Proceedings of the Standing Senate Committee on National Finance
Issue 12 - Evidence
OTTAWA, Wednesday, September 25, 1996
The Standing Senate Committee on National Finance met this day at 5:15 p.m. to consider its order of reference on the Main Estimates (Canada Health and Social Transfer) laid before Parliament for the fiscal year ending 1995-96.
Senator David Tkachuk (Chairman) in the Chair.
[English]
The Chairman: As members of the committee heard in our in camera meeting, Mr. Ketchum, because of illness, has not been able to continue with his duties. We have asked the Library of Parliament for assistance and they have sent us Mr. Guy Beaumier. He has a master's degree in economics from McMaster University. He has worked for our parliament since 1980 as an economist. Welcome.
Before we begin, perhaps we could have a motion to thank Mr. Ketchum, who has been with us for a long time. Perhaps I can send a letter on behalf of the committee formally, and if senators wish to send their own informal letters as well, please do so.
Senator Kelly: I so move.
Senator De Bané: I second the motion.
Senator Bolduc: My understanding was that Mr. Ketchum was working for the parliamentary centre, which seconded him to the Senate, so we should perhaps send correspondence to the centre.
The Chairman: We will.
Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: This meeting is the sixth in a series to be held by this committee on the Canada Health and Social Transfer. Hearings began in the previous session of Parliament when this committee heard testimony from the Caledon Institute, the Fraser Institute, the federal Department of Health, and the governments of Alberta and British Columbia. Background notes that we received at that time have been redistributed to members to refresh their memories. All of the testimony may be found in issues 27 through 31 of the proceedings of the committee from the previous session.
Tonight we have a witness with us who has appeared many times before this committee as the deputy secretary of the Treasury Board and whom the committee knows and respects. We have with us from the Department of Human Resources Development, Mel Cappe, Deputy Minister, and Jim Lahey, Assistant Deputy Minister.
Perhaps you could introduce the two officials accompanying you.
Mr. Mel Cappe, Deputy Minister, Department of Human Resources Development: Mr. Chairman, this is Andrew Treusch, Director General of Federal-Provincial Relations from the Department of Finance, and Barbara Anderson from the Department of Finance.
The Chairman: Do you have some opening remarks?
Mr. Cappe: I have a short statement, if it would be useful.
The Chairman: Please proceed.
[Translation]
Mr. Cappe: Thank you, Mr. Chairman. I would like to thank the committee for inviting me to discuss this matter.
[English]
The Government of Canada has a major program of consolidated transfer to the provinces, which includes both cash and tax points, called the Canada Health and Social Transfer. It covers health, post-secondary education, social assistance and social services.
I will identify a number of objectives for the CHST which are important to keep in mind. Fiscal sustainability was a major initiative in setting it up. The ability to serve people better and provide flexibility to the provinces was another major objective. Finally, trying to put federal-provincial relations on a more cooperative basis and to work cooperatively with other levels of government was important.
We have been operating the CHST for the last six months. I can give you a brief overview of how we see this working.
On fiscal sustainability, of course, the Department of Finance is in the lead. I think it is important to recognize that until we have some stability in our fiscal situation, the protection of the social safety net is at risk. Part of the rationale here is to ensure that we have the capacity to protect the social safety net.
In 1995, the Minister of Finance discussed an ongoing allocation formula with provincial and territorial governments, and prior to the 1996 budget, witnesses appeared before your committee and indicated the need for the Government of Canada to continue a positive influence on social programs. Again, there was an indication by witnesses before your committee of a need to stabilize the cash element of the CHST.
We have gone through a period in which the 1996 budget restated the government's commitment to seeing a gradual return to growth in total CHST transfers and established a cash floor of $11 billion. It also put in place a new allocation formula. The features of this new approach reflect the migration and growth of population in some provinces. It gradually narrows the existing funding disparities that largely resulted from the cap on CAP, as it then was called, put in place by the previous government, and by 2002-03, it will reduce the current disparity in per capita entitlements. It provides for a five-year funding arrangement and deals with many of the issues raised before this committee by the B.C. minister. I will not go through the details of how it addresses them, but I should note that it provides for the question of responsiveness to changes in population, actually increases the allocation to that province from what it would have been, and provides the opportunity for the province to better serve the population.
As I stated before, a second objective is to serve people better. If you go back to the 1960s, there were not as many employable persons on social assistance. Now the nature of social assistance has changed. We have seen an important development in the context of trying to reduce dependency on social assistance. The change in the factors affecting the need for social assistance have resulted in a change in the way it structures its policy. In the nineties, we need to encourage self-sufficiency and flexibility, as well as ensure that the incentives are right for people to get back to work when that is possible and when the economy allows. At the same time, we have to provide that social safety net.
The stoppage of flexibility that occurred under the Canada Assistance Plan can be seen by examining a number of examples where provinces tried to put in place income security measures which were not allowed under the Canada Assistance Plan but which would be allowed under the Canada Health and Social Transfer. The CHST has provided that flexibility to better serve people.
The CHST also reflects the very high priority attached by the government and the public to the five principles of the Canada Health Act. Again, I think that is a recognition of the importance with which the public holds the Canada Health Act.
In 1995, the government said it would invite the provinces to work cooperatively on the non-health principles that underlie the Canada Health and Social Transfer, and, indeed, I could talk further about how we are working with the provinces now to establish the principles that underlie the CHST. In June of this year, the first ministers met and committed themselves to exploring the principles which underlie the CHST.
I will not go into much more detail, but I would note that coming out of the first ministers' meeting --
[Translation]
A commitment had been made to create a forum of ministers to examine the future of the Social Union. It is important to recognize that federal and provincial government ministers will be examining the fundamental principles of the Canada Health and Social Transfer.
Mr. Young, the federal Minister of Human Resources Development, will be co-chairing with Mr. Ralph Goodale, the other minister, a forum on the future of the Social Union. We will now be happy to answer your questions.
Senator De Bané: Mr. Cappe, you talked about fiscal sustainability. Is it possible to really talk about this without taking into account the performance of the economy? I remember when all of these programs were established in the early 1960s. Up until the early 1980s, these programs were not a burden on the public purse.
