money was put in for health care.
Again, this is certainly consistent with the message of the Auditor General that you want to have more accountability for money you transfer to the provinces. Another question is whether it is consistent with the provisions of the Constitution, and I suspect different people will differ on that issue. It is certainly the spirit of the Constitution.
I am good at posing questions also; I do not have the answers. All I know is there are competing views in the country about these issues.
Senator Hubley: You still hold that view, that there should be some revisiting of the equalization formulas and what we expect it to accomplish and things of that nature? I think you mentioned that it was the appropriate role of Parliament and government to do that.
Mr. Lazar: My own sense is that the most useful thing that Parliament can do is to ensure that the objectives are clear and to know whether the objectives are being met. Whether you want to be the people who design the details of the program — the devil is always in the details. Parliament passes tax provisions that are very detailed; the fiscal arrangements are very detailed.
You may want to discuss amongst yourselves whether you are better off focusing on the technical details and trying to help the federal financial department getting those technical details right or whether you are better off focusing on objectives and holding the Department of Finance's feet to the fire and whether those objectives are being met. That is the question I am posing to you.
Obviously, in posing it, I am implying an answer to that question. However, it is your decision, obviously.
The Chairman: Professor Lazar, with regard to possible performance measurements, have you thought through what some of these might be and how we might go about that on equalization?
Mr. Lazar: The answer is, not in nearly enough detail to be of considerable use to you.
However, you can either try to get at performance indicators in a detailed, specific sort of way — and I will give you an example of what I mean by that in a moment — or you can try to do it through proxies, and the use of demographic indicators is intended as proxies.
Let me move outside the Canadian context. In South Africa, where there is an equalization program and a somewhat independent commission, although the commission is provided for in the Constitution, it is pretty simple to know what kind of indicators to look for. For example, what proportion of the people gets fresh water or electricity services, and so on? We are not at that stage in our development, where the differences among regions can be so large and so crude that it is easier to imagine what the indicators would be.
I could conceive of indicators in Canada that have to do with the incidence of low income, as an example. Once you move down that particular road, you are moving down a road of having the same technical complexity that you have on the fiscal capacity side. If, however, you were to settle, at least as an initial effort, on demographic indicators, you would then know that if a province has a much older-than-average population, its needs, everything else being equal, will be greater. Most likely if a province has a higher proportion of its population that is rural, its needs will be greater. You can work your way through those demographics.
I would not want to claim, Mr. Chairman, that I am an expert on that or that I have given that a great deal of thought. However, I can recommend others who will have done so.
The Chairman: I think we ought to revisit this question of whether it will be possible to incorporate some measurement of the different needs of provinces in terms of the programs they have to administer.
When we last studied equalization, Newfoundland in particular — the then Premier Grimes was here. I recall quite well that he and whoever was with him, his colleagues, talking about the quite large territory, although sparsely populated, in which they had to locate facilities such as hospitals — the great cost of that — and how unfair a simple per capita standard was in terms of CHST, for example.
Prince Edward Island made much the same case, for other reasons such as age of population, and Senator Comeau pointed out, I think, Nova Scotia as well.
We looked at it as a committee, and as you noted in your opening statement we simply threw up our hands and walked away. We could not think of how you would measure these. We certainly could not come up with a set of measurements that would enable us to indicate who would be the winners and who would be the losers, so we said, ``Not now. We do not recommend it.'' If we had a bit more work done on the question of needs — that we could discuss — we probably would change our minds.
Meanwhile, I read in ``Money, Politics and Health Care,'' which was edited by you and France St. Hilaire — and this was done for the Romanow commission — an article that I would commend to members of the committee written by your colleague, Professor Keith Banting and Professor Robin Boadway. They are talking about how to take needs into account in allocating funds to provinces through the CHST. They say, for example: ``Provinces may also face different needs for public services in the sense that they differ in the composition of populations for whom the major public services are targeted. In the case of health care, there is a systematic difference in the cost of providing services to persons of different age and other characteristics.''
