LETTER TO PREMIER LUCIEN BOUCHARD REGARDING FEDERAL TRANSFERS TO PROVINCES

(TRANSLATION)

February 23, 1999

Dear Premier,

On February 17, 1999, you described the federal budget as "shameful", and the attitude of the federal government as "arrogant", "crude", "brutal", and "unimaginable", "an incredible offensive", and an "attack". Even allowing for your propensity for strong superlatives, these are serious accusations which merit a response.

Your indignation, which you have chosen to express through ads in Quebec’s daily newspapers that are as garish as they are misleading, is based on three assertions:

First, you claim that Quebecers will not receive their fair share of the new funds that the federal government will transfer to provincial governments.

Second, you maintain that the method of allocating the Canada Health and Social Transfer, which helps to fund health care, among other things, has been modified without prior consultation, contrary to the commitments made in the Social Union Framework Agreement.

Third, you claim that the federal government is trampling upon provincial jurisdictions and transforming our federation into a unitary state.

1.

Quebec’s fair share

In fact, if you add up the positive readjustment in equalization for the past three years, the increase in equalization over the next five years, and the increase in the Canada Health and Social Transfer over the next five years, you get a total of $21.7 billion in new transfers to the provinces. Your government will receive $7.4 billion of that amount, or 34% of the total.

In comparison, Ontario’s share will be only 25% of that total $21.7 billion, even though it makes up 38% of the Canadian population.

"This equalization is owed to us", you declared. I agree. We Quebecers are entitled to it because Canada belongs to us in its entirety, with the solidarity that unites us with other Canadians. We are entitled by virtue of the

Constitution Act, 1982, the very Act that you so unfairly denounce, which makes equalization a constitutional obligation. We are entitled because of the exceptionally strong economic growth in our sister province, Ontario.

Quebec is not the milk cow of Canada, contrary to your self-victimizing accusations. But neither are we its spoiled child, even though we receive almost half of all equalization payments. We receive our fair share as a province less wealthy than the Canadian average.

According to Statistics Canada, Quebecers’ contribution to federal revenues fluctuates from year to year between 21% and 22%, whereas they receive between 24% and 25% of federal spending, which roughly corresponds to the difference between our economic weight (21.7% of Canada’s GDP) and our demographic weight.

If ever the day were to come when our economic health allowed us to financially assist our fellow citizens in the other provinces, I know that we would give with the same generosity that Ontarians, Albertans and British Columbians have been showing for so many years. Because that is what Canadian solidarity is all about.

I can assure you that Quebec does receive its fair share of what you call structural spending. For example, in 1996, the most recent year for which data are available, 26.3% of federal science and technology spending, excluding spending in the National Capital Region (NCR), was made in Quebec.

In addition, Quebec received 39.1% of all R&D grants and contracts awarded to Canadian industry by the Government of Canada. Quebec universities also received 28% of R&D grants and contracts. Finally, the Government of Canada is investing in Quebec over 50% of the funding allocated under the

Technology Partnerships Canada program.

2.

Respecting the social union agreement

The Government of Canada’s intention to restore the Canada Health and Social Transfer to an equal footing has been known for quite some time. Let’s review the chain of events.

On February 20, 1990, the federal government of the day announced that, as a budget austerity measure, it would limit increases in transfers under the Canada Assistance Plan to 5% a year, for a temporary two-year period, in the only three provinces that do not receive equalization payments.

You were then a member of that federal government. You supported that decision, that temporary two-year imposition of a ceiling on British Columbia, Alberta and Ontario.

The federal budget at the time projected that this measure would deprive the wealthier provinces of only $155 million over two years. In fact, it saved the federal government $10.1 billion between 1990 and 1995, of which $8.2 billion came from Ontario alone.

The Liberal Party of Canada made a commitment to end this imbalance before it won the 1993 election. The Government of Quebec was prepared for this. The 1995 Campeau budget assumed that equal per-capita distribution would be in effect as of the 1996 federal budget.

In fact, to assist the less wealthy provinces, Minister Martin announced in 1996 a six-year transition period to halve the gap separating the province that benefited the most from this measure, Quebec, and the province that was the most penalized by it, Alberta.

Thus, the following year, the first Landry budget was able to count on an unexpected $1.7 billion in federal transfers, spread out over three fiscal years. Mr. Landry himself acknowledged that "the slope is not as steep as we might have thought" (March 6, 1996). That’s probably the nicest compliment your finance minister has ever paid to the Government of Canada!

Since then, the debate on how to accelerate this process of achieving equal treatment has continued. On June 15, 1998, the provincial finance ministers, with the exception of your government’s, submitted a document to Minister Martin calling on him to equalize the Canada Health and Social Transfer on a per-capita basis if equalization payments could be increased at the same time. This document was in fact considered by the provincial premiers on August 7, 1998, at the Saskatoon Conference in which you participated.

It is this change, desired by the vast majority of the provinces, that Minister Paul Martin announced in his last budget, but to be phased in over three fiscal years. This new combined reallocation of the Canada Health and Social Transfer and Equalization will provide your government, as I pointed out earlier, with one third of all new transfers to the provinces.

And as I have just explained, this announcement has come after a lengthy debate which fully meets the requirements for consultation set out in the social union agreement, an agreement that you cite and reject at the same time.

3.

Respecting provincial jurisdictions

First of all, over and above the additional moneys transferred to the provinces, most of the new federal initiatives are designed to enhance research and development in Canada. There is certainly nothing in the Constitution that makes research an exclusive provincial jurisdiction. With respect to health research specifically, the federal government has been playing an important role since the 1930s, for one thing to facilitate the dissemination of knowledge among researchers throughout Canada.

Quebec has greatly benefited from this. For example, around one third of grants awarded by the Medical Research Council of Canada go to Quebec. If health research and the biomedical industry are so well developed in Quebec, it is in part because of the role the Government of Canada has played in this regard. For Canada to be on the leading edge of this crucial research sector, all our governments need to assist one another and work together, in the spirit of the social union agreement.

Second, Canada is in no way evolving into a unitary state. There is nothing to confirm such an assertion on your part. On the contrary, in the past 20 years, federal program spending has decreased relative to the gross domestic product more quickly than that by the provinces, and there is no reason to expect that this trend will not continue. In 1997, federal program spending represented 12.6% of the gross domestic product, or 10% if transfers to the provinces are excluded. That same year, program spending by the Government of Quebec represented 19.2% of the province’s gross domestic product.

In other words, the Government of Quebec carries almost twice as much weight in the Quebec economy as the federal government. Is this what you call a unitary state?

Furthermore, never in the history of this federation have federal transfers been less conditional, a trend that runs contrary to that in other federations. Federal transfers to the Government of Quebec will be even less conditional over the next five years, because they will be made increasingly in the form of equalization, which is completely free of conditions. I’m surprised that you don’t welcome this.

As you can see, Mr. Premier, your criticism is completely unjustified. This is a good budget, which is fair to Quebecers as it is to other Canadians, and which will help us to work together to improve this decentralized federation, this country united in solidarity, in its continuing quest for greater prosperity and justice.

Yours sincerely,

(French version signed by) Stéphane Dion


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