Proceedings of the Standing Senate Committee on
National Finance

Issue 7 - Evidence

OTTAWA, Wednesday, April 28, 2004

The Standing Senate Committee on National Finance met this day at 6:15 p.m. to examine the Main Estimates for the fiscal year ending March 31, 2005.

Senator Lowell Murray ( Chairman ) in the Chair.

[ English ]

The Chairman: Honourable senators, we resume our consideration of the equalization program within the context of the reference to us of the Main Estimates for the fiscal year 2004-05.

Recently, we heard from Professor Tom Courchene of Queen's University, who has written widely on the subject of equalization. In particular, he brought to our attention a problem affecting the Province of Saskatchewan, a problem about which he wrote an interesting piece for the Institute of Research on Public Policy. The article was entitled ``Confiscatory Equalization: The Intriguing Case of Saskatchewan's Vanishing Energy Revenues.''

We had an opportunity to discuss that article with Professor Courchene. Tonight, we have the pleasure of welcoming to the committee the Minister of Finance of Saskatchewan, the Hon. Harry Van Mulligen, who is accompanied by Mr. Ron Styles, his deputy minister. You will have an opportunity to further explore not just Professor Courchene's analysis of the particular problem facing Saskatchewan with regard to energy revenues, but the policy of Saskatchewan on equalization in general.

Mr. Van Mulligen has been a member of the Saskatchewan legislature since 1986 and has served as Minister of Finance, Government House Leader and Minister Responsible for SaskEnergy since 2003. Prior to that, he has been Minister of Social Services, Minister Responsible for Disability Issues, Minister Responsible for Seniors, and, of interest to this committee, Chair of the Public Accounts Committee of the Legislature of Saskatchewan and of the Crown Corporations Committee.

Mr. Van Mulligen has a brief opening statement to make, after which I will open the floor to comments and questions.

Minister, welcome.

Hon. Harry Van Mulligen, Minister of Finance, Government of Saskatchewan: Before I proceed, I also want to draw to your attention the presence of another elected member from Saskatchewan, Mr. Ken Krawetz. He is the Member of the Legislative Assembly for the constituency of Canora-Pelly. He is the Deputy Leader of the Saskatchewan Party, which is the official opposition. He also serves as the Finance critic. His presence here today reflects both the exigencies of our legislature, but also the fact that the issue of equalization has been debated by the members of the Legislative Assembly and it is fair to say that there is agreement on their part as to a Saskatchewan position.

I want to thank you today for the opportunity to appear before you to discuss Saskatchewan's views and concerns on the equalization program. As Saskatchewan's finance minister, I also want to thank the committee for convening these hearings and recognize your work in national finance, and the equalization program in particular.

In 2002, your committee recommended a number of changes to the equalization program in your report entitled ``The Effectiveness of and Possible Improvements to the Present Equalization Policy.'' Your recommendations included restoring the 10-province standard and changing the generic solution so as to shelter a portion of a province's non-renewable natural resource revenues. Those changes, had they been adopted, would have addressed the inequities in the current program and the concerns of Saskatchewan and the other provinces.

I would like to start by extending my thanks to the federal government for the recent $120-million payment to compensate for the excessive Crown lease revenue clawbacks we experienced over the last few years. While I am grateful for that recognition, we are still not fully compensated for all the clawbacks on our oil and gas revenues in excess of 100 per cent over the last several years. This is the result of unfair and confiscatory penalties on our oil and gas royalties.

Equalization is an important program, operating on sound principles and valid ideals. Our concern is not with the program concept, but rather with its implementation and certain aspects that we feel penalize Saskatchewan unfairly.

Equalization's constitutional mandate is ``to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.'' Reasonably comparable levels of public services; this is the constitutional language that defines this program.

Now, as are most other provinces, we are struggling to fund essential services under shrinking entitlements and inadequate federal funding. I join with the other provinces in asking the federal government to change its practices and policies and reconsider the changes required to resolve the inequities in the equalization program.

We have prepared a written brief with background and technical information on the equalization issue and how it affects Saskatchewan. That paper has been distributed to each of you and forms the basis for my comments today.

Saskatchewan's energy wealth, combined with Alberta's exclusion from the standard, means that we experience clawbacks on our oil and gas resource revenues at rates that often exceed 100 per cent. We lose because we are not quite a have province. We lose because we face high equalization losses due to resource activity.

A province's resources should be a powerful economic engine contributing to natural growth and prosperity, yet our ability to fund essential public services is hampered by excessive tax-back rates on our oil and gas revenues. A number of academics, as well as some members of the media, have already pointed out that this creates a disincentive for economic growth. If you consider that in 2000-01, the tax-back rates on our energy revenues exceeded 100 per cent, we would have been better off from an equalization perspective to have shut down the oil and gas industry. However, we would, of course, never act on this type of disincentive, as our goal is growth and prosperity, not unfairly impeding a growing, viable industry.

Currently, Saskatchewan is the fourth wealthiest province in Canada under the equalization formula. Our goal is to be a have province, and we work continuously toward that standing. However, we want to achieve that status through economic growth and we cannot accomplish this through an inequitable equalization program.

