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Supplementary
Statement to the 2002-2003 Budget
Federal transfers: a $1.8-billion sword of Damocles hanging
over Québec finances
Québec,
March 19, 2002 - In tabling her Supplementary Statement
to the 2002-2003 Budget, Deputy Prime Minister and Minister
of State for the Economy and Finance Pauline Marois took the
opportunity to review recent developments regarding federal
transfers to the provinces. "On account of the change
made by the federal government to the method for calculating
equalization payments and the major error made by Canada Customs
and Revenue Agency (CCRA) in collecting income tax from certain
provinces, Québec could lose more than $1.8 billion.
This is a veritable sword of Damocles hanging over Québec's
finances, which could jeopardize the maintenance of a balanced
budget," Ms. Marois said.
A
cut of $840 million could still be made beginning in 2003-2004
If
the federal government remains determined to change the method
for calculating the property tax base for equalization purposes,
Québec will lose $840 million. "This announcement
raised such an outcry that the federal government decided
to defer the application of the cut until 2003-2004 and proposed
that it be averaged over time. However, the result is still
the same. This cut will be no more acceptable two years from
now than it is today, " the Minister stated.
"For
over 15 years now, Québec has maintained that the only
appropriate way to measure the fiscal capacity of the provinces
with regard to property taxes is to use property values as
measured by municipal property assessment rolls. The federal
government currently uses a complex mathematical formula,
with no relation to real property values, in an effort to
estimate fiscal capacity for the purposes of the property
tax base. It is simply common sense that the solution proposed
by Québec be adopted as soon as possible," Ms.
Marois added.
A
federal error that could be costly for Québec
In
addition, Québec's equalization revenue could be revised
downward substantially because of a major error committed
by CCRA in collecting income tax from the other provinces.
Last January 29, the federal government announced that, since
1972, it had made a significant error in calculating the capital
gains tax of trusts that hold mutual funds. For the period
from 1993 to 1999 alone, overpayments to certain provinces
could reach $3.3 billion. The impact for the period from 1972
to 1992 is still not known. Owing to these overpayments to
the provinces, equalization payments to all provinces that
benefit from the program have been overestimated. Should the
federal government decide to recover these amounts, Québec
would have to repay $825 million for equalization for the
1993-2000 period. The amount could even reach $1 billion once
the data for 1972 to 1992 are known.
According
to Ms. Marois, the solution that would be fairest and in the
public's best interest would be for the federal government
to:
- take
full responsibility for its mistake;
- complete
the assessment of CCRA's error for the 1972-1992 period
to obtain an overall picture of the scope of the error and
its impact on the provinces;
- not
recover the overpayments to the provinces with regard to
personal income tax and equalization for the entire period;
- implement
a compensation mechanism to afford fair treatment for all
the provinces negatively affected by the federal government's
mistake.
This
would involve granting all the provinces a per capita amount
equal to that received by Ontario because of the federal error.
This solution would mean paying $4.4 billion to the provinces
as a whole, $1.6 billion of which would go to Québec.
Ms.
Marois stressed that she has already submitted this proposal
to the federal Minister of Finance and the finance ministers
of the other provinces. She has also requested that the matter
be discussed at the finance ministers' conference to be held
in Newfoundland next April 25 and 26. "The proposal formulated
by Québec is designed to ensure that the federal government,
in rectifying its mistake, does not destabilize the finances
of the provinces and the funding of programs such as health
and education that are a priority for the public. The federal
government has made a major error and it must bear the consequences,"
the Minister declared.
Ms.
Marois also explained that the recent adjustments to federal
transfers are not an isolated phenomenon. In recent years,
there has been significant and growing variation in federal
transfers, primarily equalization payments. "Such instability
considerably complicates the budgetary planning needed for
sound management of the health and education networks and
is truly problematic," Ms. Marois added.
A fiscal imbalance that needs to be corrected
The
Séguin Commission has just published a rigorous analysis
confirming that a major fiscal imbalance exists, to the detriment
of the provinces. "The work of the Séguin Commission
and the forecasts made by the Conference Board of Canada at
the Commission's request clearly show that we are heading
toward a situation where the federal government will post
large surpluses while the governments that deliver services
will be subjected to severe spending pressures, particularly
in the health and social services sector," Ms. Marois
said. The Minister is committed to doing everything possible
to ensure that the federal government changes this unfair
situation.
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Source: Nicole Bastien
Press Officer
Office of the Deputy Prime Minister and
Minister of State for the Economy and Finance
Tel. (418) 643-5270 or (514) 873-5363
www.finances.gouv.qc.ca
Information:
Jacques Duval
Direction des communications
Ministère des Finances
Tel. (418) 691-2252
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