Tuesday, April 25, 1967

spending. This revenue increased greatly over the years because of the recognition by the Federal Government that some Provinces cannot maintain a reasonable level of services without assistance. Next year all Provinces are assured of total revenues at least equal to the national average. This is a rogressive step but fails to recognize our basic claim of fiscal need. We are convinc that the small size of our Province, the large number of the young and the old in proportion to our total population, the high cost of educating youth who leave the Province, the costs of “catching up" to the rest of Canada and many other factors justify special consideration by the

Federal Government. But until this need is fully recognized in Ottawa our revenues will not reach a desirable level.

Should we then, under these conditions and circumstances expect inexhaustible credit? I think not. We are compelled to take a good hard look at our services and level off our spending so that it will be within the capacity of our available resources.

FEDERAL-PROVINCIAL FISCAL RELATIONS

Mr. Speaker, during the past year negotiations were undertaken between the provinces and the Government of Canada on the question of fiscal arrangements for the period beginning April 1, 1967.

At the September Tax Structure Committee meeting the various approaches to federal-provincial fiscal arrangements were discussed at great length in the light of the broad principles which the various governments thought should govern federal- provincial relations generally. The committee also considered in detail proposals con- cerning the use of tax fields by the federal and provincial governments, shared—cost

progragmes and federal equalization payments to the provinces having lower tax capaci .

Our Province approached this meeting with a feeling of optimism in view of the studies of the technical group of the Tax Structure Committee. These studies revealed that provincial-municipal expenditures, because of their main orientation to services to peaple in the area of education, health, and welfare, would grow at a faster rate than present revenue sources available to these governments. It was at this September meeting that the Government of Canada proposed new fiscal arrange- ments to replace those which expire March 31, 1967.

With regard to the sharing of tax fields, the Premiers of all the provinces

exgressed strongly the view that provincial responsibilities required the transfer of so stantially more tax resources to the provinces.

Unfortunately for most of the provinces, the Federal Minister of Finance in- formed the Tax Structure Committee meeting that the Government of Canada was not prepared to allow an unconditional increase of abatement of personal and corporate

ncome taxes for general provincial purposes, as had been provided for the past two fiscal years.

However, the Government of Canada did propose a new equalization formula. The new equalization payments are to be calculated on a broadly-based “prosperity index” for each province. It is long and complicated but here it is in as brief a form as I can possibly make it. The new formula for equalization for the provinces takes into account all sources of provincial revenues, instead of the present three com- ponents. Equalization is calculated se arately for each major source of provincial revenue. For each of these sources, t e per capita equalization is the amount by which its tax base falls short of the national average, multiplied by the average rate of tax imposed by all the provinces. In other words, when the per capita yield from a given tax for all provinces combined exceeds the h thetical per capita yield from that tax to a province, the province receives an equa ization payment.

The most im ortant change in the new equalization proposal is its greater com- prehensiveness. nder the old agreement only the yields to provincial governments from the personal and corporate income tax, the estates tax and adjusted natural resources revenues were equalized to the top two provinces, Ontario and British Columbia. The new proposal equalizes the yields to provincial governments from all tax and other revenues. Thus, the new proposal takes into account 3 poor province's

total financial capacity and makes it possible to provide a level of services closer to the national average level.

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