Somewhere, for example, he mentions the provinces that have a large number of off-reserve Aboriginals, and so on and, in the case of some of the provinces represented around this table, a higher-than-average proportion of older folk and much younger folk than the rest of the country.
Professors Banting and Boadway say the following: ``There are a number of examples of federations and other nations with decentralized delivery of health services that do precisely that...and provincial funding of regional health authorities is normally based on some indicator of need.'' They also say: ``The allocation could be determined using the same representative approach as is taken in the revenue-equalization system — that is, needs equalization could be based on the cost of a national standard level of care for different demographic groups, in which the costs could represent some average of actual provincial costs.''
To come to your constitutional point: They think that an index of need that was jointly agreed to by the federal government and the provinces, and used as a basis for allocating federal transfers, might serve to operationalize the principles set out in section 36 (1) of the Constitution.
That gives us some lead. I do not know whether we could do in the overall equalization program, although I think the committee would like to explore it. However, there is a possibility of doing something of the kind with the CHST.
Mr. Lazar: I have a couple of comments. First, my guess is that when federal financial officials appear before you, assuming they will, they will argue that there may be differences in need across the country but that the differences in need are small compared to the differences in fiscal capacity because of the uneven distribution of resource revenues and that it is not worth the effort. I would say to you is that I think it is worth the effort.
Second, almost all countries in the world that have equalization programs have built in an expenditure needs component. We are the outliers. Professor Boadway read my statement to you before I sent it off and we had a discussion about this. He is the one who probably knows much more about it than I do. I would encourage you to invite him if you want to pursue this particular line. I recognize who wrote which parts of that chapter and whose pen was on it. He has certainly given this a lot more thought than I have. You will find, not only in that chapter but also throughout that whole book, a reference to building a needs component in. He has convinced me.
Some of you are making an assumption that if need is built in your province may do better. It may not.
The Chairman: Yes — and there is the problem. We want to know who the winners and losers will be.
Mr. Lazar: I understand that. I am a detached observer.
Senator Mercer: Nova Scotia better not be the loser.
Mr. Lazar: You will probably end up with a situation where anyone who gets better, gets; and anyone who gets worse is kept where they are. No one loses and a few people win.
Apart from your role as representing provincial points of view, there is also the broader question of whether this program is doing its job. Until you have the answers to these questions, you will not know the answer. I do not know the answer. I am not even hinting that I know the answer.
The questions I have posed to you today are not questions that someone asks when they think they know the answer and are trying to lead you towards it. They are things that trouble me as a researcher, and there is no shorthand way.
Professor Boadway has thought about this, but I bet he will not tell you which provinces will turn out to be winners or losers. He will say, ``I have to do that work,'' or someone has to do that work.
The Chairman: Whether the program is working as it should is a determination you think we could come to if we had the right performance measurements.
On the constitutional point, Dr. Lazar, I am aware that among the provinces now there are some murmurings that they feel that the federal government may be in breach of section 36(1). They point, for example, to the statistic you mentioned in your opening statement, that there is a substantially lower proportion of the wealth of the country, of the GDP, that is now devoted to equalization than was the case some years ago.
I have the budget plan here. There is a table on page 277 that indicates that equalization entitlements of the different provinces in the new fiscal year, 2004-05, will bring fewer dollars, in some cases, substantially fewer dollars, to most of the recipient provinces than was the case four or five years ago.
They also point to the fact, which has been alluded to here and that I will come to later, if I get a chance, that while equalization is playing a smaller part in the overall scheme of things the federal government, through its spending power, is putting all kinds of money into direct transfers to individuals and institutions and so on. I will come to that later.
On the constitutional point, have you heard any of your academic colleagues or others suggest to you that any or all of the recipient provinces would have a case anywhere from arguable to slam dunk at the Supreme Court Canada?
Mr. Lazar: I have heard nothing, Mr. Chairman.
