38th PARLIAMENT, 1st SESSION
EDITED HANSARD • NUMBER 072
CONTENTS
Tuesday, March 22, 2005

Mr. Ed Komarnicki (Souris—Moose Mountain, CPC): Mr. Speaker, I rise to speak on the equalization question. One is drawn to the idea that equalization should have a degree of equity and fairness between all of the provinces. In fact, the terms of reference for the committee that is to be established commits the Government of Canada to the principle of making equalization payments to ensure that the provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation. That is the principle behind that.

We can find inequities that exist between provinces particularly as they relate to Saskatchewan. In that regard, there have been many studies commissioned showing that Saskatchewan has had the bad end of the deal on this one. The formula needs to achieve that and we find that it has had many flaws. Unfortunately, there was no mechanism in the past to check or audit the system to ensure that abnormalities do not take place.

One of the formula reviews is by Professor Thomas J. Courchene called “Confiscatory Equalization: The Intriguing Case of Saskatchewan’s Vanishing Energy Revenues”. It shows that in the early eighties there was a shift from an all-province standard to the present five province standard of British Columbia, Saskatchewan, Manitoba, Ontario and Quebec.

Saskatchewan is a rich energy producing province and was affected mostly by the shift in policy. The professor indicated that in the fiscal year 2000-01 Saskatchewan energy revenues totalled $1.038 billion for $1,000 per capita. However, the province's equalization offset associated with those energy revenues was even larger, $1.126 billion or a tax back rate of 108%.

Over that period the clawback rate of 1999 to 2001 reached as high as 125%. In other words, Saskatchewan lost more than the equalization payment by the fact that oil, a non-renewable resource, was produced. How could this happen particularly with the finance minister holding key positions with the government during those periods of time?

The author stated that this was the trigger for Saskatchewan's descent to the lowest rank in terms of provincial per capita disposable income. As the Saskatchewan revenue minister pointed out, in 2001-02 crown leases were taxed back at a rate of 235.9%. This was unconscionable. Who was minding the store at that time? One has to only wonder why Saskatchewan's highway system has deteriorated as it has and why the waiting lists are so long in Saskatchewan. In fact, people from Saskatchewan may travel to Manitoba to get services because of the long waiting list in Saskatchewan.

The finance minister says that Saskatchewan is a have province. If it is a have province, why is the waiting list so long, why are the highways so poor, why is agriculture on the worst crisis condition that it has ever been in the history of the province?

The estimated income loss projected for 2005 is $486 million and the province, which is struggling, has lost over 10 years $4 billion in clawbacks under the equalization formula. Because this formula taxed back or clawed back over 100%, this meant at least to the extent of Saskatchewan's energy revenues that they were transferred to other provinces through the over 100% clawback.

It is true that the province's GDP provides an indication of the province's take of economic prosperity. From 1998 to 2002 Saskatchewan posted an average GDP of .3% and largely that was due to the crisis in the agricultural sector. At the same time the equalization payments were declining. Saskatchewan has received the lowest per capita equalization transfers of the recipient provinces across Canada. It received the smallest equalization transfers on a per capita basis.

We use Manitoba as an example, and good for Manitoba, but Manitoba received $1,110 per capita of equalization. Saskatchewan on the other hand received $123 to $146 per capita. How can that be? Simply put, this is unconscionable.

In my constituency of Souris—Moose Mountain and part of the sister constituency, the total oil extracted production was 52 million of 153 million barrels of oil, or $2.4 billion of $5.5 billion province-wide. All of that oil that was taken out of the ground was clawed back under the equalization payments. This injustice to Saskatchewan requires at the very least, as a minimum, the same deal Nova Scotia and Newfoundland and Labrador received.

All Saskatchewan wants is to be treated fairly and equitably. When we look at the agreement between the Government of Canada and Nova Scotia, it was negotiated bilaterally and in advance of the expert committee that will be looking at what types of factors should be in or out of the equalization formula.

It is our position that non-renewable resources such as oil and gas should not be in the formula. The finance minister says we should wait until the panel of experts decides. Why should Saskatchewan have to wait for a panel of experts to decide, when Newfoundland and Labrador and Nova Scotia have already achieved an agreement excluding their offshore oil resources from the formula. If we look at the agreement that was entered into, it says:

--the Government of Canada will seek legislative authority from Parliament that will authorize additional payments to provide 100% offset against reductions in Equalization payments resulting from offshore resource revenue.

It goes on to say:

This document reflects an understanding between the Government of Canada and the Government of Nova Scotia that:

Nova Scotia already receives and will continue to receive 100 per cent of offshore resource revenues as if these resources were on land;

There is nothing different between those offshore resources and the resources that we have in Saskatchewan. Not only that, the agreement provides that from 2006 and continuing to 2012:

--the annual offset payments shall be equal to 100 per cent of any reductions in Equalization payments resulting from offshore resource revenues.

The agreement then goes on to provide for subsequent years. It says:

Should the province not qualify for an Equalization payment in any year in the period 2012-13 to 2019-20, the province would receive, in that year, an offset payment equal to two-thirds of the previous year’s offset payment and an offset payment equal to one-third of that previous year’s payment in the following year, should it continue not to qualify for Equalization.