Suddenly, these very same programs which had not caused any problems for 20 years generated sizeable deficits. It was not because the programs had changed, but rather because they had become more restrictive. The economy today is no longer what it was between 1960 and 1980.
When you state that the Canada Health and Social Transfer will allow us to have an affordable system, how is this possible without taking into account the performance of the economy? If our growth continues to be sluggish, how can we maintain these programs?
Mr. Cappe: Mr. Chairman, the senator is quite right: the amount of the transfer will vary according to the performance of the economy. In the past, one had to recognize that the performance of the economy fluctuated. Now, we have restored a ceiling of $11 billion, which will prevent reduced transfers to the provinces. Because of the projected growth in the economy, transfer payments will increase after the year 2000. As a result of new arrangements, there will be an increase in transfers, while the situation would have been quite different had we maintained the old system.
[English]
Senator De Bané: What are your comments about those who see this new characteristic of flexibility contained in the new program? The other side of the coin is that it could also endanger programs which are very important to the neediest people, who are voiceless. For them, that flexibility means uncertainty and instability. How would you answer those people who say that?
Mr. Cappe: One must compare the proposed or the current regime with the old regime and look at what was prohibited under the previous regime. We have a number of examples.
At one point, Newfoundland proposed an income supplement initiative which had to be abandoned because it did not have a means test. As a result, the Newfoundland government could not take the initiative to target certain kinds of social assistance recipients. Prince Edward Island could not get appropriate funding for a program that combined elements of occupational therapy and nutritional services because it overlapped in the area of health care. There are a number of other examples.
An employment support program to help parents get off welfare was rejected because it did not meet the requirements of CAP, and a program to provide probation services to young offenders in Quebec was rejected because it was deemed a correctional service, which was excluded from the Canada Assistance Plan.
The previous regime did not allow provinces to do those things that might have made particular sense to the environment they found themselves in to help particular classes of people.
The second part of my answer deals with the issue of whether there are certain guiding principles to provide coherence across the country. It is important to recognize that in the legislation creating the Canada Social and Health Transfer, in the budgets of 1995-96 and 1996-97 and in the Speech from the Throne, the government is committed to developing, in mutual consent with the provinces, the principles and objectives of the Canada Health and Social Transfer. In establishing those principles and objectives collectively or collaboratively with the provinces, hopefully we will be able to deal precisely with the issue that the honourable senator is raising -- that is, the capacity to ensure that all those in need will receive the kind of assistance that is necessary.
Senator Bolduc: I have in front of me a table that was done by the Fraser forum. It is dated September 1996 and deals with the federal government transfers. It refers not only to social transfers but also to the whole picture of transfers. I do not have anything to say against another province, but I wish to make a comparison.
In the province of Quebec, we receive nearly half of the equalization payments. For example, on $8 billion we receive a little less than $4 billion. Ontario, which is rated as a rich province, does not receive any equalization payments.
On the tax transfer, the province of Quebec receives $4.7 billion and Ontario receives $4.5 billion. On established programs, Quebec receives $1.4 billion and Ontario receives $3.6 billion. Under the Canada Assistance Plan, Quebec receives approximately $2 billion and Ontario $2.5 billion. The total cash and tax transfer is $12 billion for Quebec and $11 billion for Ontario. I have difficulty understanding this.
I remember very well the whole argument put forward by the federal government over the last 40 years. We had the equalization payment under Maurice Lamontagne, where money from the rich provinces in the west and Ontario were transferred to Quebec and to the Atlantic provinces. However, the other transfers have the opposite effect. For example, the established programs -- those for health, post-secondary education and the Canada Assistance Plan -- have the effect of contradicting the notion of equalization.
Although I agree with the social transfer plan, it is an intermediate measure. You gave us more flexibility, but you also gave us $2 billion less than before. That is tough on the flexibility aspect. Let us understand the mechanics of it.
Do you not think we should get rid of those programs completely and change one program, namely the equalization system, to a much sounder basis? The richest provinces are those rated at 120 on a per capita basis compared to, lets say, Quebec at 100.
As a matter of fact, it is less than 100. It is something in the order of 85 per cent or 90 per cent. Those that are at 120 may be diminished somewhat, while the others can be increased. Therefore, instead of the difference being 20 per cent, it becomes something in the order of 15 per cent. The rest could go by themselves, except perhaps if a change has to be made for some provinces in real need, such as Newfoundland and some others.
I have the impression that in one way equalization is a game for Quebec and the Atlantic provinces, while the rest of the game is counterbalancing that. I have difficulties with that. What do you think?
I know this is a political question and you are civil servants. However, you are skilful. You have been here many times. Perhaps you can talk about it in terms of general principles.
Mr. Andrew Treusch, Director, Federal-Provincial Relations, Department of Finance: Senator, the figures I have for Quebec and Ontario for the current year in terms of the CHST and equalization are broadly similar to yours. They are $11 billion in federal transfers to Quebec versus $9.7 billion to Ontario. You noted that the two figures are not markedly different.
What one might take into account in comparing the two is the fact that the populations represented by the two provinces are markedly different. One must take into account the fact that one province has a much greater population share. My figures are that Ontario has about 38 per cent of Canada's population, while Quebec has less than 25 per cent. In fact, Quebec is receiving a greater share of transfers than the dollar figures would suggest. Of those two transfers, Quebec receives about 31 per cent of transfers. A high degree of redistribution is affected by equalization.
On the basis of a formula, Quebec is provided with federal support on the same basis as all other provinces -- that is to say, on the basis of their fiscal capacity.
With respect to the Canada Health and Social Transfer, the objectives of the government are to support some pan-Canadian programs -- that is, medicare, social assistance and higher education. These are services that should be provided all across Canada. To give an example, if all the money were to be provided through equalization and none through something like the Canada Health and Social Transfer, then no federal support would be given to a majority of Canadians who do not reside in a province with substandard fiscal capacity.