The Chairman: Is it not an issue?
Mr. Lazar: I do not say that; I have heard nothing. I do not usually deal with the constitutional lawyers a great deal.
The Chairman: We may try an expert or two on this issue.
One final point, because it has been raised here. This issue of federal visibility is key. In my opinion, this drives and has driven for many years federal policy on federal-provincial fiscal relations, including equalization.
I had this argument 21 years ago, I think it was, at this committee, when the witness was our present colleague Pierre De Bané, who was then the Minister of the Department of Regional and Industrial Expansion. I forget exactly in what context, but he was very strong in the point that there had to be federal visibility. I believe I can say fairly that what really drives the visibility issue is Quebec.
I will try something out on my colleagues here. In the case of Quebec, you are dealing not just with the natural and obvious tensions between two orders of government, but also sometimes between the federal government in Ottawa and a government in Quebec City that is committed to taking Quebec out of the federation.
The question of visibility becomes absolutely crucial in the minds of the leadership of the federal government. They apply that elsewhere as well.
My theory, which is contested by many, and may be contested by three or four people at this table as well, is that it is not as big a problem as the government thinks in other provinces.
Senator Mercer, in your province, my native province, if you were to ask most reasonably informed people — and most people in Nova Scotia are reasonably informed — what portion of the budget in Halifax actually comes from Ottawa, from the federal treasury, transfers of one form or another, most people in Nova Scotia would give you a number that was fairly close to what the figure is.
Senator Banks: That figure is 38 per cent.
The Chairman: I think most of them would give you that figure, or something higher. I do not think people in Nova Scotia, New Brunswick, as I know it, or Prince Edward Island or Newfoundland — those are the recipient provinces that I know best — are really under any illusion at all that their provincial governments raise all the dough that is used for programs and services in those places.
Senator Mercer: Their first answer, Mr. Chairman, would be ``not enough.'' The second answer may indeed be around that number.
However, to go back to my original point in my question, they are not the 11 people who will represent the government party in the campaign. If it is reversed, if there are 11 Conservatives the next time, or 11 New Democrats, they will have to defend what the government has done.
While the informed Nova Scotian may guess at 30 to 40 per cent, the question he or she wants answered — all politics is local — to quote Jeremy Akerman is this: ``What you have done for me lately?'' When a candidate knocks on a door and is asked, ``What have you done for your community?'', for the candidate to point to the hospital down the road and say, ``We gave X number of dollars to health care, which is helping to fund that hospital'' — that does not wash. That is a problem for federal politicians because they do hard work in trying to provide the programs.
If you are working to ensure that the programs are delivered to your province and then to your region in your province, no matter what your political stripe you should be able to take a bow for that, because that is what you are sent here to do.
The Chairman: That is fair enough.
I should state, for Dr. Lazar's information, and for those few people in the television audience who might not recognize him, that Senator Mercer is fresh from service as executive director of the Liberal Party of Canada and is from Nova Scotia. The Mr. Akerman to whom he referred is a one-time leader of the NDP in that province.
Still, most people understand that the federal government provides a good deal of the wherewithal to the provincial governments in those provinces. The argument that the provinces make in terms of health care and equalization, where the federal contribution is not visible enough, is that the federal government, through its spending power, is into things like millennium scholarships, research, foundations, and goodness only knows what else, where they can fly the flag and are very visible. You could argue that that is taking some of the pressure off the provincial government in some of those fields. However, at the same time, they are trying to do the core programs of post-secondary education, health and equalization on the cheap. That is the argument.
Senator Mercer: Mr. Chairman, if you asked a Canadian in Toronto or Calgary, who do not get equalization payments, what the federal government spends in their province, city, town or region, the problem is even greater there.
It is a problem not only for the politicians but for the government in general, because the visibility of the federal government in a city like Toronto or Calgary is minuscule, because things are going well. They know that money is going out and that equalization payments are not coming in, but there is money being transferred in, and it is very difficult for them to comprehend.
