Proceedings of the Standing Senate Committee on
National Finance

Issue 4 - Appendix

Opening remarks
by John McKay, M.P.
Parliamentary Secretary to the Minister of Finance
to the Senate National Finance Committee
on Bill C-18

An Act respecting Equalization and to authorize the Minister of Finance to make certain payments related to health

The Senate
March 23, 2004

Introduction

Thank you, Mr. Chairman.

I welcome the opportunity to appear today before your Committee to discuss Bill C-18 and will keep my remarks brief in order to leave time for questions.

Both measures in this Bill relate to Canada's system of federal transfer payments, which are designed to ensure that all Canadians have access to reasonably comparable levels of public services wherever they live.

As Honourable Senators know, the federal government assists the provinces and territories in providing programs and services to their citizens through four major programs — the Canada Health and Social Transfer (CHST), the Equalization Program, Territorial Formula Financing and the new Health Reform Transfer.

Bill C-18 impacts on two of these programs — Equalization and the CHST — and more specifically, the federal support provided for health through the CHST.

The first measure provides the Minister of Finance with the authority to continue to make Equalization payments according to the current formula for up to a year in the event that renewal legislation is not in place by April 1, 2004.

The second measure provides the federal government with the authority to pay an additional $2 billion from the Consolidated Revenue Fund in 2003-04 to the provinces and territories for health.

Bill C-18 must be passed without delay. The authority to make the regularly scheduled monthly Equalization payments expires on March 31, 2004. As well, the government must have the authority in place before March 31 to pay the $2 billion committed by the Prime Minister for health to ensure that provinces and territories have the flexibility to access funding according to their respective priorities. If Bill C-18 is not passed by the end of March, Equalization payments will cease and health care funding won't be available — preventing the provinces and territories from access to valuable services.

Equalization

I will begin my review of the Bill with the Equalization provisions.

The Equalization Program, Mr. Chairman, ensures that less prosperous provinces have the capacity to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

Let me take a moment and briefly review the key components of the Program.

First, Equalization payments are unconditional, meaning that provinces are free to spend the funds on public services as they see fit.

Second, payments are calculated according to a formula, which responds to the changing economic circumstances of provinces. The formula measures the performance of provincial economies relative to the average fiscal capacity of the five middle-income provinces, which forms a threshold or standard.

For example, when a province's economy is booming relative to the standard provinces, its Equalization payments decline under the formula, reflecting the increased wealth of that province.

Conversely, when a province's fiscal capacity declines relative to the standard due to a slowdown in its economy, its Equalization transfer increases.

The third element of the Program is a ``floor'' provision, which provides protection to provincial governments against unexpected large and sudden decreases in Equalization payments that would otherwise be warranted by the straightforward application of the formula. The `floor' limits the amount by which a province's entitlements can decline from one year to the next.

There are also two built-in mechanisms to ensure that the Program remains current.

The first is an ongoing review of Equalization by federal and provincial officials to ensure that differences in the fiscal capacity of the provinces to raise revenues are measured as accurately as possible.

The second mechanism — and the one key to Bill C-18 — is that Equalization renewal legislation is introduced every five years following federal-provincial consultations.

The last renewal was in 1999. Since then, considerable and meaningful consultations have been undertaken on Equalization Renewal — in fact, federal and provincial officials have met 48 times to review all aspects of the Equalization program.

The current legislation is set to expire on March 31, 2004, and renewal legislation will not be in place by April 1, 2004. Bill C-18 ensures the continuation of payments to the provinces so that they will be able to continue to deliver needed services to their residents.

When passed, the renewal legislation will supersede the extension provided in this Bill and Equalization payments will be retroactive to April 1, 2004.

Mr. Chairman, Equalization is the federal government's most important program for reducing fiscal disparities among provinces.

Without a doubt, the government's commitment to Equalization renewal is about making appropriate, fair and accurate changes. It is not about cutting or enriching the Program.

The renewal legislation will meet this commitment by ensuring that the Equalization Program remains up to date and that the best possible calculations and data are used to determine payments.

In the meantime, Bill C-18 guarantees uninterrupted Equalization payments to the provinces because new legislation will not be in place when the existing legislation expires at the end of this month.

Health

I will turn now to the second component of this Bill, which amends the existing Canada Health and Social Transfer to authorize a $2-billion supplement to the CHST for health.

As the largest federal transfer program, the CHST is a block fund that provides support for health, post-secondary education, social assistance and social services, including early childhood development and early learning and child care.

The government also provides significant support for health through the new, five-year, $16-billion Health Reform Transfer (HRT), which assists provinces and territories in accelerating health care reforms in priority areas, namely primary health care, home care and catastrophic drug coverage.

Both the CHST and the HRT uphold the five medicare principles of the Canada Health Act — universality, comprehensiveness, accessibility, portability and public administration — and ensure that no minimum residency period is required to receive social assistance.

These transfers speak to the significance of recent increases in federal support for health. Most recently, the 2003 Budget confirmed $34.8 billion in increased funding over five years to meet the goals outlined in the 2003 Health Accord, including increases to the CHST, creation of the HRT, and support to other health-related priorities.

In support of the 2003 Health Accord, the government also indicated a commitment to provide an additional $2 billion for health at the end of 2003-04, provided the surplus in the Consolidated Revenue Fund was sufficient to permit this investment. This commitment was also reiterated in the 2003 Budget and the 2003 Economic Update.

Following the January 2004 First Ministers' Meeting, the Prime Minister confirmed that the full $2 billion payment to the provinces and territories can be made without the federal government going into deficit.

Bill C-18 authorizes the Minister of Finance to appropriate this additional $2 billion for health from the Consolidated Revenue Fund in 2003-04, thereby fulfilling the Prime Minister's commitment.

In reviewing Bill C-18, I encourage Honourable Senators to keep the following two points in mind.

First, this money is in addition to the increased federal investment of $34.8 billion over five years for health confirmed in the 2003 Budget, and will bring the federal government's total commitment in support of the 2003 Health Accord to $36.8 billion over five years.

Second, passage of this Bill before the end of the fiscal year will provide provinces and territories with the flexibility to begin drawing down these funds as they require, which will help them better plan for the future and provide better health care services to their residents.

Honourable Senators should be aware, too, that the Prime Minister plans to meet with his counterparts in the summer to discuss the long-term sustainability of Canada's publicly funded health care system.

In the meantime, the steps in this Bill are part of the ongoing federal commitment to growing, stable and predictable funding for health.

Conclusion

In closing, Mr. Chairman, let me summarize why this Bill deserves to be passed without delay.

First, health is Canadians' number one priority, and this government intends to deliver on its commitment to provide an additional $2 billion for health to provinces and territories in a timely manner.

Second, by passing Bill C-18 prior to March 31, 2004, the Equalization-receiving provinces will continue to have resources to provide the services their people need and want until the renewal legislation is in place.

Officials from the Department of Finance have joined me here today. We now welcome any questions that Honourable Senators may have about Bill C-18.

Thank you.