Professor Courchene pointed out in his report on confiscatory equalization that Saskatchewan has been subject to clawbacks that exceed our resource revenues. His work shows that at times, for every revenue dollar produced through oil and gas, we have been penalized, on average, by 108 per cent through clawbacks. As to some particular tax bases in that year, Professor Courchene shows in his report that Saskatchewan faced a 235 per cent tax-back rate on Crown leases and a further 137 per cent on domestically sold natural gas. On total 2000-01 oil and gas revenues amounting to $1.04 billion, the clawback was $1.13 billion.

In addition, I want to draw attention to the fact that these clawbacks do not take into account the administrative and regulatory costs incurred by the government in facilitating development of the oil and gas sector. Professor Courchene noted this in his presentation to you last week.

The tax-back issue is not a new one for Saskatchewan. We have pursued changes to the equalization formula for a number of years, going back to 1982 when the 10-province standard was abandoned in favour of the current formula. Despite some improvements, further changes are necessary.

I also want to speak about the mining tax base. During the 1999 renewal, the program created a new inequity by combining four separate mining bases, which are potash, coal, asbestos and other minerals, into a single mining tax base. This change established a new measurement for fiscal capacity based on net profits from all mining activities. The problem with this measurement is that it does not reflect the true taxing practices of the provinces. Rather, it uses a number of data sources and applies a series of assumptions to estimate mining profits. These assumptions and estimates suggest that Saskatchewan's share of the national mining tax base exceeded 50 per cent at the time of the 2002 adjustment. In reality, the value of our production was about 13 per cent of the national total. The formula overstates our ability to raise money in revenues while at the same time some provinces with mining tax revenues are excluded from the tax base. The formula does not work.

Initially, it was estimated that Saskatchewan's equalization entitlements would increase as a result of the changes. However, this calculation resulted in an unexpected and significant decline in transfers to Saskatchewan. In October 2002, Saskatchewan faced a $300-million clawback on entitlements under the proposed new base for all years open to revision. Although retroactive adjustments were made, our province expects to continue to lose approximately $40 million to $50 million per year in the future if changes are not made.

During the current renewal discussion, Saskatchewan requested a return to the previous mining tax base. This change would have provided a more predictable and accurate measure of relative fiscal capacity. To date, the federal government has refused this request.

Equalization is a simple idea made complex through a funding calculation that does not treat all jurisdictions equally. It is changes to this formula that we want considered. The current calculation includes only five provinces and excludes Alberta, the province richest in natural energy resources. This also has had a detrimental effect on equalization entitlement for Saskatchewan.

There are two major concerns regarding the five-province standard. First, the entitlements are far too dependent on the economic performance of just two provinces — Ontario and Quebec.

Second is the Alberta factor. By excluding Alberta's oil and gas revenues from the funding formula, Saskatchewan is penalized unfairly for its oil and gas resources. Including Alberta raises the average, resulting in a more appropriate comparison of Saskatchewan's resources with those of other provinces and increasing entitlements.

The Atlantic provinces have the benefit of a special agreement. Saskatchewan, as a jurisdiction with abundant oil and gas resources, is asking for the same treatment.

The short-term solutions we are seeking that will help alleviate some of the inequities in the equalization program are an immediate fix to the mining tax base, a further compensation payment of at least $180 million to cover the excessive clawbacks on oil and gas revenues we encountered in the past, and an equitable solution to the future treatment of oil and gas revenues. We want the same 70 per cent solution offered in the Atlantic accord applied to all jurisdictions.

In the long term, we must fix the funding formula by returning to the 10-province standard and reducing the clawback rates on our oil and gas revenues to a more reasonable level.

We are asking for simple solutions that can be implemented easily and that ensure that the constitutional mandate for the equalization program endures. In the end, this is not just a discussion about equalization; this is a discussion about Canadian public services — health care, education — and the ability of everyone in this great country, no matter where they live, to access these essential services without concern for their ability to pay for them.

It is about Canadian identity and our ability and willingness as governments to provide those public services that are our moral obligations to every Canadian. These are nationally enshrined programs whose costs are increasingly shouldered by the provinces. We are struggling to sustain these services and it is time for the federal government to work toward meaningful, sustainable funding solutions.

The opportunity to address the inequities in the equalization program during the 2004 renewal is quickly fading. The time to act is now. We can still make the needed changes.

I might say that it is vitally important that a program designed to bring equity and balance to all Canadian citizens not be administered inequitably. That is what we are experiencing now and that is what we need to change.

The Chairman: Thank you, minister.

Senator Oliver: Minister, you raised several issues that I would like to discuss with you in a lot more detail. Perhaps I will confine myself to two. In the course of your discussion you referred to the provision of the Constitution Act of 1982 that uses the word ``reasonable'' in two places. Given language like that, and given these differences, how can we possibly talk about having uniform standards across Canada? For instance, the language talks about providing reasonably comparable levels of public services at reasonably comparable levels of taxation. ``Reasonably comparable levels of public services'' will not be the same from one province to another. Is that language not really the essence of the problem that you are addressing today?

My second question relates to what you would like to return to. You said you would like to go back to the 10- province standard of 1982 and have national standards, but you did not really talk about what you would like to see today, in 2004, by way of this national standard being applied.