I quite agree that a high degree of judgment is involved. There is a question of personal income tax, social programs and transfers to provinces. However, I think that both the equalization and the Canada Health and Social Transfer have their objectives. In keeping with those objectives, the financial arrangements can be understood.
Mr. Cappe: As Mr. Treusch said, one has to go back to the objectives of the programs. The objectives of equalization are to provide an equilibrating mechanism for fiscal capacity. The objectives of the health and social transfer are not that; they are, however, to provide federal assistance to provinces to be able to assist their citizens in the health, post-secondary education and social assistance areas. One can do the accounting by program, look at every program and come to a judgment. We could put together an array of lists. I am not sure that would deal with the issue of the public policy purpose for which those programs are put in place. One must keep coming back to the objectives of those programs and balance off, among programs, how well the Government of Canada is doing in terms of serving its citizens.
Senator Stratton: In the CHST, you said there was an $11 billion cash floor which is for five years, as I understand, and that the balance is in tax points.
Mr. Cappe: The numbers range from $25.1 billion in 1998-99 and increase to an estimate of $27.4 billion in 2002-03.
Senator Stratton: Is the idea that it will grow back?
Mr. Cappe: Both the cash will grow and the tax points will grow.
Senator Stratton: There is a great debate about the cash floor disappearing and it all becoming tax points. You do not see that happening, do you?
Mr. Cappe: That was the point about the 1996 budget which put the floor in place at $11 billion.
Senator Stratton: That is only for five years, is it not?
Mr. Cappe: The number is fixed for five years. Governments will come and go and governments may choose to change the legislation. My sense is that there has been a commitment -- certainly a statement of principle --that there should be a cash floor.
Senator Stratton: My second question has to do with unemployment. This summer we heard from three different economists. One alluded to the fact that we are stuck at close to 10 per cent unemployment in Canada, whereas in the U.S. the unemployment rate is 5.2 per cent. I am not suggesting for a moment that we should become like the U.S. However, it is pretty dramatic when you see a four percentage point difference. Some of this is attributed to the ease with which one can get on UIC in Canada versus the United States. Do you agree with that statement? Is the perceived intent that we will try to get people back working, making it not more difficult but easier to find employment, easier to teach people to become employable, thereby reducing the dependency from the high nines down to a lower number? I still cannot see that all eaten up in UI dependency. I still see significant percentages attributable to other causes.
Mr. Cappe: The honourable senator has helped me in my answer by using the reference to UI. My response is that, indeed, the law has been changed. The dependency you refer to is only part of the explanation with respect to the differential. Part of the purpose of the employment insurance legislation which is in the process of being implemented is to change the nature of that dependency and to provide support to people as they need it, when they have the circumstances of finding themselves unemployed, for example, while at the same time providing incentives to get back to work.
Elements of the employment insurance legislation will help reduce dependency. There are many other determinants. One can look at issues of labour mobility related to issues that will be addressed in the internal trade agreement, for instance, which will remove barriers to labour mobility. Hopefully that will improve the functioning of the labour market. As well, other elements in the internal trade agreement can promote the free movement of goods and services. There are a number of other determinants. Perhaps Mr. Lahey wishes to elaborate.
Mr. Jim Lahey, Assistant Deputy Minister, Strategic Policy, Department of Human Resources Development: Mr. Chairman, I have a number of comments. This spring, a conference was sponsored by a couple of academics with whom we work in the department. I believe they work with what is called the Canadian Centre for the Study of Living Standards. The conference was precisely on this question of the relationship between the unemployment rate in Canada and the United States. I regret to inform you that despite all the learned discussion, no definitive answer was arrived at. However, I do recall some points. I would be pleased to provide you with a summary of this conference which would go into more detail.
You refer to the impasse on employment of the unemployment insurance system. It was the view of many economists for some time that the unemployment insurance system had an effect of increasing the unemployment rate. This was estimated by various economists at various rates; however, as I recall, no one estimated it to be more than 1 per cent. Most of the estimates were below that. Even if that were true, it would not explain the whole difference. As Mr. Cappe has pointed out, changes introduced through the employment insurance scheme are in part aimed at eliminating that kind of disincentive to unemployment.
The second matter is that there are measurement differences between the way the United States Bureau of Labour Statistics measures unemployment and the way that Statistics Canada does. In general, in Canada, if you are looking for work, you are counted as being in the labour force, whereas in the United States they tend to count fewer people. That is believed to account for some part of the difference, but I would not want to overstate it. It is perhaps on the order of 1 per cent, but I would have to defer to the summary that I will send you.
The third matter which is often discussed is the degree of flexibility and adaptability in the labour markets in the two countries. In the United States, there are fewer protections for workers in terms of notice in regard to layoffs. The level of organization by unions provides protection for workers in Canada but also introduces an element of friction in the labour market. In some cases, they make it less attractive for employers to expand employment. Again, I would not want to overstate the impact of that. I am not sure anyone has made a proper estimate of that impact.
At the end of the day, the learned people studying this concluded that there was a large element of the unexplained which goes down to business confidence. We can all speculate as to the basis of that.
I will be pleased to send you the summary because it is, as far as I know, the most comprehensive assessment of this issue undertaken so far.
Senator Stratton: The articles I have read on this issue allude to the fact that we are more like the European Economic Community than we are the U.S. The European Economic Community has a much higher unemployment rate. It is more comparable to our rate than to the rate in the United States.
People have said to me, "Do you believe that?" Again, one attempts to put a finger on it because it is worrisome. We have 4 per cent more people unemployed in this country than in the U.S., and we have had that for over six years, the longest period since the 1930s. It is disturbing that you are breeding social welfare dependency, and that concern should bother us all.
When you look at this and you hear all the answers you have given -- they are good answers, and I do not necessarily disagree with you -- would political instability be a part of it? I know it is, but it would be difficult to measure. I have heard economists lay it on the table and say, "Yes, that is worth a point." Could I have your opinion on that? I realize we are talking about hearsay.
Mr. Cappe: I am trained as an economist. On the one hand, I can give you an answer, and on the other hand I can give you another answer.
