MINISTER DION DEMONSTRATES THAT FISCAL IMBALANCE IS A MYTH

MONTREAL, QUEBEC, March 27, 2002 – During his annual speech to the Saint-Laurent Chamber of Commerce, the Honourable Stéphane Dion, Member of Parliament for Saint-Laurent-Cartierville, President of the Privy Council and Minister of Intergovernmental Affairs, refuted the conclusions of the report of the Commission on Fiscal Imbalance chaired by Mr. Yves Séguin. Mr. Dion backed up his statements with numerous detailed graphs.

The Minister first stated that the Commission is wrong in claiming that the federal government’s budget surpluses prove the existence of a fiscal imbalance to the detriment of the provinces and that the federal government is using its budgetary flexibility to invade the legislative jurisdictions of the provinces. Mr. Dion demonstrated that the existence of such a fiscal imbalance is a myth by notably pointing out that:

• provincial revenues have long outstripped federal revenues and there is no indication of a reversal of that situation;
• program spending by both orders of government has grown less quickly than the economy;
• Canada has invested a great deal in health and education, the two main sources of spending for provincial governments;
• spending in the health field represents a proportion of provincial revenues and the economy that is comparable to the situation in the 1980s;
• debt servicing costs are now twice as high for the federal government as for the provincial governments;
• the provincial governments have chosen to cut taxes since 1994-1995, which represents a $22.7 billion shortfall for 2002-2003, while the federal transfers they receive have been more than restored to their 1994-1995 levels.

The Minister also demonstrated that the projections by the Conference Board - the cornerstone of the Séguin report - which anticipate that in 2019-2020, federal surpluses would reach $87.8 billion, while the Government of Quebec would have a deficit of $4.8 billion dollars, are not reliable. The Minister noted, among other things that:

• it would be irresponsible to establish our budgetary policies on the basis of 10- or 20-year projections, when economists cannot predict the beginning or end of a short-term recession;
• the example of the United States, where a projected surplus of over US$300 billion has evaporated, shows that it is very difficult to make even short-term projections;
• if the Conference Board exercise had been undertaken in 1997, a $55 billion federal surplus would have been projected for 2001-2002 and a $12 billion surplus for the Government of Quebec;
• Ms. Marois herself invalidated some of the conclusions of the Séguin report by producing a budget statement which shows a balanced budget for the Government of Quebec in 2001-2002, whereas the Conference Board study instead projected a $600 million deficit.

"If there is one thing we must certainly not do," the Minister continued, "it is to implement the recommendation of the Séguin Commission: abolish the Canada Health and Social Transfer in exchange for transferring the GST to the provinces, accompanied by an equalization increase that would help offset the lower return that this tax transfer would cause for Quebec and the other less well-off provinces." The costs of such a reform would plunge the federal government back into deficit for several years, he added.

Reiterating his conviction that there is no fiscal imbalance and that the Government of Canada helps the provinces as much as it can, Mr. Dion specified that total transfers to the provinces will increase by an average of 6.1% a year until 2005-2006, whereas anticipated federal revenue growth will be only 1.9%.

Moreover, to show clearly that the Government of Canada is not invading the provincial fields of jurisdiction, Mr. Dion pointed out that:

• federal program spending as a percentage of GDP is at its lowest level since 1948-1949;
• the provincial share of government revenues is higher in Canada than in other federations;
• the provincial governments have access to the four main tax bases and have a monopoly over natural resource royalties;
• the provincial governments set their own tax rates, a degree of fiscal autonomy rarely seen in other federations;
• own-source revenues as a portion of total provincial revenues are very high in comparison both with past practice in Canada and with what exists in other federations;
• federal transfers are barely conditional in Canada and are less so than in the past;
• the federal spending power is recognized in our case law, as well as in the case law and the constitution of other federations, and the conditions attached to the Canada Health Act are fully compatible with the legal framework;
• Canadians, including Quebecers, are right in wanting to maintain a federal role in the health field.

Having demonstrated that there is no fiscal imbalance, the Minister commented on the current debate on this issue. He said he finds it normal for Canadians, including political parties that believe in Canadian unity, to have different views on how budget surpluses ought to be used. What is abnormal, he stated, is for some people to try to use this debate to justify secession: "When the Premier of Quebec, Mr. Landry, depicts the Séguin report as ‘a powerful educational tool for sovereignty,’ what he is saying is disconnected from reality: countries do not break up over budget surpluses." Mr. Dion also deplored the fact that this debate seems to follow a certain logic whereby everything is the feds’ fault. "It is too easy to blame the federal government all the time," Mr. Dion stated, pointing out that Mr. Landry’s government must be held accountable for its choices: this government taxes and spends much more on average than the other provincial governments, whereas it receives more than its share of federal transfers.

Mr. Dion also explained why a provincial referendum, on federal tax point transfers or on the GST, would be an utter waste of taxpayers’ money. "The federal government would be obliged to declare that it would not be bound by the results, for as soon as it declared itself bound to act on the results of a referendum in one province, it would have to acknowledge the same obligation in the case of other possible referenda in other provinces. [...] No federation could govern itself in such a fashion," he reiterated.

Minister Dion concluded his speech by calling on governments to help each other out: "There is no fiscal imbalance, but there is an obligation for the governments of our federation to help each other out, while respecting the role of each, and within a permanent framework of necessary budgetary prudence."

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For information :
André Lamarre
Special Assistant
Tel: (613) 943-1838
Fax: (613) 943-5553