Could you address those two points for me?

Mr. Van Mulligen: What you are doing, senator, with your question, is pointing to the challenge that we face as Canadians.

I have a great deal of confidence in our ability as Canadians, as people from coast to coast to coast, to engage in discussions, if we are clear on the objectives, to find solutions to the issues that challenge us in a fair and equitable way.

I see evidence in other ways that the provinces have worked with the federal government, where we have agreed on certain objectives and recognized differences among us, to move forward together in support of those objectives. I have every confidence that if we turn our attention to this matter we can do that. We should do that.

We have now in Canada this equalization program that, as you say, is intended to ensure that all provinces have the resources to provide a reasonable level of public services — that is the language — at a reasonable level of taxation. I am confident that this can be done. However, this is a challenge when you have an equalization program that drops in one year, because of the nature of the program, and there are now fewer resources available to the jurisdictions that receive equalization payments. Therefore, this makes it more difficult for them to provide these services at the same time that the costs are increasing, especially in the area of health care, where they are increasing significantly.

Again, if all of the parties — the federal government, the provinces — are agreed that this is the objective that must be achieved, then that if we sit down and work at it, we can do that. I am encouraged by the fact that this Senate committee would undertake to hold hearings into and to study this issue and make recommendations to the government, and also to further inform Canadians about this important program that is part of, I think Professor Courchene said, the glue that holds this country together, with which I agree.

As to the 10-province standard, we think it would be as effective today as it was in the past. It is a good and appropriate standard. I know concerns have been raised about the volatility of resource revenues in Alberta, but when you look at it, I think that in many ways these things would balance one another. We note that because of economic activity in Ontario last year, equalization entitlements have gone down, but at the same time, resource revenues have been increasing in Alberta. These things would balance each other out at the end of the day.

We agree with the other provinces that are the recipients of equalization that the 10-province standard, at the end of the day, is the appropriate one.

Senator Oliver: You mentioned you would like to have an accord like the Atlantic offshore accord. What were the arguments against that, since you obviously have raised it with the Minister of Finance and the premiers?

Mr. Van Mulligen: We see the Atlantic accords and a similar accord for Saskatchewan as a temporary solution until there can be a 10-province standard. The argument raised or the point made is that the accords were made with the Atlantic provinces in question to recognize the great additional cost that they experience in bringing those resources on stream, if you like, and into production.

We make the point that getting oil or gas out of the ground in Saskatchewan can also be very challenging and expensive. I met the other day with a company —

Senator Oliver: As it is in Alberta from the tar sands?

Mr. Van Mulligen: Yes. We met yesterday with a company that is pursuing a project to inject carbon dioxide into the ground and in this way raise up oil that cannot now be accessed. However, to purchase the carbon dioxide, ship it some hundreds of kilometres and inject it means additional costs for this company and reduced royalties that we can exact. Therefore, there are costs to Saskatchewan, too, of developing these resources.

We think that it is appropriate.

We also point out that it is not really appropriate to talk of a five-province standard in which we do not meet certain criteria when next door we have the largest producer of resources, who should somehow be discounted.

Senator Ringuette: I am looking at page 3 of your presentation. I see that you have a table here, and I guess that is where you get your figure for the clawback as being greater than 100 per cent. However, I look at the item, exported natural gas, where you had, as your revenue, $19 million in terms of equalization entitlement and you did not put in the percentage.

I guess that that would reduce the 108 per cent in your calculation. Would it?

Mr. Van Mulligen: These numbers are provided to us by Dr. Courchene. We are assured that lack of a number in the average tax-back rate on exported natural gas nevertheless forms part of the 108 per cent total.

Senator Ringuette: I will go back to my desk tonight and work on the numbers just to double check.

You indicate sales of Crown leases on table 1; can you give me an indication of how those work?

Mr. Van Mulligen: As I understand it, from time to time, we put them out into the market. We indicate to the industry that we have leases that companies can purchase for the right to drill for oil and gas on Crown-owned land. We have an auction. That auction provides us with a certain level of revenues.

The concern is that the federal government decided not to take the proceeds that we realize from an auction into account, but rather their estimate of what an auction should bring. I think they are finally convinced that an auction place is about as authentic a marketplace as you can get to determine the value of something. This is the base that they have looked at, and they have agreed that the clawback was excessive and have compensated us to the extent of $120 million.

Senator Ringuette: I am interested in this item and how the process works. Looking at the table again, if your revenues are $61.5 million and the equalization entitlement is reduced by $145 million, that would bring you down to roughly $80 million, but on the other hand, you are saying that you received $120 million. There is another $40 million there. Can you tell me what it was for?

Mr. Van Mulligen: The chart shows that we received revenues of $61 million and were clawed back $145 million, and the difference would be some $80 million. This forms part of the compensation payment that they provided to us. There was excessive, punitive tax-back over the period of three years with respect to this, which forms the basis of the federal government's $120-million compensation payment to Saskatchewan.

Senator Ringuette: As I said earlier, there is roughly a discrepancy of $40 million in these numbers, in what the Minister of Finance has allotted you in retrospect. Can you indicate where that $40 million would be accounted for in regard to the equalization payments?

