Proceedings of the Standing Senate Committee on
National Finance
Issue 6 - Evidence - Meeting of November 21, 2006
OTTAWA, Tuesday, November 21, 2006
The Standing Senate Committee on National Finance met this day at 9:33 a.m. to examine and report on issues relating to the vertical and horizontal fiscal balances among the various orders of government in Canada.
Senator Joseph A. Day (Chairman) in the chair.
[English]
The Chairman: Ladies and gentlemen, I call this meeting of the Standing Senate Committee on National Finance to order. I would like to welcome my colleagues here. I will introduce our special guest in a moment after I give a few introductory remarks.
The committee is meeting today to continue its work on vertical and horizontal fiscal balance among the various orders of government in Canada. This study is timely on an issue that is attracting public attention.
This issue is of direct and immediate relevance to the governments of the provinces and territories, so we have extended invitations to all the provinces and territories to provide input, either through personal appearance or in writing.
Today I am pleased to welcome the Honourable Marie Bountrogianni, member of the Provincial Parliament of Ontario, Minister of Intergovernmental Affairs and Minister Responsible for Democratic Renewal in the Province of Ontario.
Thank you for being with us today. We look forward to your opening remarks, after which we will have a period of questions and discussion.
I have been told that you have to be back at Queen's Park, so this session will go for one hour until 10:30, if that is acceptable to you.
Hon. Marie Bountrogianni, M.P.P., Minister of Intergovernmental Affairs and Minister Responsible for Democratic Renewal of Ontario, Province of Ontario: It is a pleasure to be here today. Thank you for inviting me to talk about this important issue and for providing the opportunity to emphasize Ontario's position again.
This issue of fiscal imbalance is a hot issue. It affects all Canadians, all provinces and territories and our ability to invest in our people and our future. It constrains our ability to provide the services that Canadians need: services such as health care, post-secondary education, well-maintained infrastructure and support for unemployed workers.
I am pleased the committee has chosen to turn its attention to this issue. I know that the focus for this phase of your hearings is horizontal fiscal imbalance, so I will begin my remarks by talking about the federal equalization program. I cannot talk about Ontario's position on that issue without addressing the unfair treatment of our province and our people in the national fiscal arrangements. Finally, I will provide several important ways that Ontario believes we can move forward to address the fiscal imbalance in a way that is fair to all Canadians.
Simply put, Ontario believes the key to addressing the fiscal imbalance is fairness. A lasting solution to the fiscal imbalance can come only when all levels of government work together and seek solutions that work for all Canadians. It is what our citizens expect, what the pressures of the global economy demand and what Canadians deserve.
Ontarians have a strong sense of their responsibility to Canada. We are the only province never to have received equalization but we are proud of our historic commitment to the program and the services it makes possible for Canadians across the country. This year the equalization program will cost $11.5 billion. Canadians living in Ontario contribute 43 per cent of that amount. This works out to $4.9 billion. Over the past four years the equalization program has grown by more than 30 per cent and is scheduled to grow at 3.5 per cent annually well into the future.
The Constitution makes a commitment to the principle that all provinces should be able to provide their residents with reasonably comparable levels of public services at reasonably comparable rates of taxation. The current size of the equalization program achieves that, and there is no evidence to the contrary. In fact, when you include federal transfers, some equalization-receiving provinces already have a higher fiscal capacity than Ontario.
That means Canadians who live in Ontario already provide funds to the governments of other provinces to maintain lower taxes and higher spending on key programs than Ontario is able to provide to its own citizens.
Yet some provinces are still calling for further enrichments to the program. The proposal for a 10-province standard with 100-per-cent inclusion of resources, as recommended by the Council of the Federation Advisory Panel on Fiscal Imbalance is one example. Even the panel called the cost of such an approach potentially forbidding.
Ontarians simply cannot afford further enrichments: not when Ontario ranks last among provinces in overall spending and nine out of 10 in spending for post-secondary education; and not when we already tax our residents at the national average.
You may ask yourselves, as I have, how it is possible that a relatively well-off province can tax its residents as much as other provinces yet still have less funds available for public services? The answer is that the system of federal transfers, including equalization, imposes on the Ontario taxpayer too great a fiscal burden and extracts too much money for the purposes of redistribution.
Allow me to provide one quote, although I could provide dozens. Don Drummond, the chief economist at TD Bank, has written that enriching the equalization program would be like attaching a ball and chain around Ontario's ankle. He says if you compromise Ontario's ability as an economic powerhouse you hurt the ability of the province to back up equalization. Mr. Drummond also wrote that the fiscal arrangements are a hindrance to the Province of Ontario. As he points out, the result is that Ontario's spending per capita ranks tenth among provinces.
