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"Restoring the Fiscal Balance"
Notes
for an address
by the Honourable Michael D. Chong,
President of the Queen's Privy Council for Canada,
Minister of Intergovernmental Affairs,
and Minister of Sport
Association of Municipalities of Ontario
Ottawa Congress Centre
Ottawa, Ontario
Tuesday, August 15, 2006
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Good morning. Thank you very much for your kind invitation.
The future of our cities and communities is essential to our quality of life and to the health and prosperity of
our nation. No one order of government can do this alone. All governments – federal, provincial and territorial,
and municipal – must work in partnership to help communities develop and implement local solutions.
Canada’s new government is interested in hearing all views, including municipal views, on fiscal imbalance.
That is why in April I participated in a dialogue on fiscal imbalance with the Greater Toronto Area and
Hamilton Mayors and Regional Chairs.
In June, the Prime Minister spoke to the Federation of Canadian Municipalities about how our new government’s
plan for change will affect local communities. He outlined funding in the Budget for infrastructure, immigrant settlement,
the fight against crime, the environment and affordable housing.
He talked about significant investments in public transit infrastructure and tax credits, and retaining the
5-cent per litre Gas Tax Transfer program and the GST rebate for purchases made by municipalities. The Prime Minister
also discussed cutting federal taxes, which will create tax room for other governments, and said we would seek guidance
from municipalities on federal funding for future infrastructure projects.
This last weekend, I attended the annual Couchiching Conference near Orillia.
We had a stimulating discussion on progress for Canada in the
21st century, particularly within the context of quality
of life in our communities. So, I am delighted to be here today to speak to you, who represent the communities of Ontario.
The organizers of this conference have asked me to talk about our new Government’s plans to restore fiscal balance and
renew federalism in Canada, a debate that has more recently been framed in terms of the fiscal imbalance or the fiscal gap.
This is a complex debate, full of dizzying numbers and details, so I intend to speak with you in plain language
on this topic.
I'd like to share what I perceive to be the five broad causes of the fiscal imbalance within the Canadian federation.
First, large, unplanned and unanticipated federal surpluses of recent years have contributed to the imbalance.
While the restoration of Canada's fiscal health has been a positive development, federal surpluses over the last eight
years have generally been larger than anticipated, and the federal government has not been transparent with Parliament,
Canadians and other orders of government.
These unplanned federal surpluses have led to federal spending in areas of provincial jurisdiction, often at odds with
provincial priorities and policies. Since a significant portion of recent federal surpluses was unplanned, they
resulted in large year-end spending that was not always guided by a pre-announced policy framework.
This year-end spending was often in areas of primarily provincial responsibility and announced with little or no
consultation with provinces and territories.
A third cause of the fiscal imbalance was the cuts in federal transfers to the provinces and territories in
the mid-1990s. While overall federal transfers have now been restored to their pre-restraint levels, much of the focus
of these efforts has been to ensure long-term predictable funding to health care, reflecting the priorities of Canadians.
As a result, federal funding in support of other areas, such as post-secondary education and training, has not been put
on a long-term, predictable track.
One-off deals recently signed between the previous government and various provinces and territories have also
contributed to the imbalance.
The confidence of Canadians in the overall fairness of federal programs was undermined through these one-off efforts,
as federal actions were seen to be moving away from the principle of equity among provinces and territories.
Finally, also contributing to an imbalance within the federation was the ongoing wrangling that has, at times,
characterized the way the different orders of government dealt with each other. Canadians have told us that they want
governments to put aside their jurisdictional arguments and move forward on resolving the issues that affect them most.
The time has come to establish a new relationship with the provinces that is open, honest and transparent.
Canada's new government believes that efforts to restore fiscal balance need to be principle-based.
We have therefore set out five guiding principles:
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Greater accountability through clarity of roles and responsibilities between the orders of government;
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Responsibility and transparency in budget planning;
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Predictable, long-term fiscal arrangements;
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Greater competitiveness and efficiency of the economic union; and
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Effective, collaborative management of the federation
Based on these principles, our government has already taken action to restore fiscal balance in
Canada.
Budget 2006 invested in core federal responsibilities, like national defence, border security, Aboriginal peoples,
emergency and pandemic preparedness, and the RCMP, and there were more tax cuts for individuals in Budget 2006 than
in the previous four federal budgets combined.
But more remains to be done. We are carefully considering the recommendations of the O’Brien Report on Equalization
and the Council of the Federation report on fiscal imbalance as well as other stakeholder reports such as the
Federation of Canadian Municipalities. This summer, the Government is also seeking the views of Canadians and is
consulting with the provinces and territories.
In the coming months, the Government will bring forward broad proposals with the intent to implement
them in Budget 2007. We will propose a new approach for allocating unplanned federal surpluses.
We will announce renewed, principle-based Equalization and Territorial Formula Financing programs.
We will propose a new approach to long-term funding support for post-secondary education and training, and we will
propose a new framework for long-term funding support for infrastructure programs.
Lastly, I would like to address concerns within our own province about a fiscal gap.