Mr. Van Mulligen: Again, we see the difference as being $80 million. We do not understand the $40-million figure.

The revenue that we received as a province was $61 million. The federal government said that the revenues that we should have received should have been $145 million. Therefore, the difference is what the federal government is compensating us for.

Senator Ringuette: The bottom line is that there is still $40 million for which I do not see any kind of accounting.

Mr. Van Mulligen: I am sorry. The additional $40 million pertains to other years. This particular table pertains to one year, 2000-01, but when the federal government looked at this, they also found there were other years in which this had occurred, although not to this extent, and all totalled, it came to $120 million.

Senator Ringuette: I guess that you do not conduct sales of Crown leases on an auction basis at regular intervals.

Mr. Van Mulligen: Yes, we do. Four times a year, we have an auction for these leases, and oil and gas companies purchase them. The federal government now recognizes that the actual revenue that is raised by that is a more accurate reflection of the value of those leases, as opposed to trying to estimate what that value should be.

Senator Ringuette: That anomaly has been corrected and understood.

Mr. Van Mulligen: To some extent, yes.

Senator Ringuette: You mentioned that the formula is complex and does not treat provinces equally. How would you modify the formula so that all the provinces would be treated equally?

Mr. Van Mulligen: That is a very good question. We believe that a return to the 10-province standard would be the best solution. We also agree with the Senate committee report from 2002 that the generic solution should be changed so as to shelter a portion of a province's non-renewable natural resource revenues. We think the Senate committee was essentially, substantially correct.

Senator Ringuette: It is my understanding that you do benefit from the generic solution in the formula.

Mr. Van Mulligen: There is one base, called old oil, which is oil that is very expensive to produce. The wells are marginal operations, and in those cases an adjustment is made.

Senator Ringuette: However, I would tend to believe that the companies making the investment in exploration would take the cost of that into account in the first 10 years or 20 years of that exploration, and therefore you would receive less income on a net basis.

Mr. Van Mulligen: Yes. They have upfront costs, as you say, for their capital, and they depreciate that over a period of time, but also the wells run out over a period of time. It is almost a given that by the time a well starts to produce, it is losing its capacity.

Senator Ringuette: You mentioned something that is troubling to me. You said that in the $120 million given back to your government, your administrative costs were not taken into consideration. Is it normal for the provinces to be allotted refunds for their administrative costs?

Mr. Van Mulligen: No. I am making the point that we, too, have costs in terms of bringing oil and gas into production and that there is no allowance made for that. If you have a 10-province standard, or if you have a 70 per cent solution as vis-à-vis the Atlantic provinces, then at least there is some allowance for your costs. In our case, there is none. We have our own costs in bringing oil into production in Saskatchewan. We also have staff in our industry and resources and environment departments. We also have municipalities investing in infrastructure to support oil and gas development. Professor Courchene has said that there should be some allowance made for the costs that provinces incur with respect to equalization or delivery of programs.

I am not sure that you can ever find a just and proper solution to those kinds of challenges. Natural resources are depleting resources. These are resources that may no longer be available to us in 20 years' time. You have a situation where 100 per cent of the value of production, or nearly 100 per cent of the royalties we receive, is then clawed back by Ottawa, although we do have costs in bringing those resources on.

Those resources are depleting so there is something wrong with that picture.

Senator Ringuette: Would you say that the federal government would also incur costs in that kind of exploitation?

Mr. Van Mulligen: To some extent, they probably do. I would venture to say they are not like the costs incurred by Saskatchewan.

The Chairman: We will leave it at that, for the moment, senator.

Senator Banks: All non-renewable resources, in whatever province, will one day deplete or become increasingly more expensive to recover, as in the example you gave.

I hope that you will go back and tell some of the oil folks, if they do not already know, that there are better ways to get carbon dioxide to pump into wells than buying it. They might be expensive in the first instance but less expense over the long term because much of it just goes away. Another committee on which I sit is trying to convince individuals and industries of that fact, and that the sequestering and use of carbon dioxide is industrially valuable.

I remember doing the report, and the then Minister of Finance, Mr. Martin, came before us. We asked him to explain in simple terms the equalization formula. Mr. Martin looked up and said that there was a gentleman here about 20 years ago who understood it but he died. It is that complicated. I am not sure that anybody actually understands it.

Do you remember what the result would have been had the reports of this committee with respect to changing equalization been acted upon? What would have been the net effect on Saskatchewan? I ask the question because my recollection is that it might not have been all that wonderful.

The Chairman: The minister will answer the question. We used some retrospective tables when doing that work, showing what the total payment to each of the provinces would have been, for example, as between the five-province standard and all revenue sources; and then the five-province standard excluding non-renewable resources, in which case the biggest winner would have been Saskatchewan. Just about everybody else would have been very big losers. We walked away from that one. We also looked at the cumulative effect over a period of years of a 10-province standard, from which everyone would emerge winners. Saskatchewan, from 1994-95 to 2001-02, would have been about $1.1 billion better off. I do not think we looked forward because that did not seem practical at the time.

Senator Banks: Looking forward is not a good idea because, as the minister has said, there is great volatility in resource revenues of all kinds for everybody. They happen to be up in some commodities at the moment but they also sometimes go down.