Since the last round of changes to our fiscal arrangements in 2004-05, major annual federal transfers to Ontario have increased by $223 per capita. To compare this amount to some other provinces, annual transfers to Newfoundland have increased by $725 per capita; $648 per capita for New Brunswick; $453 per capita for Quebec; $519 per capita for Manitoba; and $349 per capita for Saskatchewan.
We cannot simply continue to address the needs of some provinces without addressing Ontario's concerns. I have already mentioned the council of the federation panel on fiscal imbalance. While we oppose its proposed formula for equalization, we agree the program must return to a formula-driven basis. A program that is supposed to respond to changes in the relative fiscal capacities of provinces should not simply grow automatically every year. As the largest net contributor to equalization, the size of the program has an impact on Ontarians.
Indeed, the O'Brien council of the federation panel stated:
In the case of non-receiving provinces with no resources (i.e., Ontario), if resource revenues are included, combined with a 10-province standard, then its taxpayers, already hit by higher oil and gas prices, are asked to pay even more to assist receiving provinces. The greater the percentage of resource revenues included in Equalization, the greater the burden could be on Ontario taxpayers.
We were pleased with the O'Brien panel's recognition of that fact, and with two recommendations from the panel. First, O'Brien called for a cap to ensure the fiscal capacity of an equalization-receiving province does not exceed that of a non-receiving province. Second, we were pleased with the panel's comments about the continuing inclusion of tax points in the federal Canada Health Transfer, CHT, and Canada Social Transfer, CST. I will quote from the report.
It amounts to "back door'' equalization and is an ongoing source of irritation both on technical grounds and in principle....The panel encourages the federal government and the provinces to address this issue so that Equalization is the primary vehicle for equalizing fiscal capacity among provinces.
In Ontario we could not agree more. We believe in one transparent equalization program. Outside of that program, federal transfers should treat all provinces equally. Right now that is not the case.
Consider this: Ontario receives $86 less cash per person through the CHT and CST than equalization-receiving provinces. This practice results in a shortfall of about $1.1 billion annually. Ontario receives less than an equal per capita share of federal infrastructure funds. Currently the shortfall is about $1.2 billion over the life of six existing federal infrastructure programs.
In 2004-05, federal support for job training amounted to $1,143 per unemployed Ontarian, compared to $1,827 per unemployed person in the rest of Canada. If Ontario were to receive the same level of federal funding per unemployed person that is available on average to other provinces, an additional $314 million annually could be allocated to job training in Ontario. The average unemployed Ontarian receives $3,640 less in federal employment insurance benefits than an unemployed person elsewhere in Canada. This amount adds up to a shortfall of about $1.6 billion annually.
These practices are unfair. A Canadian is a Canadian regardless of where they live, and all deserve to be treated equally by the federal government. Allocation formulas should be fair, principle-based and transparent.
As leaders, I hope you agree that solutions must be found that will benefit all Canadians and that will prepare our country for the challenges of the future. In the last few weeks, the federal government has announced support for security measures on public transit systems that treat Montreal and Vancouver better than they treat Toronto. The federal government has announced financial support for older workers faced with unemployment that provide more support to workers in other provinces than to Ontario. When we ask the federal government to explain these decisions and the principles that informed their allocations, we are provided with no compelling rationale.
It is an understandable source of frustration when a worker or commuter in Ontario finds that, above and beyond the equalization program, their national government chooses to spend more to support a worker or commuter in another province.
As you can tell, I could talk about these issues for a lot longer, but I know that my time is limited and so is yours. Therefore I invite you to visit a new website Premier McGuinty launched last week — www.fairness.ca — where you can learn more about these issues and how they affect Ontarians and communities where they live.
As I have said, Canada needs a solution to the fiscal imbalance that benefits all Canadians, including the 39 per cent who live in Ontario. In Ontario we see some clear solutions that can make this happen. First, the federal government can address Ontario's fairness concerns by distributing federal transfers of general application outside the equalization program on an equal per capita cash basis. This solution is consistent with recommendations of both the federal Expert Panel on Equalization and the Council of the Federation Advisory Panel on Fiscal Imbalance.
It is also supported by a host of experts, ranging from Kenneth Boessenkool to Robin Boadway, who appeared before your committee last month. If the federal government is seriously interested in moving our fiscal arrangements to a more principles basis, injecting more transparency and accountability into fiscal arrangements, and creating a better, more cooperative intergovernmental environment, this solution is an absolutely necessary part of the process.