In any federation like Canada, regional economic disparities due to a host of factors can result in
different balances between revenues and expenditures in different regions.
Because of their relatively higher incomes, citizens and businesses of more prosperous provinces, such as
Ontario, contribute relatively more to federal revenues than they receive from federal programs. Currently,
the so-called "Ontario gap" is a reflection of the province's greater prosperity relative to most other provinces.
Nevertheless, the new government is committed to further action over the next year, engaging Canadians, provincial and
territorial governments, academics and experts towards more open, transparent and collaborative fiscal relations in Canada.
The Government of Ontario will participate in the consultation process and its views will be heard.
As you can see, the fiscal imbalance is a complex issue which necessitates the mutual willingness by all
orders of government to work together to find tangible, effective solutions, for the well-being of all Canadians.
We must always bear in mind that the enviable quality of life all Canadians enjoy is closely linked to the
smooth functioning of our federation. This is why the debate on this issue is not just a matter of numbers, structures
or funding mechanisms, but ultimately has a human face.
While the objective of restoring a fiscal balance is an ambitious one, we must also recognize that
federal-provincial-territorial cooperation is the best guarantee of our future progress and prosperity.
This is as true for restoring fiscal balance as it is for any other issue. Let me be perfectly clear, Canada’s
new government is firmly committed to that path.
We have seen at the recent Council of the Federation Meeting in St. John’s that the premiers hold differing opinions on
the ways to restore fiscal balance.
The Government will continue to work closely with our partners in confederation in a spirit of openness and
with the understanding that we all benefit from a more effective economic federation.
To conclude, I would now like to talk a little bit about what the Government of Canada is doing for our
communities.
Canada’s competitiveness rests on the strength of its communities.
The Government of Canada is dedicated to making Canadian communities a better place to work, to learn and to grow;
and it recognizes that world-class infrastructure, such as an efficient transportation network and safe and reliable water
systems, is key to meeting these objectives.
In order for our communities to thrive we must come together and build strong and constructive partnerships - where
every jurisdiction is recognized and respected.
We would not be where we are today were it not for the hard work of organizations such as the Association of Municipalities
of Ontario, as well as our various other provincial, territorial and municipal partners. In terms of AMO's work on the
Gas Tax Funding Agreement and Public Transit Funds in Ontario, their involvement in the Canada-Ontario Municipal Rural
Infrastructure Fund, and their trusted role as an advocate and knowledge source of Ontario's communities, they have been
an invaluable partner to this government.
With Budget 2006, this government has demonstrated its commitment to improving national, provincial, territorial
and municipal infrastructure. In fact, the 2006 Federal Budget committed $16.5 billion over the next four years for
investments in infrastructure, an unprecedented level of support for infrastructure in Canada.
More precisely, Budget 2006 committed an additional $2 billion to renew the Canadian Strategic Infrastructure Fund,
which supports large-scale projects of national and regional significance.
Projects in Ontario that have benefitted from this program include Ottawa’s light rail system, Hamilton’s harbour
cleanup, wastewater treatment upgrades in Kingston and Thunder Bay, and improvements to the GO and Toronto Transit Systems.
Budget 2006 also committed an additional $2.2 billion to renew the Municipal Rural Infrastructure Fund, which I am sure
many of you from mid-sized and smaller communities are familiar with as COMRIF here in Ontario.
I am pleased that COMRIF officials could be part of your conference and, if you’d like to meet some of them,
the COMRIF booth is located in Exhibit Hall.
COMRIF has been helping small towns and rural municipalities across Ontario to improve local bridges and roads,
solid waste management, and water and wastewater systems.
Through intakes one and two, over $242 million in federal funding has been committed in 208 projects across the
province to make Ontario's communities stronger, healthier and safer.
This past June, Intake Three was launched, providing the remaining $46 million of the federal
government’s $298-million investment in COMRIF. The deadline for applications is 5 p.m. Eastern time on September 13th.
Negotiations on the renewal of COMRIF are underway, and details will be shared with you as they become available.
In addition to the Canadian Strategic Infrastructure Fund and the Municipal Rural Infrastructure Fund, we have
reaffirmed our commitment to gas tax funding agreements worth $5 billion over five years, of which Ontario’s municipalities
have already received their first year of funding.
This government has also committed $2.4 billion over the next five years through the new Highways and Border
Infrastructure Fund, $1.3 billion for public transit and is maintaining a 100% GST rebate for all municipalities.
Through these investments in our public infrastructure we are delivering on our commitment to build world-class
infrastructure and to provide Canadians with economic opportunities, a high quality of life, a healthy environment and
safety and security.
The work done to deliver funding under our various infrastructure funds is done in a way where all levels of
government work together to address the challenges that face our cities and communities.
This means working to ensure that each order of government works together to improve the quality of life for
all Canadians - while respecting jurisdictions, and restoring the fiscal balance.
This goodwill and cooperation, I feel certain, will benefit all Canadians by helping to ensure that Canada’s
communities, towns and cities are great places to live.
Thank you.
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