I want to mention for the record that oil was first discovered in Alberta down in Turner Valley and Black Diamond around 1905. The real bonanza did not occur until the late 1940s, when Leduc and Redwater were found.

From 1948, when that gigantic discovery was made at Leduc, it took 16 years for Alberta to become a have province. In the ensuing time, up until 1964, Alberta was a recipient of equalization payments. These things take time.

Would you reflect, minister, on my perception that the necessity of special arrangements with Nova Scotia and Newfoundland and Labrador was largely because those resources, which are offshore in both cases, absent such an agreement and or even contemplated in such an agreement, actually belonged to the Government of Canada and not to the provinces, whereas the resources in the ground in Saskatchewan and Alberta belong to the provinces, period? Therefore, it was not necessary to have a special agreement because there was no question about who owned what. Have you taken that into account in your representation?

Mr. Van Mulligen: No, I have not taken that into account. I do take into account the fact that there seems to be some recognition of the fact that some resources are normally attributed to Newfoundland and Labrador and Nova Scotia. The federal government sees fit to make some special arrangement with those provinces to recognize that. We think that is appropriate under the circumstances, especially given the interplay between our resources and Alberta's resources and the comparison of the two. The fact that we have now moved to this five-province standard seems to penalize us to a great extent.

We are so concerned because these resources belong to the people of Saskatchewan. Although we do not take the position that under equalization some of these resources should not be shared with all of the people of Canada, we are concerned that all those resources, dollar-for-dollar, are being shared with other Canadians. At times, we find that we are losing more than one dollar for every dollar that we gain from those resources. Thus, there is something wrong with this program and it needs to be fixed.

Senator Banks: Have you done an A versus B comparison between the rate and the extent to which your resource revenues are clawed back — if that is the right word — or balanced off with reductions in equalization payments on the one hand, and the same kind of clawbacks that occur in the Maritime provinces and Newfoundland and Labrador? They have also made the same argument that you make to this committee. You have suggested that you would like that kind of arrangement. Is it different in some significant way?

Mr. Van Mulligen: No. Those agreements are complex, but at the end of the day their principle is such that we should be able to retain 30 per cent of the value of the royalties that we receive for our oil and gas and the remaining 70 per cent should be available to be taken into account in terms of equalization. That is the principle.

In quantum terms, with respect to a Saskatchewan average, it would mean approximately $100 million per year, as far as we are able to estimate.

Senator Banks: Would it be more than you currently receive?

Mr. Van Mulligen: Yes.

Senator Biron: Minister, you have answered my question. You would gain about $100 million per year with the 10- province equalization standard.

Mr. Van Mulligen: If there were a 10-province standard, Saskatchewan would stand to gain about $275 million per year.

Senator Biron: You would gain that amount.

Mr. Van Mulligen: Yes. If there were an arrangement for Saskatchewan to treat its resources in the same way that resources are attributed to Newfoundland and Labrador and Nova Scotia, we would stand to gain approximately $100 million per year. We have always argued for a return to the 10-province standard, but as an interim solution outside the equalization program, we would certainly consider and would welcome an accord similar to those that have been reached with the Atlantic Provinces.

Senator Biron: In 2003, the provincial finance ministers called on the federal government to move back to the 10- province standard that existed until 1982.

What would be, in your opinion, the potential advantages or disadvantages of moving to a 10-province equalization standard for the Canadian federation?

Mr. Van Mulligen: I cannot speak for all of the other provinces, but I can make some observations with respect to Saskatchewan. In Saskatchewan, we live between two provinces: One province, Manitoba is estimated to receive in the area of $1.4 billion in equalization this year. We are projected to receive approximately $400 million in equalization payments. That may change, again depending on the resource revenues that we generate this year.

On the other side, we have the Province of Alberta. That province is extremely wealthy in resource revenues and has been able to use those revenues to significantly lower taxation for its citizens and for industries. This raises issues for us, as Alberta is a more attractive place to live.

Saskatchewan has advantages upon which we work, especially our reliance on Crown corporations to provide utilities. Nevertheless, we are concerned by the trend that we see. We see Alberta now in a position to essentially eliminate their debt in a few years' time, which will again provide them with greater flexibility. We have also seen them being able to use the revenues generated from oil and gas to significantly diversify their economy. All of this puts great pressure on Saskatchewan.

Can we provide the services, whether it is health or education services, and opportunities for our young people to the same level and extent as the Government of Alberta? Can we do that at a reasonably comparable level of taxation? We fear that this will be a challenge in the future.

For example, the Minister of Finance from Prince Edward Island expresses the same concerns in his testimony. He also talks about people moving from some regions of the country that are hard-pressed to provide those services. People are moving from those regions to other regions of the country. It raises questions about whether that is the country we want.

My vision is that this is a country where opportunities for young people are the same, no matter where. No matter if an education is provided in Prince Edward Island or in Newfoundland, that education is similar. A high quality of education in all respects should be provided in all parts of the country. Health services should be the same. All the important public services should be more or less equal.

That is my vision. A return to the 10-province standard would give greater hope to the governments in those jurisdictions of being able to provide those services.