This is a good philosophical discussion, but I agree with Senator Comeau that we may be off subject.
Senator Comeau: Professor, you are seeing us approach the subject tonight from various points of view. We just had an exchange about who gets the credit for the money being spent by the federal government. Senator Banks approached the subject from an Alberta perspective, which I can well understand, because I have heard it in many other guises and Alberta is, as we all know, a contributing partner to equalization. Senator Ringuette also threw in the question of accountability.
Frankly, I personally am not at all concerned if, when money is transferred to a province, the province decides to authorize a hospital to buy a lawn mower rather than an MRI. That is a perspective that we, as federal parliamentarians have to take into consideration, that is, that some do want to be able to dictate to the provinces how money transferred from the federal government is to be spent. That is a perspective that as federal politicians we have to be mindful of. We will have to find out whether the provinces can live with such a situation.
I should like to return to your expertise, sir. You suggested that we should be looking at whether the formula now in place responds to the needs as outlined in the Constitution. This committee should possibly look at two areas. Should we look at equalization transfers as one column and then look at the measurements of the equalization transfer as another column?
In other words, should we separate the two entirely and then, hopefully, merge the two in the future?
Mr. Lazar: I am not 100 per cent sure that I follow you, although I think I do.
I was suggesting that, to be true to the constitutional provisions, it is appropriate to retain the fiscal capacity part of the equalization legislation in its current form or some variation thereof, as Parliament sees fit. In addition to that, I think there should be, in a separate column, to use your language, senator, some way of getting a sense of whether there are comparable service requirements across the country, and then I think they do need to be merged. To repeat what I said earlier, this may be complex, but it is not rocket science because most equalization programs in the world do that.
I had a visitor in my office the other day from Russia. The individual said to me, ``We are new in this business of equalization, but we have fiscal capacity and expenditure needs in our formula. Why don't you?'' He was scratching his head trying to figure it out, because it seemed so obvious to him.
Senator Comeau: I have been in Ottawa for quite a few years now. I am bothered by the kind of discussion that we had earlier about the feds having to take credit for the good things they have done. So, if the federal government spends X number of dollars on a hospital, the MPs are ready to hold up the flag; yet they are never ready to accept the negatives of what has happened over a number of years.
As an example, we know that in Newfoundland, Nova Scotia, Prince Edward Island, New Brunswick and probably in some other provinces, we have a net outflow of young people going to the more prosperous provinces. I have never seen that included as a negative in any formula. Some want to be gung-ho to take the credit without accepting the negatives.
This is one of the negatives that must be calculated in a formula. In other words, the fact that we are losing our younger people to the more prosperous provinces and leaving those provinces with an older population should fairly be part of the formula, should it not?
Mr. Lazar: The demographic consequence of that would be reflected in the formula, as least as I have suggested to you it might be, in terms of taking account of demography.
On a slightly more technical level, if in a particular year the population of a province is 1 million people, and then 10 years later it is 950,000 people, it would be important to know what was happening to the average earnings of the remaining population. If the average earnings are declining, that is suggestive of the fact that the more talented, the more skilled and the more professional people are leaving the province. If, on the other hand, the people who are remaining behind are keeping up their average incomes relative to the rest of the country, then it is not suggestive of the fact that the most talented people are leaving.
From an equalization point of view, shrinking populations may or may not be a sign that something is wrong with the program. We need more information than simply knowing that the population is declining before we can reach a conclusion. If, for example, Saskatchewan's population is declining but its average income is rising as fast or faster than that of the rest of the country, there is no implication that there is anything wrong with equalization.
Senator Comeau: Unless that is a result of people coming back to retire. The demographics then show an aging population with more need of health services and fewer young people to take over.
Mr. Lazar: I agree with that qualification.
Senator Comeau: The numbers must be looked at carefully.
Mr. Lazar: Absolutely.