A number of studies try to estimate the impact of political stability on economic performance and interest rates. Studies on Mexico and other countries around the world tend to find that there is an impact on political stability. Even within the European Union, there are differences in political stability. As you go through change, these things tend to be taken into account by the market and are reflected through the market in interest rates.
Mr. Lahey: You asked about the comparison to the European Union. There was a G-7 conference in Lille in April. This question was very much on the table. As it turns out, and as is so often the case, Canada finds itself in the middle between the American experience and the European experience.
One of the positives in the Canadian experience highlighted at that conference was that, other than the United States, Canada has by far the best job creation record over the last decade and certainly over the last five years. In Europe, in countries such as Germany and France, there has been essentially no new job creation for the last few years, whereas Canada, since 1993, has created probably in the order of 500,000 to 600,000 jobs. That is a lower job creation rate than the United States, but Canada, the United States and, to a lesser extent, Great Britain were the only G-7 countries with significant job creation over the last five years.
Senator Stratton: With this new employment insurance, as it is now called, hopefully we will see a drop in the unemployment rate by putting people back to work or encouraging people to go back to work. I know you believe that. It is very difficult to place a number on that because one must view it against the economic times. Is it worth half a point? Are you that optimistic or more optimistic?
Mr. Cappe: A number of instruments in the employment insurance legislation will help in this regard. Changes were made in what is now Part I of the Employment Insurance Act which deal with things such as part-time workers. We have not yet implemented those provisions. We are moving from weeks to hours in measurement of earning credit for employment insurance. That will come into effect in January. It is obviously still in the early days since we have not even started some of these instruments.
In Part II of the Employment Insurance Act, we create five instruments which are active measures to help people get back to work. Aside from passive income support and changes around passive income support, those active measures will allow us to use targeted wage subsidies, for instance, to actually help individuals get back to work. We are fairly optimistic that those measures will be very successful. In May, Mr. Young made public a proposal to the provinces to offer to let them deliver those active measures. We are currently engaged in discussions with the provinces on seeing the possibility of that transfer to them.
Earlier, Senator Stratton raised the point about training. The government is clearly of the view that the provinces have stated that training is a provincial jurisdiction. Education is clearly provincial in the Constitution, so we will withdraw from training. However, with some of active measures -- for instance, in skills, loans and grants -- we will be prepared to see the provinces deliver those measures. Those are the kinds of things that I think will have a significant effect. There is $2 billion going into those active measures, and that can be very helpful.
Senator De Bané: I know that originally the idea behind equalization was to ensure all Canadians some basic services at reasonable cost, et cetera. Following up on your discussion with Senator Bolduc on the issue of dependency, I think it is well documented today that equalization has not done exactly that.
For some provinces it has encouraged inefficiencies; in others, it has bloated bureaucracies, with some provinces creating embassies abroad.
I think it should be the same for government as it is for individuals. Equalization for the Government of Canada is a cop-out. The government does not have to take stock of the regional impact of its national policies.
For the provinces, equalization has created dependency. It is much easier for the federal government to write a cheque and to say, "You have fulfilled your responsibility to create economic development."
I suggest that when one looks to what we are distributing in equalization payments to seven provinces, those amounts have nothing to do and do not correspond to the three regional funds of economic development on the upside, the western fund, the Quebec fund and the maritime fund. If one looks to the budgets of those three funds, there is no relationship with equalization.
For governments, as for individuals, equalization has been a cop-out for Ottawa because it has not developed economic development that takes into account both the bottlenecks and the potentialities of the different provinces. For those provinces it has created a dependency.
Initially, the idea was generous -- an unconditional subsidy to the public budget of each province to do whatever they wish with it. However, I think if we took 20 per cent of that to help the economic development of those provinces, it would be more difficult, but it would mean more in the long term.
The regional funds for the three regions have nothing to do with your mathematical formula.
The Chairman: I would like to comment. The reason I agree with Senator De Bané is that I remember the Premier of Saskatchewan, Mr. Romanow, last year saying the reason they could not decrease the sales tax was because they were in a surplus position from 9 per cent to 5 per cent and that it would cost them $400 million in transfer payments. They could not afford to do so.
To finish with the question of equalization, has there been a change in giver provinces since equalization began? Has there been a change in those provinces who one might say give and those who receive, or have they always been the same?
Mr. Treusch: To that question specifically, the answer is yes. Alberta was a recipient of equalization and is no longer. Saskatchewan, although in and out of the program, has been quite a volatile resource base because of oil and gas and natural resources. In fact, there are marked changes in fiscal disparities.
The Chairman: Ontario has always been a giver province, right?
Mr. Treusch: That is correct.
The Chairman: Alberta used to be a taker and has become a giver with the lowest taxes in the country. Who else is a giver?
Mr. Treusch: I would not characterize provinces as "givers"; it is the national tax system.
The Chairman: What about British Columbia?
Mr. Treusch: British Columbia is not a recipient of equalization.
The Chairman: Did it used to be?
Mr. Treusch: No.
The Chairman: Nothing has really changed in the marketplace. With respect to Atlantic Canada, Quebec, Manitoba, all of these things have remained the same, basically.
Senator Bolduc: It is like foreign aid in Africa. The more we give them help, the more they decline. Perhaps there is no correlation, but that is the fact.
Mr. Treusch: There have been quite a number of changes in fiscal disparities between provinces. They have narrowed. It has happened extremely gradually. However, we should come back to the purpose of equalization because it is not a substitute for regional development; at least, its objective is not the same.
Section 36(2) of the Constitution states the principle of equalization. It is to enable all provinces to provide reasonably comparable services at reasonably comparable levels of taxation. It is an unconditional transfer. It is for provinces to be held accountable to their electors with respect to what purposes those moneys are put.
If you do not have equalization, you will have, obviously, a much more disparate level of provincial public services. It may or may not be used to address underlying economic disparities. That is the aim of an economic and regional development policy. It may or may not succeed in addressing those underlying economic experiences.
The Chairman: The better the fiscal management and the lower the taxes in a province means that they have less opportunity for being part of the equalization formula.