Second, the federal government should consider an agreed upon coordinated tax room transfer to provinces, or it should increase per capita transfers to all provinces and territories through the Canada social transfer. The transfer was significantly reduced in the mid-1990s. While the federal government has acted to restore the cuts made in health transfers, the CST still provides billions less to provinces and territories than it did 10 years ago.
All premiers have called for the CST to be restored to its 1994-95 levels. This move would benefit all provinces and territories on an equal per capita basis, and allows us to invest in the skills and knowledge of Canadians in building our country's future. Perhaps most importantly, this solution is fair. It does not exclude any part of the country; rather it helps all Canadians equally, including the 39 per cent of Canadians living in Ontario.
Third, Canada needs to reform the equalization program, but reform does not mean even more money. It means returning to a formula that meets the commitment outlined in the Constitution, but also reflects a modern Canada. We prefer a solution that works within the dollars already allotted to the program.
Finally, Ontario believes we need to take a step back from the current discussions on fiscal imbalance so we can ensure our fiscal arrangements support our goals as a country. That is why Premier McGuinty has called for a national commission to review our fiscal arrangements with the goal of ensuring the arrangements help us succeed in a competitive global economy. Such a review would ensure the federal, provincial, territorial and municipal governments all have the resources they need to fulfill their responsibilities.
It is time for such a review. The last time we took a comprehensive look was the Rowell-Sirois commission in 1937. Canada has changed a lot in 70 years. We no longer live in a protected economy behind high tariff walls; we live in a hyper-competitive global economy. It is time our fiscal arrangements caught up. Outmoded fiscal arrangements that tie a ball and chain to the Ontario economy will not help Canadian prosperity.
We need new fiscal arrangements that allow us to create wealth in this new world. We need our new fiscal arrangements that work for our cities, and we need new fiscal arrangements that work for all regions of Canada, including Ontario. In Ontario, we have been discussing these issues for several months now. There is a rare unanimity around this issue in our province.
All three parties in the Ontario legislature have called on the federal government to address the fiscal imbalance in a way that is fair to all Canadians. More than 120 municipalities across Ontario have passed similar resolutions. Last June, Premier McGuinty and I hosted a "Strong Ontario'' summit where we heard from leaders in the business community, the broader public sector and the academic community. All agreed that Ontario's case was a strong one that needed to be taken to the people of the province and to decision-makers in Ottawa.
While I speak for the McGuinty government here today, I know I also speak for millions of Ontarians. Senators, Ontario is asking for fairness. We believe it is the best starting point for Canada's future. The fiscal imbalance affects Canadians from coast to coast, and solutions that help only a portion of Canadians are no solution.
Thank you and I would be pleased to take your questions.
The Chairman: Your suggestion for a national commission on fiscal arrangements invites us to move into the next part of our discussion. As you pointed out in your remarks, we are dealing with the horizontal fiscal arrangements at this time, but we intend to move in the direction you suggest. We may invite you back again to discuss that other subject in due course.
Senator Di Nino: Thank you, minister, for sharing your thoughts with us.
First, it is appropriate to recognize that the current government, which has been around for only 10 months — a short period of time — has recognized that there is a fiscal imbalance, which was not the case with the previous government.
I have a couple of specific questions. In your presentation you talked about the need to have an Employment Insurance program that is equal across the country. To my understanding, the Employment Insurance program does not treat every region of each province equally, including in Ontario.
Do you suggest that we should treat regions such as Northern Ontario, Eastern Ontario, Windsor and others that have bigger problems with unemployment, the same as we would those regions that fortunately have a better record of employment?
Ms. Bountrogianni: I usually acknowledge that this government was the first to recognize that there is a fiscal imbalance. We are pleased with that. That is a good first step. Having said that, we are anxious to see how that recognition is interpreted and how solutions are implemented.
There are a number of problems with the Employment Insurance program for Ontario. We believe that this program needs to be reviewed thoroughly. Although I stated the discrepancy, the solutions are not as easy, in our view, as the transfer grants wherein increasing the amount to what other Canadians receive seems to make sense. Because of our demographics in Ontario, only about 29 per cent even qualify for Employment Insurance. It is misleading to compare regions within Ontario because of that. That comparison skews the analysis and the statistics.
Naturally, we need to help the regions where there is more unemployment, across the country as well as in Ontario. However, Employment Insurance within Ontario is skewed because of our demographics. We have a large immigration base and it takes a long time for immigrants to accumulate the required number of months of work to qualify. As do some regions in some other provinces, we have a lot of seasonal workers, as well as other issues.