Senator Comeau: You said that the commissions set up in South Africa, Australia and India are independent commissions. What is an independent commission? How does one create such a commission?
Mr. Lazar: I am not as well informed as I should like to be to answer your question. However, in the case of both India and Australia, the recommendations of the commissions are almost invariably accepted. They are not heavily contested politically.
I recently spoke with a Canadian who had spent nine months working in the Australian treasury who told me that he knew more about Australian equalization than anyone in the treasury because all the work is done in the commission. They have basically wiped their hands of that issue and it is dealt with elsewhere.
In South Africa, the commission is having less success in getting its recommendations accepted. I promise to get more information for the committee on this.
Senator Comeau: One of my colleagues across the way asked how one appoints an independent commission. It is something like the way we get an independent ethics counsellor on the Hill. We have the Prime Minister appoint the individual and then we have an independent counsellor.
That is an inside joke.
Mr. Lazar: It is not very inside.
The Chairman: I take it that the commission in Australia is full time.
Mr. Lazar: They have a huge staff. This is a serious business. There are commissioners appointed, and there is a professional staff. I am told that the commissioners are distinguished people rather than technocrats, although a technocrat can be distinguished. There is a professional staff that does all these nitty-gritty calculations.
The Chairman: Do the states nominate members to do it?
Mr. Lazar: I believe it is half and half, but I am subject to correction.
Senator Banks: That was neither private nor a joke.
I am, as Senator Comeau said, from Alberta. I am very proud of the contributions that Alberta makes to Confederation. I hope we will, as I am trying, all disabuse ourselves from the idea that there are contributing provinces on the one hand and receiving provinces on the other.
That is not how equalization works. There are receiving provinces. However, all taxpayers contribute, and they all contribute, in whatever province they live, on the same basis. Equalization is based, as you have said, on the putative tax capacity of a province. That line moves. The fact that provinces are getting closer to the line and requiring therefore less money — as you have suggested in the opening part of your statement — is a positive one.
I hope we will get rid of the idea that there are contributing provinces and recipients provinces. There are recipient provinces, but all people in all provinces contribute.
I should like to move into the broad sunlit uplands of altruism and away from credit questions with respect to the strengths. There are other reasons than that for strings to be attached to transfer payments. I should you to comment hypothetically on a hypothetical hypothesis. It is not entirely hypothetical.
With respect to health care, there have been tax points, as we call them, transferred. In other words, the Government of Canada has made room into which the provinces expanded, referred to as tax points, which have been transferred to the provinces and forgotten about.
If we were to say — following your line that, when we do tread on what are clearly provincial responsibilities by sending money with strings attached. With specific respect to health care, if we were to say, ``We are getting out of that business completely; we are going to transfer all of the tax points that are necessary on an agreed basis to the provinces'' — in other words, the provinces would collect all the health money and spend it however they like. Under that scenario, would that not be the end of national standards, because there will be no more lever for anybody to say that the level of health care in Halifax ought to approximate the level of health care in Victoria?
The only reason that that expectation exists, I believe, is that the Government of Canada has in place the basic precepts of the Canada Health Act, which says that the money is conditional upon provinces observing those precepts. If we abdicate from that, there will no national standards of health care. Is that not so?
Mr. Lazar: I told you before that I have not got the skills to run for office. If I did, I would say that I would not answer a hypothetical question. However, since I —
Senator Banks: Neither you nor I have to be elected.
Mr. Lazar: I have been greatly troubled about that particular question. I suspect and fear that your supposition is probably a correct one. I am going at these issues, these days, in my own mind a little bit differently. I suspect that you may well be right.
What I am wondering about goes something like this: If the next round of health care talks, which the Prime Minister has promised would take place beginning this summer, assuming certain political events unfold, take place and lead to another cease-fire rather than a peace treaty, the system you value so highly may well erode to the point where your pride in having Canada-wide standards may itself erode because those standards may not be all that well respected.