Mr. Treusch: No, senator. If you are resident in a have-not province, we will ensure that the province has the same financial ability or comparable financial ability to residents of a wealthy province to provide public services at comparable tax rates.
The Chairman: We should get back to the CHST. Perhaps we can discuss equalization with the Treasury Board.
Senator Bolduc: Mr. Cappe, you are now Deputy Minister of Human Resources Development. I remember Mr. Axworthy a few years ago saying that the number of programs in that department concerning employability and human resources development were a mess. Have you cleaned up the mess since you have been there?
Mr. Cappe: Mr. Chairman, I am here to talk about the Canada Health and Social Transfer.
I would not have characterized it as a mess, but I would say that very important programs are being delivered to people who depend on the Government of Canada to assist them. In making the labour market efficient and helping those who are in need, I think the department does a very good job.
Mr. Lahey: Senator Bolduc, Mr. Axworthy was referring to the employment programs of the department, I believe. One of the changes that was part of the employment insurance reform was to replace -- I do not know what the number was -- some dozens of programs by the so-called five tools. It was very much driven by Mr. Axworthy's concern to rationalize the programming. The idea was that these tools would be applied or adapted to the circumstances of individual communities. Obviously, if the responsibility is transferred to the provinces, they will exercise that discretion. However, we have shed our dozens of programs and replaced them with the five. In fact, Mr. Axworthy did pursue that objective successfully.
Senator Lavoie-Roux: Senator Stratton expressed quite a bit of concern about the difference of unemployment between the U.S. and Canada. I know that employment insurance has made modifications in order to decrease dependency to encourage work training or professional training.
However, it seems to me that the basic problem is the inability of governments, be it provincial or federal, to create jobs. There are no jobs for people who come off unemployment insurance and have been taking courses. That is not the case for everyone, but it is for many. There are no jobs for people graduating from universities, CGEP in Quebec and colleges in other provinces. Neither the provincial nor the federal governments seem to know how to address that problem. Of course, we quarrel a lot about whether the provinces or the federal government do manpower training better.
[Translation]
This inability of ours to create jobs.
[English]
I am all for decreasing dependency and stimulating people to go out to work. I think that most people want to work. I believe that statements about lazy people who want to do nothing are exaggerated.
What is the basic problem?
Mr. Cappe: There is no magic wand. I think the government can create an environment which allows for the creation of jobs. Hundreds of thousands of jobs have been created in the last three years. Now, has the government created those jobs? Government programming has helped create them, I would say. I cannot point to all the particular jobs created, although one can point to some.
The important thing is that the government can create an environment which is more or less conducive to job creation and the market will work better or worse as a result of government policy.
Senator Lavoie-Roux: I have heard your statement several times. However, at the same time as we are creating 4,000 jobs someone is eliminating 4,000 jobs. How is it that we always have the same unemployment rate in spite of all these efforts, which I think are honestly made by the people who are interested in this issue? I suppose it could be a greater failure than it is, but it is a failure to a certain extent.
Do you know how many jobs are not being filled because people are not properly trained or for other reasons? You may not have that statistic at your fingertips.
Senator Kelly: I would like to add to what is being said. When we talk about government creating jobs or creating the environment in which jobs are created, we cannot overlook the fact that we are seeing a massive restructuring in the private sector these days. Huge organizations are consolidating, the result being massive layoffs which have nothing to do with anything but the current itch to rationalize or modernize. I personally find it extremely worrisome.
Government certainly has a role to play, but it cannot do it by itself. The banking institutions have a role to play. There again the government has some remedies which it is considering and must continue to consider. Many dynamics go together to make a vibrant economy. You cannot depend on the private sector by itself to do the whole job as you cannot count on government itself to do the whole job.
It seems to me that the concentration must be a bit wider and much more thoughtful. It is foolish to decide that the bulk of the people who are unemployed could get work if they wanted to. I do not think that is in the least bit true.
With regard to equalization -- although I will not dwell on it -- not a province in this country would stop trying to get people to work because they receive equalization payments. That is a silly suggestion. That does not happen at all, in my opinion.
We must be more imaginative. I do not suggest that I have the solution, but I wanted to elaborate on what Senator Lavoie-Roux said.
Mr. Lahey: There is no doubt that there is a lot of churning in the labour market in Canada. There are as many as 3 million people on employment insurance at one time or another during the course of any given year. The significant thing is what the net outcome is. I do not have the exact number in my head, but at this point it is around 14 million. More people are employed in Canada at this time than have ever been employed in the history of this country. Since the present government came to office -- these things often being calculated with that as the benchmark -- the net number of new jobs created is in the order of 500,000 to 600,000.
Senator Lavoie-Roux: What about the increase in the population in the last 10 years? We will soon be 30 million.
Mr. Lahey: Even when jobs are being created, one of the reasons that the unemployment rate does not fall as much as one would hope is that as people become encouraged by the creation of jobs, by the availability of jobs, more people re-enter the labour force looking for jobs. In other words, the ratio of those looking to those employed can stay as is has been. I think it is now at 9.4 per cent.
The Chairman: Are you telling me that the rise in the unemployment rate is due to the fact that people have got out of their houses and begun to look for work?
Mr. Cappe: There is a "discouraged worker" effect of high unemployment keeping people from looking for work, and when the rates come down, people do come out.
The Chairman: Why were they not doing the same thing south of the border?
Mr. Cappe: They were.
The Chairman: There is a big difference. I am not sure if that is a substantive comment. I am not sure if I agree with that. I would like to see some backup for the statement that the reason we have an unemployment rate of approximately 9 per cent is that there has been an increase in the economy, more jobs are being created and therefore more people are leaving their homes and looking for work, therefore increasing the employment rate.
Senator Bolduc: This has been the case for women in the last 20 years.
Mr. Lahey: I am not suggesting that you can explain a 9.4 per cent unemployment rate by people entering the workforce looking for employment. I am simply saying that the net position over the last three years is an increase of between 500,000 and 600,000 jobs. There has been a decline in the unemployment rate in the order of 2 per cent in that period. Obviously it fluctuates. One of the phenomena you do observe is that when a lot of jobs are being created, people begin entering the labour force so that the full impact of the extra jobs being created does not show up immediately in the unemployment rate because you have both phenomena -- people getting jobs and people entering the labour force as they see the opportunity to look for jobs.
