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C-18: Bill Respecting Equalization and Authorizing the Minister of Finance to Make Certain Payments Related to Health

Honourable senators, I am truly happy to speak today at second reading of Bill C-18, respecting equalization and authorizing the Minister of Finance to make certain payments related to health. This bill deals with Canada's system of federal transfer payments.

First, it makes it possible for equalization payments to continue while waiting for completion of the legislative renewal process.

It authorizes the Government of Canada to provide $2 billion to the provinces and territories for health, as the Prime Minister confirmed at the end of the recent first ministers' meeting.

Before discussing the need for the bill, I would like to first give you an overview of the federal transfers, which will help put these measures into context. As you know, the Government of Canada provides assistance to the provinces and territories to help them provide programs and services.

The provinces and territories run their own health, education and social services programs, while the Government of Canada provides them with annual financial assistance through transfer payments.

This system ensures equal access to public health care for all Canadians, a safety net for those who need it the most, the freedom to move about the country in search of work, training and higher education for those who qualify, and reasonably comparable services, no matter the province of residence.

The large majority of federal financial support is delivered through the Canada Health and Social Transfer, CHST; the Equalization Program; the Territorial Formula Financing; and the new Health Reform Transfer or HRT. Bill C-18 affects equalization and the CHST.

In my remarks today, I will focus first on the equalization program and the measures that affect it. The equalization program is unique among federal transfers in that its object was entrenched in the Constitution in 1982. The program ensures that less prosperous provinces have the capacity to provide reasonable, comparable levels of public service at reasonably comparable levels of taxation.

The fact that equalization was one of the rare programs exempt from any restrictive measure in the mid-1990s when the Government of Canada tried to put its fiscal house in order, illustrates how important this program is to the government.

Since the creation of the equalization program in 1957, all the provinces except Ontario have benefited from payments to varying degrees. Currently, with the exception of Ontario and Alberta, the eight other provinces are eligible for federal assistance under the equalization program. Equalization is the most important federal program, helping to reduce the differences in the ability of the provinces to provide services.

Equalization payments are unconditional. In other words, the provinces that receive payments can use the funds for public services according to their own priorities. The Government of Canada Treasury makes equalization payments monthly.

Payments are calculated according to a formula that responds to the changing economic fortunes and 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 a standard. It is applied in exactly the same way to all provinces.

For provinces with a fiscal capacity below the standard, the federal government pays equalization payments to ensure that all provinces have a fiscal capacity equal to the standard. As honourable senators might expect, the result adjusts accordingly in response to economic developments in each province. For example, when a province's economy is booming, relative to the standard province, its equalization payments decline under the formula, thus reflecting the increased wealth of that province. Conversely, when a province's economy experiences a slow down relative to others, its equalization payments increase.

There is one more aspect of the equalization program I wish to touch on before turning to the bill and that is the "floor" provision. The floor provision protects the provinces against large year over year declines in equalization payments to individual provinces that would otherwise be warranted by the straightforward application of the formula. This would occur, for instance, when the measured fiscal capacity of a province increases or when its population decreases, or even both.

Until recently, payments were also subject to a "ceiling" provision, which provided protection for the federal government against increases in equalization payments. To meet the commitment in the 2003 Health Accord, the 2003 budget permanently removed the ceiling beginning in the budget year 2002-03.

Honourable senators, the equalization program is reviewed on an ongoing basis by federal and provincial officials to ensure that differences in the capacity of provinces to raise revenues are measured as accurately as possible.

Moreover, some major aspects of the bill before us today have to do with the fact that the program is renewed through a legislative process every five years, to protect its integrity and fundamental objectives. The last time this was done was in 1999.

As honourable senators know, the current legislation will expire on March 31, 2004. Discussions on the five-year renewal of the equalization program are underway. However, if the renewal legislation is not in effect by April 1, 2004, the government might not have the power to authorize equalization payments, which is why Bill C-18 must be passed.