Again, there are two parts to this issue. The first is the actual Employment Insurance and the second is the training monies. We also receive less per unemployed person for training. Even though we signed a labour market agreement with the former government, and the present government has promised to honour that agreement, that money has not yet come forward. It would be a start if that money came forward, but the time has come for a good study on Employment Insurance, not only for Ontario but for the entire country.
Senator Di Nino: To ensure that I understand, you are not advocating an equal benefit for all regions with unemployment problems?
Ms. Bountrogianni: The statistic is there to highlight yet another inequity in Ontario. Unlike transfers, which we believe is a clear inequity that can be solved easily, we believe that Employment Insurance must be studied further.
We have not highlighted this issue until recently. We do not want to confuse the Ontario voter with a lot of numbers. They lead busy lives and when we throw too many numbers at them they assume that we are only partisan politicians. This issue, both on the training and on the insurance fronts, needs to be looked at for the entire country.
I have heard from my colleagues in different provinces that this issue exists for parts of their provinces as well.
Senator Di Nino: You will probably find that the present government agrees as well. As I said, after 10 months, their performance has been acceptable, if not better than that, and it continues to be. A commitment was made in the 2006 budget to address issues of equalization and that commitment will continue in the 2007 budget.
You talked about a per capita transfer of funds. I want to ensure that I understood what you were saying. Do you suggest that funds should be transferred on a per capita basis, which would mean that provinces with a smaller population and communities such as Aboriginal communities would likely receive less funds than they do today under that program?
Ms. Bountrogianni: No, not at all. We have Aboriginal communities in Ontario; in fact we have major challenges with them right now, and we also have geographical challenges. Studies have shown that it costs more to administer social programs in Ontario than in other provinces, yet we receive less than the rest of the country for health care, social services and post-secondary education.
We simply say that when you need a hip replacement, you should receive the same amount of money for that as a Canadian in any other province. I know that we are talking more about vertical imbalance now, but you cannot talk about one without talking about the other. One affects the other.
On post-secondary education, our students receive $100 less per capita than a university or college student in another province. That amount does not sound like a lot, but when you consider our population, it is significant, and that money could go to long way toward improving our post-secondary education system. This is one country. Our students move to study in other province and students from other provinces come to Ontario to study. We should have excellent post-secondary education across the country, and comparable funding across the country.
We are hopeful on the post-secondary education front. We have had a couple of summits. The premiers all agree on this point, and I think the Prime Minister is listening.
Senator Di Nino: I want to know whether you agree with my understanding that equalization is based on the fact that some provinces have more than others. If you believe that Ontario receives something less than others, it would largely reflect the above-average income and the above-average wealth of Ontarians. I think you would also agree that Ontarians are prepared to accept something less because they have something more.
Ms. Bountrogianni: They do not have something more. The analysis shows that the fiscal capacity of some of the equalization-receiving provinces is greater than that of Ontario. Ontario has changed. We have challenges as well. We are proud that we give $5 billion, almost half the equalization monies for the country. We are proud of that and we want to continue. We simply say that as a province we see no evidence for that amount to increase. Even though the monies are collected through federal taxes, those monies will never come back to Ontario. They were distributed to other provinces. The rate presently increases at 3.5 per cent per year, as was instituted by the former government, regardless of the fiscal capacity of Ontario and of the equalization-receiving provinces. We believe that formula needs to change to reflect fiscal capacities on an ongoing basis.
We speak about different regions and their challenges. When I was children's minister and immigration minister, I heard the same arguments when I travelled. We have similar challenges in Ontario. We have First Nations challenges and geographical as well as other types of challenges that other provinces do not have. Therefore, we believe that imbalance has to be addressed.
The Chairman: We allowed Senator Di Nino to set the stage for the second phase of our discussion on vertical fiscal capacity, but I remind honourable senators that we are dealing with equalization and horizontal imbalance. I appreciate the minister says it is difficult to talk about one without the other, but we hope to have a report from this committee in the next week or so that might provide guidance and assistance to the government, which has indicated the likelihood of a statement on equalization in the near future. For that reason, we are a little bit under the gun here.
Senator Cowan: Minister, welcome. I am not sure that all governments would share Senator Di Nino's view of the progress this government has made on addressing the issue of fiscal balance or imbalance. It seems to me that view depends on where you come from in this country and the meaning of that. The devil is in the detail, and I think it remains to be seen whether the government can address this issue to the satisfaction of all governments. As I listened to the witnesses that have come before this committee and as I read what has been said outside, it depends on which province one comes from. For a province such as Ontario, it means, "Do not take more money from Ontario.'' In other provinces, it means, "We need more money,'' which must come from somewhere. Clearly, we will watch the issue with interest as we go forward.