The Chairman: There has been an increase since 1993. However, throughout the seventies, the eighties and the nineties the unemployment rate has been up and down. It has been at this number before, but there is no question that it is high now, and it was high before.
Mr. Lahey: That is correct.
Senator Bolduc: Every decade has seen an increase of about 2 per cent in the number of people working. For example, in the 1950s in the United States, 58 per cent of the people between 15 and 64 years of age were working. In the 1960s, it was 50 per cent. In the 1970s, it was 62 per cent. At the end of the 1970s it was 64 per cent, and now it is 66 per cent. Never before have so many people worked in the United States, and the same holds true in Canada.
Senator De Bané: The participation rate has gone up. The percentage of people between 16 years of age and 60 has gone up. On the other hand, I think our chairman has a point. When I was young, full employment meant 4 per cent unemployment. In every decade, we have seen the full employment definition going up. Now full employment is 9 per cent unemployment.
Senator Stratton: We cannot seem to explain the differential. In the sixties and the seventies, unemployment in Canada was exactly the same as in the United States. The differential has dramatically increased in the eighties and the nineties. That, to me, is the fundamental question of this whole issue. With all the manpower and brilliance in this government, we should be able to figure out why and work out a resolution to that issue. There have been many articles on this issue.
Senator Bolduc: There is certainly a lack of mobility in the labour market.
Senator Landry: I have been listening to all of you compare Canada with the United States. Since we have more than one economist here, could one of them tell me why lately the interest rate is higher in the United States than it is in Canada? I have not seen that for as long as I can remember. It was always 1 per cent higher in Canada than in the United States. Suddenly, the United States is 3 per cent higher. Does that mean we are weaker or stronger?
Mr. Cappe: It means that inflation is much lower in Canada. You are looking at the difference between nominal interest rates. Canadian inflation rates are embedded in that. American inflation rates are embedded in the U.S. rate, and that can explain a very large proportion if not all of the difference. A significant effect has taken place since Canada's inflation rate has come down to under 3 per cent. It is now at 1.4 or 1.2 per cent. That has a very dramatic effect on nominal interest rates, and that is what you are seeing.
The Chairman: Is it possible that the reason interest rates are higher in the United States is that their economy is so hot they fear inflation, and therefore they have increased interest rates to slow the economy down? They are deliberately doing that for fear of inflation, while in Canada perhaps the bank is decreasing interest rates and making sure they stay low to stimulate the economy.
Mr. Cappe: There is an element of that, but it is the forecast inflation rate that is important, the anticipation by the public of what their money will be worth in the future. I quite agree with the chairman.
Senator Landry: One of the reasons that our unemployment rate has been high since the sixties is probably the women's revolution. If we send the housewives back home, we will not have any unemployment at all.
Senator Lavoie-Roux: Send them out of the Senate and then you will have the whole place to yourself.
Senator Kelly: I think a medal of bravery should be awarded to Senator Landry.
Senator Landry: I am not saying I would send them home, but this is what happened.
The Chairman: Are there any more questions on the CHST?
I have a few questions on equalization and how it applies to post-secondary education. I will ask you some background questions on the Canada Health Act. When was that piece of legislation passed?
Mr. Lahey: I believe it was 1984.
The Chairman: Was it passed to package a number of rules with regard to cash going to health care for the provinces, or was it to deal with new rules?
Mr. Lahey: At that time, I believe it codified a number of provisions having to do with the conditions under which the medicare system would operate. Financial support to the health care system was under the Established Programs Financing Act.
Senator Lavoie-Roux: The provinces were getting too greedy.
The Chairman: In the sixties and the seventies, when Canada went to a national health care system, we did not have a comprehensive bill stipulating that the provinces had to meet these particular minimum standards. We had an assortment of minimum standards over key areas; would that be right?
Mr. Treusch: The origin is 1957. We started with hospital insurance and went to health insurance in 1962. Both were originally cost-sharing agreements. In the period 1975 to 1977, we moved to block funding under Established Programs Financing. The 1984 Canada Health Act you referred to was a bringing together of the principles and conditions that underlie the medicare system and a clarification of the Government of Canada's policy with respect to user fees and extra billing, as well as a somewhat more subtle penalty provision that allowed dollar-for-dollar offsets. There was a disagreement and controversy over extra billing and user fees at that time. The Canada Health Act, as was pointed out, outlines medicare principles, and financing authority has always been separate.
The Chairman: Do we have the same types of legislation for post-secondary education?
Mr. Cappe: No. The Canada Health and Social Transfer is the mechanism for delivering the Government of Canada's assistance to the provinces in respect of post-secondary education and social assistance.
The Chairman: I am trying to get at some constitutional principles regarding who runs health care, who runs welfare and who runs post-secondary education. We have quite strict rules governing standards of welfare. Yet, from what I know, we have probably had a greater increase lately in the amount of government revenue spent on welfare in Canada than ever before in history.
Mr. Cappe: I would be interested in your view of what those standards are. We have the residency requirement in the Canada Health and Social Transfer.
Senator Bolduc: He is talking about provincial standards.
The Chairman: I am saying that the federal government has certain minimum standards through the Canada Health Act to ensure that we have a good health care system. Yet, it seems to me our health care system has been deteriorating.
Mr. Cappe: We have the five principles of the Canada Health Act. The only standards, as you put it, that we have for health are --
The Chairman: A minimum.
Mr. Cappe: But they are the five principles of the Canada Health Act, which deal with universality, portability and so on. Those are the only things we have that you could call standards.
In respect of the Canada Health and Social Transfer, the standard that is required, if you will, or the principle that is espoused in the act is the residency requirement, which was taken from the Canada Assistance Plan. The purpose of the commitment of this government to have a consultation with the provinces to develop the principles and objectives of the Canada Health and Social Transfer is an attempt to get at an analogue to those five principles in the Canada Health Act for the Canada Health and Social Transfer. We want to do it with the consent of the provinces to establish those principles.