It is important that the next round of talks not be done in a rush. I would not be unhappy to see the federal and provincial governments kicking each other around for 12 or 18 months as they try to hammer out set of long-term arrangements that are really sustainable, to use the Prime Minister's words. There is no reason those talks should be easy. There are many issues at stake.
What needs to come out of those talks — I use the term ``peace treaty,'' in the sense that that matter be settled for a decade.
I had been fondly saying before the last health accord that it would take two or three months before the premiers begin to walk away. In fact, I was wrong. It took about two or three minutes for the premiers to be walking away from it. They said that the arrangements were mirror arrangements, send the money. They went to the press conference for a moment because they needed the money.
If we have a repetition of that, then what you value may be lost in another way. Maybe the Canada Health Act will remain. Maybe the federal government will send money to the provinces with some strings attached, including the five provisions of the Canada Health Act.
My belief is that until there is a settled fiscal framework, the provinces will fail to come to grips with the very hard things they have to come to grips with. As long as they believe there is $1 billion or $2 billion or $3 billion out there for them, if they push hard enough and they get it, there will be an absence of accountability. They will be able to say that the feds are not putting in enough money. We will get ludicrous advertising campaigns being done by both parties in one fashion or another.
I am on my soapbox now. You alluded earlier to the fact that the federal government is not getting credit for tax transfers, et cetera. I have been going around hyping the book to which Senator Murray referred. I have been telling audiences: If you want to know how much the federal government contributes to health care, there is a numerator, a denominator and a line in between; the federal and provincial governments agree on the line.
I understand the technical side of this pretty well. The advertising the premiers have been doing is quite misleading. The implicit advertising that is being done on Finance Canada's Web site is also misleading.
Both orders of government have themselves trapped. They are in a cycle where neither can give way. It will not be solved by senior public servants. It has to be solved at the higher level. There needs to be new political compact. That may take 12 or 18 months to sort out. If it does not get sorted out, I fear that what you are worried about will happen in another way.
The Chairman: In a federation, why should the standards be imposed by the federal government by act of Parliament? Why should the standards not be negotiated among the provinces and the federal government?
In the case of these five principles of the Canada Health Act, why can they not, together, come up with a definition of comprehensiveness, accessibility, and so forth? Why should that be simply part of an act of Parliament?
Mr. Lazar: If we did not have the Canada Health Act and the Canada Health and Social Transfer, and if we were trying to get those within the framework of the Social Union Framework Agreement, we would have to secure agreement of the provinces.
The Chairman: Seven/50.
Mr. Lazar: It is less than that. It is six without a population number, which is bizarre, but that is a story for another day.
The second thing is that — and this alludes to Senator Banks' question and here I will be hypothetical — I could imagine a world in which all provinces passed mirror legislation and embodied the provisions of a negotiated Canada- wide health act in their own laws and had their own feet held to the fire.
However, ultimately, if you want to stick with Senator Banks' framework, there needs to be a decision maker. With the steps the federal government has taken in recent years — which Deputy Prime Minister McLellan developed when she was Minister of Health — that allows for third parties to be involved in resolving disputes before the federal government takes its decisions — if the federal government rules against a province and does it in spite of the fact that they have not had a third party support them, then that is a pretty risky game for the federal government.
We have commissioned a paper on that, which is in one of our other volumes, and the author of that volume concludes that ultimately a decision maker is needed.
I certainly could anticipate a world in which something like the Canada Health Act, whether it was the Canada Health Act alone or 11 provinces passing mirror legislation so that Albertans are actually implementing the Alberta Health Act and Saskatchewan residents are doing the same, but it is the same from province to province, I could imagine that, but I am not yet sure it is practicable in the real world of politics.
My own thinking goes down that road, but if you really want to ensure that there is a Canada-wide framework, you probably need someone who can break a draw, someone who can decide when there is a tie, and that probably has to be the federal government.
The Chairman: You have gotten us off to a great start, Professor Lazar. Thank you.
The committee adjourned.