It also maintains an important role for the provinces in our vision of this country as a federation. It begins to limit the changes that we are seeing. Again, I think Professor Courchene talked about provinces being hard-pressed to provide these public services such as health care because of rapidly increasing costs. The federal government has surpluses and is now making approaches in other areas that are within provincial jurisdiction. Therefore, in a way, the federal government is beginning to limit the responsibilities and roles of the provinces.

There are other ways to accomplish national goals. We have seen that with respect to the child tax credit in this country and in the area of early childhood development. There was an agreement between the federal government and the provinces.

Those are wonderful ways for the federal government and the provinces to work together to achieve national goals. At the end of the day, again, equalization is an important part of ensuring that all the provinces have the resources to provide a similar level of services at a similar level of taxation.

It was important enough to include in the Constitution. If it were important enough to do that, then it is important enough for all of us to fight for that. I want to recognize and thank the Senate committee for the excellent work that it has done in this regard.

Senator Biron: Thank you.

[ Translation ]

Senator Ferretti Barth: Minister Van Mulligen, I am hearing more and more that provinces have considerable problems with respect to equalization. I would like to know if you agree with this; should federal equalization programs be transferred to make sure that the provinces manage these programs themselves? Do you think this is feasible, or not? Or do you prefer to return to the ten-province standard system?

[ English ]

Mr. Van Mulligen: We instinctively prefer the 10-province standard. We know how the 10-province standard has operated in the past. Our analysis of a 10-province standard, at this point, suggests that it would be effective.

I know that others have raised questions about whether there are better ways in which to approach equalization than this horribly complex system that we have with all kinds of different bases and analyses. I think that Senator Banks said that you could not explain equalization in simple terms. I agree that is an oxymoron.

Are there more effective ways? Is there an outcome that we could measure?

There may well be, but this is the system we have. We know the 10-province standard. We know roughly how it works. All of the provinces that receive equalization have proposed to the federal government that they return to this standard.

[ Translation ]

Senator Ferretti Barth: There is perhaps another solution that provinces have put on the table, that of having the federal government pay down the debt in exchange for the elimination of transfers. What do you think of that?

[ English ]

Mr. Van Mulligen: Yes. I read an article during the last week or two by Mr. Holle of the Frontier Centre for Public Policy in Winnipeg. He made the suggestion that if the federal government were to absorb some of the debt of some of the provinces, it would give them an ongoing flexibility to meet the needs of their programs and encourage them to pursue their public policy objectives. It is something that we would want to study further, but I find it an intriguing proposal.

The provinces that receive equalization are all agreed that the 10-province standard would meet their needs.

[ Translation ]

Senator Ferretti Barth: I listen to the ministers of Finance who come here and they all say that there are problems with equalization. I wonder if a meeting with all the ministers of Finance could take place to pinpoint a common factor that would resolve this problem?

In his study, Mr. Courchene pointed out that Saskatchewan's entitlement to non-energy equalization is increasing at a much faster rate than that of all other receiving provinces. According to him, it is a sign that Saskatchewan is becoming poorer. Is this true? Is it that serious? Are you penniless when you are perhaps the wealthiest province?

[ English ]

Mr. Van Mulligen: No, I think what Professor Courchene is saying is that if equalization were taken out of the mix, Saskatchewan would be greatly impoverished. If we did not have the oil and gas revenues, we would be significantly challenged to deliver our programs and services.

Again, this is our great frustration. This is our one opportunity to use these resources that were given to us — in addition to great tracts of land and drought and BSE and all these issues — to create something special in this part of Canada, this part of the world, and to do that on a sustainable basis and hopefully build an economy that, over time, will support its citizens.

That these resources would be taxed back under this program at this rate makes us fear that we will have lost this wonderful opportunity that we have in Saskatchewan. I think it is also an opportunity for all Canadians, because if we are strong, it is good for all.

Senator Merchant: First, I would like to welcome my fellow Saskatchewanians here, the minister and Ken Krawetz, both of whom I have known for a long time.

Obviously, if the federal government has reimbursed Saskatchewan, they recognize that there was an inequality in the way that the funds came to us. That is not in dispute. However, are you hopeful? I do not understand where you are in your negotiations now with the federal government. You are here asking for help from us. Where do you stand right now? Are you negotiating with them? Have you formed partnerships, or do you have support from other finance ministers who will also stand up for Saskatchewan? Do you fear that this will not happen? You are here, obviously, for a reason.

Mr. Van Mulligen: There are two essential issues. One is recognition by all parties — the federal government, ourselves, and indeed all Canadians — that when a province is taxed back more than $1 for every $1 it makes in resource royalties, then there is something wrong that needs to be fixed. The federal government agreed. This is the major issue that Professor Courchene pointed out. The federal government agrees; we agree.

The question then is: How much? At this point, the federal government has provided us with a payment of $120 million. Our analysis of the excessive, punitive tax-back, not just with respect to the Crown leases but also domestic natural gas, going back additional years, would suggest that figure should be closer to $300 million. There is a question here of $180 million for previous injury, if you like, that needs to be discussed. There seems to be some willingness on the part of the federal government now to discuss that.