The Chairman: My point is that post-secondary education is not going to hell in a hand basket, and it does not have any national standards. Those standards are all governed by the provinces.
Mr. Cappe: As someone with a child in university, I must say that my bill went up a great deal this year. We would need some evidence on whether the various systems are deteriorating or not.
I think the people in post-secondary education would say that they have seen some dramatic changes as well. I am not disputing your facts. I am merely saying that we must look at the way we measure the relative success or not of the post-secondary education system.
The Chairman: We have some governance over what we call national standards. What happens if there are no national standards? What happens if, God forbid, we entrust health care to the provinces?
Mr. Cappe: The provinces do administer the health administration system. Indeed, health care varies across the provinces. That is the nature of the way provinces use the money they receive. The only thing close to standards -- they are not standards of health care, but they are principles by which the provinces administer their moneys -- are the five principles of the Canada Health Act. They deal with issues of accessibility, not with issues of the standard of health care. There are no standards of health care in that sense, and there are no standards for post-secondary education either.
The Chairman: But they deal with accessibility. You have a situation where if people want to pay for health care, they can. That is accessibility. Yet they state that the federal government says they cannot do that.
Mr. Cappe: That is correct.
The Chairman: What does that have to do with accessibility?
Mr. Cappe: I used accessibility to capture the five principles, but you are quite right -- I was referring to the five principles.
The Chairman: Is that not the administration of health care?
Mr. Cappe: Those five principles do not say that the provinces cannot do those things. They merely stipulate that the provinces will not receive the money. The provinces administer, and the standard of health care that one would receive in different provinces could well be different. I am trying to make a distinction between the five principles and the standards.
The Chairman: I am not blaming you for all of this, Mr. Cappe. I am trying to unravel this issue.
Let us assume that the province of Alberta, the province of B.C. or the province of Saskatchewan wants to charge people for certain things. This does not take away from standards and access; in fact, it may improve access. If they can prove they have a better standard of health care and greater accessibility because of this, why would they be punished by being allotted less cash so that poor people cannot get in?
Mr. Cappe: To be clear, the five principles deal with portability, public administration, universality, comprehensiveness and accessibility, which requires provincial residents to have reasonable access without financial or other barriers to uniform access. That involves the charging aspect. It does not prohibit the province from charging, but the province would not get the money from the federal government if they did so.
In current disputes, we have observed that the federal government is prepared to withhold money if provinces violate those principles. It does not say that they cannot do it, because administration is a provincial responsibility.
The analogue to this -- and the only analogue to which I can point -- is residency on welfare. We are in a dispute with a province on that issue. You are suggesting that other principles should come to bear on post-secondary education.
The Chairman: I am suggesting that we do not have principles in post-secondary education. The provinces are struggling as best they can to maintain a strong university system in this country. Money is being given to them. Politically, they will decide how they want to deal with that money. Some may not have universities. Perhaps we do not need two in Saskatchewan. I do not know how all of that will work out, but why can we not do the same thing for health care? What would be wrong with provinces having the freedom and the latitude, politically in their own province, to decide how they deal with health care without being punished and told that they cannot have the cash because they are charging someone $5 to have a toenail removed, for example?
Mr. Cappe: That is a political choice. The law of the land, the Canada Health Act, currently requires that for those five principles. Obviously, it is only a piece of legislation and it can be changed. It is not constitutionally enshrined.
The Chairman: How does a private hospital in Alberta wishing to charge a fee affect any of the principles of the Canada Health Act?
Mr. Cappe: It affects the principle of accessibility which states that reasonable access without financial or other barriers and uniform terms and conditions and public administration require provincial health insurance plans to be accountable to a public body on a non-profit basis. The money must go to those other activities. If you are allowing the health care system to be based on private administration or financial barriers, then the money will not be forthcoming.
I want to be careful not to answer for my colleagues in the Department of Health.
The Chairman: I understand what you are saying, but I do not understand the reasoning behind it.
Senator Lavoie-Roux: This involves the famous question of two-tiered medicine. Someone could have faster access to a private hospital or to some type of service because they can pay the extra money that is being asked of them. One then gets into what is called la médecine à deux vitesses. That is the principle they want to see, but portability is not perfect either. Perhaps I should not talk about that.
If people from Quebec are being looked after or hospitalized in Ontario, they must pay extra money because the costs are different in terms of what they pay doctors in Ontario as compared to Quebec. Even the portability aspect is not completely perfect.
The Chairman: I want to ask a question on accessibility and a question on a tax point.
If I go to a hospital and pay $10 or $100, or someone is charged for an operation or a visit, that is a problem with the Canada Health Act; but, I live in Redvers, Saskatchewan, and they close my hospital. I now have no accessibility to hospitalization without getting into my car and driving to Regina. What is the difference?
Senator Lavoie-Roux: You should go after your provincial government.
The Chairman: This affects money coming from the federal government. If I live in the city and someone charges me to have access to health care, it may affect the provincial government's ability to get money from the federal government. However, the province can close down a rural hospital, or 10 or 50. Does that not preclude accessibility?
Mr. Cappe: I do not want to keep returning to my earlier comment, but I must. The only existing restrictions are the five principles of the Canada Health Act. No standards of health care are required by any federal legislation of which I am aware. I do not want to urge you to invite my colleague the Deputy Minister of Health to testify, but perhaps she can answer more fully.
The five principles of the Canada Health Act, which are in legislation, require portability, public administration, et cetera. It does not say that you must be such and such a distance from adequate health care. It does not say anything about adequacy. That is a provincial responsibility.
The Chairman: In answer to a question from Senator Stratton, you mentioned that tax points grow. What did you mean by that?
Mr. Cappe: It was also part of my answer to Senator De Bané. As economic growth takes place in the economy, the number of tax points do not change, but the tax room transferred to the provinces is worth more as the GDP grows. Basically, it says that we are giving tax room to the provinces. As the economy grows, the value of the tax points is worth more, whereas the actual cash transfer is a cash amount determined by formula, and so on, and that grows as well.