One of the objectives of Bill C-18 is to ensure the uninterrupted flow of equalization payments after March 31, when the current legislation is scheduled to expire. The bill authorizes the Minister of Finance to continue making equalization payments under the current formula, for a maximum of one year, if the renewal legislation is not in effect by April 1, 2004.

In other words, this bill is a precautionary measure to ensure that the payments on which the provinces depend are not interrupted. Let us not forget that eight provinces, and their citizens, rely on equalization payments.

Honourable senators, the government is committed to tabling the integral renewal legislation. However, it is essential to protect the public services that are funded by the provinces under the equalization program for the benefit of their citizens. If Bill C-18 is not passed, the impact on beneficiary provinces could be very serious.

I wish to speak now about the renewal legislation that will ensure that the program remains up to date and that the best possible information is used to determine equalization payments.

Let me state clearly that the government will table renewal legislation that will be retroactive to April 1, 2004. In developing the renewal legislation, the government is being guided by three key principles. The first principle is the government's commitment as set out in the Constitution to a strong equalization program that allows provinces to provide reasonable comparable levels of public service at reasonable comparable levels of taxation.

The second principle is the government's commitment to improving the predictability and stability of the equalization program. Equalization payments to the provinces should not destabilize provincial fiscal planning.

The third principle is the government's commitment to maintaining the integrity of the equalization program. This principle, as honourable senators will recall, is founded on the premise that payments have to be based on an objective formula, thereby ensuring equal treatment to all provinces.

Maintaining the integrity of the program requires periodic revisions to reflect the most up-to-date figures and current provincial taxation practices while ensuring the long-term sustainability of the program. In short, the government's commitment to equalization renewal is not about cutting or enriching the program; it is about making appropriate, fair and accurate changes.

I now want to focus on the measure in Bill C-18 concerning the Prime Minister's commitment to provide an additional $2 billion to the provinces and territories for health. The public health care system in Canada is essential to our quality of life. The Prime Minister supported this opinion in his address in reply to the Throne Speech on February 3, 2004:

We want a Canada where our universal health care system is a proud example of our national values at work.

As you know, the Government of Canada plays a key role in supporting the national health care system, mainly through the CHST and the Health Reform Transfer.

I want to explain in greater detail the support provided by the federal government.

Through the Canada Health and Social Transfer, the provinces and territories receive cash payments and tax transfers in support of health care, post-secondary education and social services, including early childhood development and early learning and child care.

The CHST and the new Health Reform Transfer both uphold the five medicare principles of the Canada Health Act — universality, comprehensiveness, accessibility, portability and public administration. It also ensures that no minimum residency period is required to receive social assistance.

The government reiterated its support for these principles of medicare in the Speech from the Throne through the following statement:

The Government's commitment to health care rests on one fundamental tenet: that every Canadian have timely access to quality care, regardless of income or geography — access when they need it.

The Government is committed to this goal: universal, high-quality, publicly funded health care, consistent with the principles of medicare, as set out in the Canada Health Act.

As many of my honourable colleagues will recall, since the CHST was created in 1996, the federal government has strengthened the transfer numerous times. In fact, these funding increases have been very significant.

Under the five-year Health Renewal Agreement reached by the first ministers in September 2000, the federal government provided $21.1 billion over the course of the agreement period to the provinces and territories for health care and early childhood development, its largest ever increase.

In support of the Health Renewal Agreement, the Government of Canada also provided an additional $2.3 billion for targeted investments to purchase medical equipment, ensure primary care reform and implement new information technologies such as electronic patient files.

Based on the commitments made in 2000 for reform and renewal, the 2003 budget confirmed the payment of an additional $34.8 billion, over five years, to reach the objectives set out in the 2003 Health Accord, including significant increases in transfer payments to the provinces and territories.

Subsequent to this investment, the federal government will provide, in 2003-04, $37.5 billion to the provinces and territories through the CHST.