The other question is two issues going forward. One is the mineral tax base that, for the life of us, we cannot understand. How is it that they would say that we have something like 50 per cent of all the mineral production in the country? When we looked at it, we saw 13 per cent of the value of the production. How can they say that we have this? When there are other problems with the program, they say, ``We will correct this and that because we know there are some problems with the formula.'' We think the formula is wrong. That is it another issue.

There is the question of our oil and gas, where we are being taxed back at rates approaching 100 per cent — 90-some per cent — and we think that, too, is excessive.

With respect to those two items, mineral taxation and the oil and gas, we sense — how shall I put this — at least some receptivity on the part of federal officials now to begin talking with Saskatchewan officials to at least establish a framework for a discussion. That follows a meeting between Premier Calvert and the Prime Minister. We are encouraged by that. We would encourage them to make great haste in dealing with those issues.

It was initially suggested that they would be prepared to enter into discussions on those items the next time there was a renewal, but that is five years from now. I am not sure how long our resources will be there to sustain us in Saskatchewan. In looking at some of the projections for oil and gas fields, we are not sure that they will be there for 20 years. We want to take action on these things now.

Therefore, I might say that we are somewhat encouraged by the latest discussions that we have been having on the officials' level following this meeting between the premier and the Prime Minister.

Senator Merchant: In other words, you would like the timing to be shortened, because obviously you would like to deal with these things sooner.

Mr. Van Mulligen: Yes.

Senator Merchant: In the last two or three months, the Saskatchewan public has become aware of this?

Mr. Van Mulligen: Yes.

Senator Merchant: Have you had a campaign to try to make people aware?

Mr. Van Mulligen: Yes.

Senator Merchant: Are you getting some feedback? We do have neighbours, particularly our neighbours in Alberta, and a lot of our people gravitate there. A lot of people go shopping across the border because of the tax situation.

What are the people of Saskatchewan saying to you?

Mr. Van Mulligen: It is mostly anecdotal, but I think it is fair to say that I have seen greater interest in the issue of equalization than I have seen in many years. It is at least in people's minds when they talk about public policy — and they do in Saskatchewan, you know. They are lively and engaged. They like to participate in political discussions, and equalization seems to be part of that now. I think that is good and healthy.

Senator Merchant: I see a lot of editorials in the papers now that I did not see before. People are now aware of it. I think that people will demand of their politicians, both at the provincial and the federal level, that something be done about it.

Mr. Van Mulligen: Yes.

Senator Merchant: I do not know what our per-capita disposable income is in Saskatchewan, but I think that it is a rather poor province. When we have these resources, people expect some results because they can see other provinces nearby where people live differently.

Mr. Van Mulligen: You raise an interesting point. There was a question earlier about whether there was some other way to approach equalization. Maybe there are some basic indices of wealth or ability to pay for services in the various provinces that might be related to personal disposable income. One estimate I have seen suggests that Saskatchewan has the lowest personal disposable income per capita in the country. Well, that tells us something.

Senator Merchant: I wish you all the luck. Keep fighting.

Mr. Van Mulligen: Thank you, senator.

Senator Downe: I have one question. You have indicated that there is provincial support for the 10-province average. Is there support for your request for the 70 per cent sharing on resource revenues with other provinces?

Mr. Van Mulligen: I think that if it was outside equalization and did not affect the other provinces, then yes, there would be.

Senator Downe: I assume you picked the 70 per cent figure because it is already used in the Maritimes?

Mr. Van Mulligen: Yes.

Senator Downe: If you had a chance to negotiate, what do you think would be a fair figure? Would it be 70 or 50/50? Obviously, the lower the figure the more revenue you would receive.

Mr. Van Mulligen: It is hard to say. Again, at the end of the day, we prefer to see a system that provides equity and fairness for all the provinces, in that all the provinces are assisted in having the resources to provide the public services that their citizens need at reasonable levels of taxation.

Senator Downe: You have indicated that 70 per cent would give you $100 million?

Mr. Van Mulligen: Yes.

Senator Downe: Every percentage point below 70 per cent gives you what? Does it change as it goes down?

Mr. Van Mulligen: We do not have that number here, senator.

Senator Downe: That is fine. Thank you.

The Chairman: First, minister, as a ballpark figure, can either you or your deputy minister tell us what percentage of your budget now goes to servicing the provincial debt?

Mr. Van Mulligen: It is in the neighbourhood of 9 per cent to 10 per cent.

The Chairman: The proposal made by one of the think-tanks about a one-off paydown of your provincial debt as a replacement for an equalization program — would you really contemplate that seriously, or did I mishear you?

Mr. Van Mulligen: We find it an intriguing proposition.

The Chairman: To trade a one-off paydown of your debt for the equalization program?

Mr. Van Mulligen: It is something that we certainly would be prepared to look at, but at the end of the day, the equalization program is the one that we know. We know that there are solutions to that. If someone comes along with something that is fairer and more equitable, not just for Saskatchewan but for all the provinces, then I think all the provinces would be interested in considering that.

Our debt payments at this point are in the area of $600 million. If someone were to say to us that you get to keep all your resource revenues and reduce your annual payments or your annual costs by $600 million because we will take over your debt, it would be an attractive notion. Again, it is something that we would want to analyze and study further.

The Chairman: In ballpark figures again, what is the debt as a proportion of your GDP?