The Chairman: Do you allocate a tax point, or do you just provide room so that the province can take the tax point?
Mr. Treusch: A tax transfer actually takes place at a specific point in time. These happened many years ago. New tax transfers have not been added in recent years. At a particular year, the federal government reduces its personal and corporate income tax rates to allow the provinces to increase their rates by an equivalent amount. The taxpayer is neither better nor worse off, but revenues that previously flowed to the federal government flow to the provinces. Thereafter, nothing takes place in terms of the tax system. However, in terms of our fiscal arrangements with provinces, we estimate the value of the tax transfer every year thereafter. That is to what Mr. Cappe has referred. Generally speaking, the value of tax transfers will grow with the economy. They have done so. We estimate that every year. The law requires that we take that into account as part of our federal contribution to provinces.
The Chairman: Would Newfoundland's rate of growth be as great as Alberta's rate of growth? Newfoundland would not benefit as much from the tax points because it does not have the same economic growth rate as Alberta.
Mr. Treusch: That is exactly correct. That is why the federal contribution is not determined by the tax but rather by total entitlement. Therefore, the cash acts as an equalizer.
The Chairman: You actually equalize the cash to make up for the fact that the economies of P.E.I. and Newfoundland have not grown while the economies of British Columbia and Alberta have grown.
Mr. Treusch: If you look at the value of tax transfers per province, you will see that they differ quite dramatically. They are worth about twice as much to a wealthy province like Ontario as they are to a relatively less wealthy province like Newfoundland. Correspondingly, then, the cash transfers are that much greater proportionally to a poorer province like Newfoundland. However, the logic is not the equalization logic.
The Chairman: It is pretty close, though, is it not?
Mr. Treusch: No. The value of our support for health, higher education and social assistance is provided to all 10 provinces. We are not in the business of equalizing. We are providing comparable support to the residents of provinces all across Canada. That is how it differs from equalization.
Mr. Cappe: When I talked about how much money was in the Canada Health and Social Transfer, I talked about $25 billion because that is the total value of what we have given the provinces. That is what counts. The amount of the Canada Health and Social Transfer is actually $25 billion. Only $11 billion is in cash.
The Chairman: Let us put it another way. The federal government has not given anything. What it has said at some point in time is, "We will reduce taxes by five points so that you can increase it by such an amount, thereby getting the same amount from Senator Tkachuk as he paid last year." It just goes to a different person.
Mr. Cappe: If you look at the revenue base of the Government of Canada, it is significantly reduced. The revenues of the Government of Canada have been reduced and the revenues of the provinces have increased. We are saying, "We are prepared to give you, according to the formula, $25 billion next year." A number of years ago, we gave some provinces the capacity to raise some of that themselves because they chose to do so. To others we said, "We will give you your portion of that $25 billion. You have not had the capacity to take that in your own tax revenue that we gave you." It is a tax expenditure from the Government of Canada, if you really want to view it that way. I would not but some would.
The value of that tax point is something we do not flow through the federal government, whereas the $11 billion cash we do flow through the federal government.
The Chairman: Why do you not transfer the rest of the cash by tax points and get it over with?
Mr. Cappe: Some provinces would like that. However, it is our view that we would not then have a system with the capacity to ensure that those principles of residency and other things are ensured.
Tax points are a bit of a fiction. When you give the province the capacity to raise that revenue, you lose the capacity to set the standards that you were alluding to earlier on the issue of health care.
The Chairman: I do not want you to set the standards.
Mr. Cappe: We do not set the standards. I was talking about the five principles. It would be very appropriate, then, if you wanted to recommend that we merely vacate the tax room and leave it to the provinces. They may choose to leave the money in the pockets of the public or to raise revenues in terms of higher taxes. That is a tax decision. It strikes me that any decision with respect to further tax points is a decision not to be in the business. If the federal government gives any more tax points, it is basically saying, "We will not be in that business any more."
Senator Landry: When comparing Ontario with the Atlantic provinces, has anyone realized that we buy all our vehicles from Ontario? These vehicles are built by people who make $26 per hour. People in the Atlantic provinces make, on average, $8 or $9 per hour. Ontario benefits. We have to work for three hours compared to their one.
The Chairman: I want to return to the question of universities. If we do not want to do the transfer by tax points because we want to maintain some principles in health care and, perhaps, some points that we have to make in the case of welfare, do you think it would be a good idea to do the same in terms of post-secondary education? My point is this: Why has it not been done in post-secondary education?
Mr. Cappe: We are in the process of doing it. The commitment of the government was to look at the principles and objectives of the Canada Health and Social Transfer and to work with the mutual consent of the provinces to establish what those principles should be. I would hope that some principles are relevant for post-secondary education. Indeed, we have had the provinces consider that as well.
I take your point, senator. It is a very legitimate one.
The Chairman: Has that consultation process with the provinces started?
Mr. Cappe: The first ministers' meeting of June started the process. The Prime Minister asked Mr. Young to co-chair the appropriate committee with a nominee from the provinces. It was after the annual premiers' conference in August that Premier Klein wrote to the Prime Minister to indicate that the Honourable Stockwell Day, Minister of Social Services, will co-chair for the provinces. I suppose Mr. Young and Mr. Day have met.
However, as far as I know, there have been no meetings of the provincial ministers ensemble. We are waiting for the provinces to get back to us. It is our intention to engage with them. The process is starting, but it is taking a while.
Senator Lavoie-Roux: Is the reason for not having it done for education the fact that education falls under provincial jurisdiction and Quebec would not want the federal government to touch education?
Mr. Cappe: That is absolutely true. Indeed, at the first ministers' meeting, the Premier of Quebec indicated that he would not participate in the process.
Senator Lavoie-Roux: With respect to education, if we are to talk about sacred causes, it is a good one because it has so many implications from a social point of view. It has been accepted by all the provinces, more or less.
The Chairman: We did not really get into the issue of post-secondary education as much as we would like to have gone into it. However, we have covered a lot of ground today.
I thank you for being patient with us this evening and for being so free and open in answering all the questions we asked of you.
The committee adjourned.