It goes on to say:

If, in the future, the Government of Canada enters into an arrangement with another province or territory concerning offshore petroleum resource revenues, which in Nova Scotia’s view provides, on balance, benefits greater than those contained in this arrangement, Nova Scotia may elect to enter into discussions with the Government of Canada to revise this arrangement.

It is not only saying that those resources will be exempt and for a great number of years but it says if a better agreement is made somewhere else, Nova Scotia will be able to negotiate a better agreement for itself.

We do not mind Nova Scotia having that, but we do say this. If Nova Scotia can achieve that bilaterally before the panel of experts deals with the formula itself, then certainly Saskatchewan is entitled to receive at least the same deal for its resources on a bilateral basis. I think the Premier of Saskatchewan has ever right to call upon this government to do that.

The Minister of Finance, a native of Saskatchewan, has an obligation to the citizens of Saskatchewan and those in particular in Souris—Moose Mountain to ensure that the past injustices done to Saskatchewan are not repeated again. He says that Saskatchewan is on the cusp of being a have province. If it is a have province or on the cusp of being a have province, most of the citizens of Saskatchewan do not realize that.

Let me go through some of the facts that are a reality in Saskatchewan. In the farming community commodity prices have dropped dramatically while input costs such as fertilizers and fuel have risen considerably.

Farmers, even though they diversify, have seen declines of virtually every type of commodity. There are increased costs in freight. There have been a number of difficult production years. There has been drought and frost. Europe is increasing its export enhancement programs. This results in decreases of commodity values globally. Subsidies in the United States protect producers from commodity value declines, contributing to global overproduction, which starts a vicious cycle.

When we look at the increases in the costs to farm producers, purple gasoline has increased in January 2002 from 44¢ a litre to 62¢ a litre. Fertilizer has increased from $553 to $676.

There is a financial crisis in Saskatchewan in the agriculture community and it is having a snowball effect. It is not only affecting farmers, but it is affecting smaller communities that are starting to shut down. It is affecting infrastructure. If one came to Saskatchewan, one would be hard pressed to say that it is a have province.

It is time for the government to negotiate a fair deal with Saskatchewan to ensure its non-renewable resources are used by it to recover from the place it has been put because of the inequities of the past.

Mr. Tom Lukiwski (Regina—Lumsden—Lake Centre, CPC): Mr. Speaker, I would like to comment on one of the things my colleague mentioned in his presentation. Perhaps he could expand upon it.

He talked about what he called the unconscionable practice of the clawback provision taking more away from the province than it made in revenue. For example, Saskatchewan raised over $1 billion in oil and gas revenues a couple of years ago but the clawback provision took more than that away from the province.

It would seem to me that we have a constitutional argument here. We all know that provincial jurisdiction has constitutional powers over ownership of non-renewable natural resources. It is one of the key reasons that non-renewable natural resources should be removed from the equalization formula.

It seems that every other province in Canada is benefiting from Saskatchewan's oil and gas production, except for Saskatchewan itself. We produce the oil and gas but the revenues created from the sale of that oil and gas do not flow to Saskatchewan. They literally flow to every other province in Canada. I cannot see how anyone in the House would consider that to be fair and equitable. That is one of the main reasons we are calling for the removal of non-renewable natural resources from the equalization formula.

I would like the hon. member to comment on whether or not I have it right. Perhaps he has some different views.

Mr. Ed Komarnicki: Mr. Speaker, there is no question that the way the formula was put together Saskatchewan lost on average $1.08 for every $1 of oil it sold. To some degree it was $1.25. In other words, if the oil had been kept in the ground, the province would have been better for it because it lost more money than it made.

Additional funds that were available under the equalization plan went to some other province because of it. In other words, the penalty imposed on Saskatchewan went to other provinces. Saskatchewan should have been the last province supplementing provinces elsewhere that did not need the same equalization as it needed.

The formula is principally wrong. It is not only wrong, but it penalizes Saskatchewan. It is only equitable and right that the finance minister do what he has done already, provide a bilateral agreement with Saskatchewan to ensure that never happens again.

Saskatchewan could use those non-renewable resources to provide jobs, to provide a brisk economy. It could address issues of concern to farmers in Saskatchewan to ensure the contributions to deposit requirements so the farmers would not have to do it. It could address the farm economy and share in the 40%. The province would have some revenue to do that. Young people would be able to stay in our province, to work in our province, to be the sons and daughters on the family farms, which is almost no longer possible because of the crisis we are facing there.

Mr. Ed Komarnicki: Mr. Speaker, there is no question that the equalization issue is to provide equity and fairness and to ensure that the provinces across the country are able to provide reasonably comparable levels of public services at about the same levels of taxation. However, when the Prime Minister of Canada negotiates a deal with one province without regard to the other provinces, that is not an issue of fair treatment. It is just the opposite. When we find a formula that for over 20 years has penalized a province, that has nothing to do with treating provinces fairly or equally. It has a lot to do with not paying attention to what is happening.

What we have to do is put all the provinces on the same basis of fairness and equity. We need to ensure that non-renewable resources are not part of that, so that the provinces can develop themselves and be self-sufficient across the country to provide those same services without equalization payments or subsidies.