As well, the 2003 budget restructured the CHST as of April 1, 2004 into two separate transfers. They will be a Canada Health Transfer and a Canada Social Transfer to increase transparency and accountability. Provinces retain their responsibility for program design and delivery. At the same time, federal support for provincial program areas — health, post-secondary education and social services — will be more transparent to Canadians.

This important structural change, combined with the increased federal support for health care, clearly demonstrates the federal government's commitment to ensuring a sustainable and accountable health care system that will continue to be there for the next generation of Canadians.

Another federal transfer arising out of the 2003 Healath Accord is the new Health Reform Transfer through which the Government of Canada pays $16 billion over five years to the provinces and territories to accelerate reform in priority areas such as primary health care, home care and catastrophic drug coverage.

I can assure you that the government will be distributing the additional funding and the new health reform transfer on a uniform per capita basis, in order to ensure that all Canadians are helped equally, regardless of where they live.

This brings me to the second measure in Bill C-18 which authorizes the Minister of Finance to appropriate $2 billion from the Consolidated Revenue Fund in 2003-04 for health. In addition to $34.8 billion over five years committed in the 2003 Health Accord for health care, the federal government also indicated that it would provide "an additional $1 billion for health at the end of fiscal year 2003-04, if the Finance Minister determines during the month of January 2004 that there will be sufficient surplus above the normal contingency reserve to permit such an investment."

Both the February 2003 budget and the November 2003 economic update reaffirmed this commitment. As stated in the economic update, "if there is any federal surplus this year we will provide up to the first $2 billion of it for health care spending when we close the books."

After the first ministers' meeting of January 2004, the Prime Minister confirmed that the entire $2 billion will be going to the provinces and territories. What is more, it was pointed out in the Speech from the Throne that this transfer will be possible without putting the Government of Canada back into a deficit position.

I would also like to make it clear that this is over and above the additional $34.8 billion over five years for health care already confirmed in the 2003 budget.

If this bill is passed before the end of the fiscal year, it will provide the provinces and territories with the necessary leeway to be able to withdraw this money as needed. This will help them to plan ahead and provide better health care to their residents.

After all, health is one of Canadians' top priorities. At the first ministers meeting in January, the Prime Minister stated his intention to meet his counterparts again this summer to discuss the long-term viability of Canada's public health system.

In the meantime, the measures contained in Bill C-18 will help to ensure that Canada's health care system will remain, in the Prime Minister's words, a proud example of our national values at work.

Honourable senators, in September 2000, Canada's first ministers confirmed that the key goals of our health system are to: preserve, protect and improve the health of Canadians; ensure that Canadians have reasonably timely access to health services anywhere in Canada, based on their needs, not their ability to pay; and, ensure the system's long-term sustainability so that health care services are available when needed in future years.

In his reply to the Speech from the Throne, the Prime Minister confirmed the government's commitment. As he said, health care is the nation's first priority: quality timely care; care that is accessible regardless of income, portable right across Canada and publicly funded. We are committed irrevocably to the principles of the Canada Health Act. They are part of who we are — a moral statement about fundamental fairness — that all Canadians should stand equal before our health care system. The additional funding for health that this bill provides is proof of the Government of Canada's unshakeable commitment to health care.

It is part of the ongoing federal commitment to growing, stable and predictable funding so that provinces and territories can plan for the future. As well, this substantial investment is being provided within a framework of balanced budgets that ensures its sustainability over the long run.

With respect to the equalization component of this bill, I urge honourable senators to keep in mind that not all parts of the country can generate the same revenues to finance public services. Bill C-18 underscores the priority the government places on equalization and ensures uninterrupted funding until renewal legislation is in place. As honourable senators know full well, the equalization program reflects the core values of the Canadian federation and deserves our full consideration and support.

Honourable senators, this bill deserves to be passed without delay.