Senator Di Nino covered one point that I wanted to speak with you about, and that is employment insurance. You address that on page 18 of your speaking notes. On the next page, you talked about the unfairness, from your point of view, of the treatment of Ontario with respect to security measures and financial support for older workers. Can you explain in what way Ontario has been disadvantaged in those two respects?
Ms. Bountrogianni: There have been recent announcements on other cities and what they would get. Having said that, I read yesterday or today that there is consideration for the Windsor area as well, so perhaps that unfairness will be addressed. However, significant monies were announced for other cities and not for Ontario.
Senator Cowan: It would be that there were X million dollars given to Vancouver, and to Montreal, another number in relation to the size of the operation, and those numbers seem out of kilter?
Ms. Bountrogianni: Yes.
Senator Cowan: It is not a formula so much as an amount?
Ms. Bountrogianni: It is not a formula at all.
Senator Cowan: What about the financial support for older workers? How does that work?
Ms. Bountrogianni: This matter is all tied into employment insurance, and we receive less for our older workers than the other provinces do.
Senator Cowan: Does this matter not have to do with the regional differences that Senator Di Nino spoke about?
Ms. Bountrogianni: No, I do no believe so. He may disagree with me. It has more to do with the demographics of Ontario.
Senator Eggleton: Minister, thank you for being here. You have made compelling arguments on behalf of, initially, the Government of Ontario, but also Ontario taxpayers, who, whether they agree or not with the Ontario government totally, want fairness in the system.
I was happy to see that you addressed both the vertical as well as the horizontal issues, because I tend to agree that it is difficult to separate them. When we get into our discussions, we will need to be particularly careful of that. I also note happily that you mentioned cities, and, when we discuss the more vertical portion of the program, we will explore that particular issue more.
In the statistical comparisons at page 16 and 17 of your notes, talking about the $86 less cash from the CHT-CST, which results in a shortfall of $1.1 billion, you particularly note this shortfall in relation to the education system. However, you also talk about infrastructure programs, and then finally job training and the big difference for an unemployed Ontarian versus the rest of Canada: $1,143 in Ontario and $1,827 in the rest of Canada. Some people argue that the costs in other parts of Canada, perhaps Atlantic Canada in some cases, are higher. Given the economies of scale, the opportunities are not as big as they are in Toronto, and maybe that is part of the justification. I would like your comment about that.
Finally, on the idea of a national commission, we have had two studies in front of us, the O'Brien study and the Council of Federations study. We have had the previous Senate study. Does it make sense to have still another one? What do you feel those studies have not done that a national commission can do?
Ms. Bountrogianni: Yes, the vertical-horizontal relationship is important. In the O'Brien report, even though the study was commissioned to do equalization only, the report talked about the backdoor equalization and the unfairness in the transfers. The study talked about a cap based on the fiscal capacity of provinces. It is hard to separate the two.
With respect to economy of scale, research has shown that it is more expensive to administer social programs in Ontario, and yet we spend less for social programs in Ontario.
Another study out of the Maritimes from the Atlantic Institute for Market Studies, AIMS, who I believe you have heard, shows that Ontario spends its money relative to other provinces wisely as far as how it spends and how efficient it is. It cannot be said that we are not efficient in Ontario and therefore need more money. That argument has been disproved.
Do we need another commission? Most people, when they hear the word "commission,'' roll their eyes about yet another study or another excuse to perhaps delay a solution. The two studies that were done, the study commissioned by the Council of Federation, as well as the other one, were conducted separately. The premiers' commission study was done without major input from the federal government, without a partnership from the federal government. The premiers asked but at the time were rejected. The equalization commission, the O'Brien report, although it strayed from its original goal to talk only about equalization, again was done in isolation. We believe that there should be a national commission where all partners, including municipalities, have a voice.
It cannot be a surprise to anyone around this distinguished table, as I know you travel internationally, that Canada has fallen behind in infrastructure in our cities. Places in the world that used to envy us now surpass us. It is wonderful to go to another country and drive freely and wonderfully without the challenges we have here and to see that they have their infrastructure, heritage buildings and arts, but we come back and say, "What happened here? We were ahead 20 years ago.'' We believe that perhaps we were too relaxed in our prosperity and that we cannot afford to be that way anymore. Canada has changed, but the world has changed even more, and we need to look at not only our financial and fiscal arrangements within our country but how those arrangements relate to the changing world.
It is hard to be unbiased here. We all have our own opinions, but taking an approach that is as unbiased as possible, looking at the fiscal arrangements of this country, we believe we would be best served by a national commission or Royal Commission.
Senator Ringuette: One thing that sparked my interest from your presentation was on page 6, where you say Canadians living in Ontario contribute 43 per cent of the amount of equalization. I would be interested in having the table that identifies that contribution.
Then you say this percentage works out to $4.9 billion for the Province of Ontario.
Sometimes I go there. We have a tendency to have selective programs and memories. For your information, when you say that Ontario contributes $4.9 billion to the equalization program, did you also know that the federal government payroll, on a yearly basis, contributes over $11 billion to Ontario? That is more than 100 per cent of what you have identified as the Ontario cost of transfer payments.
Then if we move to page 10 of your presentation, you say: "The answer is that the system of federal transfers, including equalization, imposes on the Ontario taxpayer too great a fiscal burden and extracts too much money for the purposes of redistribution.''
You go on to talk about different programs. Maybe I have my New Brunswick and Atlantic Canada view, as you have your Ontario view here. If I look at the different federal government policies in regards to tax breaks — programs, all the funding coming from Industry Canada and from innovation and research trust funds, urban transit, municipal, some would say city, infrastructure programs per se, transfers for post-secondary education and the global transfer for health — in the grand scheme of things, from my perspective, Ontario does not have a bad deal from this federation. Never mind the fiscal imbalance and current transfer system, per se.
However, if you ask for a Royal Commission, then I think that every item must be studied. At the end of the day, maybe the Royal Commission will say that all programs transferring money on a per capita basis, and all programs and government policies that seem to favour Central Canada in comparison to the different regions, is not fair. The outcome may not be in your favour.
Ms. Bountrogianni: We welcome the challenge of the national commission. We think it would be in our favour.
Let me address the first point. Federal government employment is spread broadly across the country, and even though the federal capital is in Ontario the proportion of Ontarians employed by the federal government is lower than that of a number of other provinces: 1.2 per cent is lower than the 2.6 per cent in P.E.I., 2.5 per cent from Nova Scotia, 1.8 per cent from New Brunswick, 1.4 per cent from Manitoba and 1.3 per cent from Newfoundland. The federal government's direct spending on goods and services in Ontario amounted to $17.5 billion in 2003, which represents only 3.5 per cent of the Ontario economy, compared to 3.6 per cent in Quebec, 4.5 per cent in Manitoba, 4.7 per cent in Newfoundland, 6.4 per cent in New Brunswick and 9 per cent in Prince Edward Island. On the whole, the federal government collects significantly more revenues from Ontarians than it spends in the province on goods and services, compared with the rest of Canada.
With respect to your other examples of how much Ontario gets, we have more people. Per capita we still receive less on everything that you mentioned, whether it is post-secondary education, social services, health care or infrastructure.
Senator Ringuette: I remember last year, chair, that we received many people that dealt with trust funds, special infrastructure issues and special research, and the tables of investment were very much in Ontario's favour. I know that we have limited time, and I would like to see you again to further this discussion.
The Chairman: I hope that we can have the minister back another time for a leisurely discussion about all these other things that come up in our discussion on transfer payments and perceived inequities.
Senator Andreychuk: Since the chair keeps reminding us this study is horizontal and not vertical, you said on page 24: "...Canada needs to reform the equalization program but reform does not mean even more money. It means returning to a formula that meets the commitment outlined in the Constitution but also reflects a modern Canada.''
That is a good statement. How does one deliver that? You indicate you want to go back to a formula. Does that mean we need to make changes, and which changes are you talking about? How do we accomplish the needs of Canada without adding more money to it?
Ms. Bountrogianni: We believe there is no evidence that more money needs to be added to the equalization pot to fulfill the responsibilities under the Constitution. There are provinces whose fiscal capacity is greater than Ontario's that still receive equalization, and Ontario is not and never has received equalization. Again, we are not saying we do not want to contribute. It is federal taxpayers' money: it is in the Constitution.
I will give you an example. In Europe the equivalent, but not exactly the same, is the grant system. I am not saying we should adopt the European model, but we can learn from other jurisdictions. Australia is going through the same arguments that we are going through in Canada. For example, if we had the European model, Northern Ontario would qualify for equalization. We need to re-evaluate how we disseminate money across the country. Perhaps regional needs could be one factor. This dissemination needs to be looked at carefully by a commission.
For example, a great number of people in our province live below the poverty line. We are doing our best as a government. Other governments have also done their best, but we have that issue. Perhaps that regional difference should be looked at as well.
Many different approaches could be taken. We could have discussions with many jurisdictions that have grappled with this process, and are continuing to grapple with this process. At present the automatic increase, without any accountability as to how that money is spent, et cetera, is something that we think needs to be looked at.
Senator Andreychuk: I am interested. You are saying, then, you are not looking for provincial criteria: You are looking for regional criteria?
Ms. Bountrogianni: That is one possibility, senator.
Senator Andreychuk: How realistic will that be?
Ms. Bountrogianni: Other jurisdictions have accomplished it. We can learn. Again, that is an example of what could take place.
Senator Andreychuk: A number of equalization programs were put in place by the previous government. One of them was not Saskatchewan. Do you suggest that we reopen any of these agreements?
Ms. Bountrogianni: That is a good question. I know some of my colleagues from the Maritimes are also wondering about that. The solution needs to be open and transparent. Although the reports came up with different recommendations overall at the end, both reports said we must stop this backdoor equalization, these one-off deals, particularly when it comes to programs that are consistent across the country, such as health care, social services and post-secondary education. Whatever solution or study comes out of the commission needs to consider fairness, openness and transparency. Those principles should guide it.
I mentioned the other examples to illustrate what could happen or how other jurisdictions handle these issues. It is not up to me. It would be up to the national commission. I also highlight that Ontario has challenges too.
In one meeting a remark was made about Ontario wanting to take the keys to the BMW away from their younger brothers and sisters. There is a perception across the country that Ontarians are rich. We have our challenges in Ontario with respect to poverty, transportation, infrastructure and the economy. Those challenges need to be acknowledged. That acknowledgement needs to be in the mix when looking at the horizontal imbalance.
Senator Andreychuk: When looking at that, are you also looking at what your provincial responsibilities are to your municipal governments?
Ms. Bountrogianni: Absolutely.
Senator Andreychuk: You have not talked about that.
Ms. Bountrogianni: I did, actually. Municipal governments should be at the table as well. Our cities are suffering, but not only in Ontario. That is happening across the country.
Senator Murray: The origin of the so-called hidden equalization, of course, is 1977, that far back, when, as you know, the Trudeau government had an agreement with the provinces to pay part of the "federal contribution'' in tax points, 13 points of personal income tax and one of corporate. In any case, because the value of the tax points varies so much from one province to the next, the government had to make the tax points equalized tax points.
I raise that matter simply because, on page 23 of your statement, you ask the federal government to consider a coordination tax room transfer to provinces. I comment en passant that whether they pay it through the general equalization program or through hidden equalization, any such transfer will need to compensate for the fact that the value of tax points varies so greatly from one province to the next.
Ontario taxpayers, as you say, pay 43 per cent of equalization. It is true to say that they pay 43 per cent of the Canadian Forces, the Department of Agriculture and of the RCMP musical ride because we have a progressive tax system and there are above-average incomes and revenues in Ontario.
That being said, I have believed for some time that Ontario has legitimate grievances, below-average transfers in terms of immigration and labour market development agreements, below-average cash, whatever the explanation — and I have just given it — for the Canada Health Transfer and the Canada Social Transfer and other grievances of that kind. Those grievances did not start with the present government — far from it — but there was a Canada-Ontario agreement in 2005. You will be glad to know that I have been reading your website, I saw your speech in Whitby and I have looked at the fairness website as well. However, a Canada-Ontario agreement in 2005 tried to address some of these things — post-secondary education, housing, the ones I mentioned, labour market development, cities, and so forth — all together over a six-year period, $6.8 billion.
You can bring me up to date — although I looked at the website as recently as yesterday — if there has been any change in the situation. Mr. Harper, a few days before the election earlier this year, wrote to Premier McGuinty and said he had no difficulty in accommodating the premier's request on this matter, that "we will be fully funding this agreement through the 2009-10 and 2010-11 fiscal year, a commitment which is clearly within the fiscal flexibility of our plans.''
Now Ontario says that since then the federal government has come up with a couple of new national plans applicable to all provinces and — correct me if I am wrong and correct me if there has been any change in the last couple of days — they are clawing back, as it were, from the original agreement the amounts that would be allocated to Ontario in the new programs. I think Ontario is right to be outraged by this. This is not the way we do business in this country.
Tell me what is the status of this agreement? Are you negotiating it now? Has there been any change?
Ms. Bountrogianni: On your first point about the tax points, it would need to be an agreed-upon, coordinated tax- room transfer, and not a unilateral one. Since the late 1970s, as you know, so many changes were made to the transfers and to the equalization that we did not really benefit from that. Most experts agree that the way it was done was not appropriate.
On the Canada-Ontario 2005 agreement, we had a promise from the Prime Minister that the agreement would be honoured and it is not being honoured on a couple of fronts. Not one penny yet of the immigration money is going to the agencies. I negotiated that. I was immigration minister at the time. I negotiated in good faith for the money not to come to the Ontario government, the Ontario treasury, but to go directly to the agencies, and not one penny has gone to the agencies yet. We are hopeful.
Senator Murray: To the extent there are transfers, you booked them in your budget, did you not?
Ms. Bountrogianni: We did. We were promised. We have a letter, so we did. The labour market agreement is not being honoured. With respect to post-secondary education, the federal government is counting the money that it will give across the country as part of the Canada-Ontario agreement. That was not what was agreed upon. The Canada- Ontario agreement was supposed to be the first step to close the gap, the first step in closing the fiscal imbalance between Ontario and the federal government. That is how that is being handled.
Now, there is a major disagreement between our two finance ministers and we will keep making Ontario's case that this agreement needs to be honoured.
Other things in the Canada-Ontario agreement are also not being honoured yet. However, we have the letter from the Prime Minister. We hope that they are honoured at some point.
Senator Murray: I will leave it at that, in fairness to others, Mr. Chairman. I have some matters I wanted to raise but they can wait.
The Chairman: I hope that Minister Bountrogianni will have an opportunity to come back so we can pursue some of these other points.
[Translation]
Senator Nolin: Madam Minister, thank you for accepting our invitation. I will ask a fairly simple question in order to keep the attention of our listeners. When it comes to fiscal imbalance, financial hyperbolas are appropriate. In Quebec, we hear our sovereigntist opponents talk about a mandatory return of nearly 4 billion dollars, and Ontario keeps mentioning 23 billion dollars, which seems to be the shortfall, based on what you consider to be your contribution to the Canadian effort; whereas the federal government's figure is 18 billion dollars.
I would like to know if you still maintain that there should be a reconciliation or if the shortfall between what you want and what the federal government offers amounts to 23 billion dollars.
[English]
Ms. Bountrogianni: The $23 billion is basically the difference between what Ontarians pay in taxes to the federal government and what they receive back in services. It is not what we are asking from the federal government. What we ask for from the federal government is per capita transfers to be what the other provinces receive. We have also asked for the same per capita transfers for health care, social services, post-secondary education, infrastructure and employment insurance.
That $23 billion is a dynamic number. That changes from year to year: $18 billion, $22 billion and $23 billion. The important thing though is that the gap has increased from $2 billion in the early 1990s to $23 billion. Other think tanks and third parties, such as bankers, the Institute for Competitiveness and Prosperity at the University of Toronto, the Atlantic Institute for Market Studies and the CIBC have said this increasing gap is non-sustainable, that this gap cannot increase.
At no time did we ask for $23 billion. That is the difference between what we give and what we get back. We are asking for per capita transfers on health care, social services, post-secondary education and infrastructure. Now, we are also asking for a study of the Employment Insurance program because stakeholders repeatedly tell us that we are also being treated unfairly in that.
[Translation]
Senator Nolin: Because of our progressive taxation system, and since Ontario is the province with the largest number of wealthy citizens and corporations, it generates the most tax revenues. To readjust that, do you suggest that we change our taxation method in Canada and use a single-rate taxation system?
The fact that Ontario does not receive equalization has to do with its wealth per capita, and I appreciate that you have social problems like every other province. However, when we look at Ontario's fiscal capacity and the public revenues it generates, this province is definitively wealthier, and that is why you do not get equalization. This is the most important element in calculating the shortfall between what Ontario citizens pay and receive from the federal government.
[English]
Ms. Bountrogianni: I have an analysis of that $23 billion gap that I can forward to you. Almost 50 per cent of that gap is due to the fact that we have more people and therefore pay more taxes. Another 10 per cent is our contribution to national programs such as defence. We are proud that we have taxpayers who can afford to add to the country's revenues. We are proud of our contribution to defence. However, we are talking about the percentage of that gap that is unfair transfers.
As well, part of that $23 billion is money we give to equalization. We are proud of that as well. However, approximately 40 per cent of that number, or whatever the number is in a given year, is based on the transfers. That number is what we believe needs to be studied by a national commission.
The Chairman: My apologies to Senator Di Nino, Senator Murray, Senator Mitchell and Senator Eggleton who have questions with respect to vertical balance. We will deal with that issue at another time.
I would like to thank Ms. Bountrogianni for giving us some interesting points to consider.
We look forward to seeing you again.
[Translation]
Senator Nolin: The minister offered to send us information. Would it be possible to get this information, particularly on the explanation of what constitutes a shortfall?
[English]
The Chairman: If you could forward that information to our clerk, it will be distributed to honourable senators. Thank you again for your presentation. There are many points in it that will form a good basis for our further discussion.
Ms. Bountrogianni: Thank you.
The committee continued in camera.