Mr. Van Mulligen: It would be about 22 per cent.

The Chairman: Let us talk for a minute about where we are with equalization. The program was due for renewal at the end of March. The predecessor to Minister Ralph Goodale brought in a bill to extend the program for 12 months while they got a new five-year program underway. As soon as we passed that bill, Mr. Goodale brought in his new program, which will be retroactive to April 1. It was tabled as part of the budget implementation bill, right after the budget.

The next thing we hear is that your premier came to Ottawa to meet with Prime Minister Paul Martin and came out of the meeting saying that he had a commitment that the federal government would revisit the equalization payment issue.

The question that you alluded to earlier, as did Senator Merchant, is whether Mr. Martin and Mr. Lorne Calvert understand that we are talking about revisiting this in the context of a program that will start in 2009-10, or whether they are talking about changes to the bill that is now before Parliament, before it passes.

Do you have a clear understanding of what those two first ministers meant?

Mr. Van Mulligen: No, I do not. I do not understand what implications that meeting might have had for the bill that is before Parliament.

My sense, when I read those comments, is that the Prime Minister and the premier agree with respect to a compensation payment for excessive tax-back rates for previous years, but that, in any event, is outside the equalization system, as was the initial $120-million ex gratia payment from Ottawa.

It may well be that they believe that notwithstanding the bill that is now before Parliament, there may be other ways in which we can approach the two essential questions that face us. One is the matter of the mining tax base; the other is the question of the extent to which we are taxed back on our oil and gas revenues. It may well be that they anticipate that some temporary solution might be found until the next renewal of the equalization program so as to not impact the other provinces, because those changes within equalization would certainly have an impact on them. I do not think that was the intent of the federal government, or of Saskatchewan.

The Chairman: That is very interesting and helpful. I do not know if there is anything that we can do as a committee by way of a recommendation along those lines, but let us know.

The two issues that the premier mentioned coming out of the meeting at 24 Sussex were: How the formula had treated the people of Saskatchewan and the province unfairly and how they would seek complete redress for the amounts that had been inappropriately taken over several years.

Later, it was stated that the Saskatchewan government has asked Ottawa for the same deal the Atlantic provinces received, whereby part of their oil revenues are sheltered. Premier Calvert then said he was pleased to report that the Prime Minister would be speaking to Ralph Goodale, the Minister of Finance, and asking him to sit down with provincial finance minister, Harry Van Mulligen, and officials to look again at these two questions.

Has that happened?

Mr. Van Mulligen: The discussions at the officials' level have begun. I believe that there were telephone conversations between the deputy for Saskatchewan and the deputy minister and the ADM in the federal finance department. They have agreed to further meetings to begin to provide some framework for ongoing discussions pursuant to the comments coming from the Prime Minister and the premier.

The Chairman: To complete the record, in another article on April 20, Mr. Goodale is quoted both directly and indirectly in such a way — and he is another Saskatchewan man — as to indicate that for him, what we are talking about is five years down the road.

Let me just give you this. He says: I do take note of the fact that the Prime Minister and the premier have had a discussion about an important topic and they would expect their respective ministers to carry on a constructive dialogue flowing from that conversation.

This is an indirect quote: Goodale has said that equalization could only be reopened if there is significant will to do so among the provinces. I think that is a slight exaggeration, since it is a purely federal program. I think we know that at the federal-provincial finance ministers meeting not too long before the budget, he tabled the program and told you this is it. Is that not so?

Mr. Van Mulligen: I think it is fair to say that in his view, the discussions had reached a point that allowed him to move forward with legislation to put before Parliament.

The Chairman: It also says here: The formula for equalization, which is intended to redistribute revenue to ensure similar levels of public service across Canada, is now set for the next five years. That is also a slight exaggeration, seeing as debate on the bill has not started in the House of Commons, let alone the Senate.

I make the point just in the context of the fact that we may see dissolution of this Parliament and an election this spring, in which case, it will be quite a few months before Parliament has to deal with that bill. If there were changes that could be made that would improve the formula for everybody and solve your particular problems, I think there is time to get it done.

Mr. Van Mulligen: Let me make the following comments: First, I know Minister Goodale. He is my constituent and I am his. He is, in typical fashion, being somewhat cautious when he makes those comments about the program and tries to downplay any expectations.

Having said that, we think that the substantive discussions that we hope to engage in with the federal government will involve solutions outside the equalization program. That would be my thinking on that.

The Chairman: It does not do to have a Minister of Finance who is reckless, and Minister Goodale is anything but that.

Mr. Van Mulligen: I agree.

The Chairman: Nor are you, if I may say so.

Senator Banks: I am from Alberta, so I am not unfamiliar, in a different circumstance, with the idea of the federal government stealing resource money from the provinces. It was a long time ago, it is gone and it is not coming back.

I will ask a rude, politically highly incorrect question, not for the sake of being obstreperous but to get your comments on the record.

Regarding development and exploration, none of us knows the full extent of what might turn up if it is a hot time for exploration in a welcoming situation and resources are found where no one thought they would be. People have found diamonds in the Northwest Territories, where nobody thought there were any, because there was a fertile field upon which to till those particular rows. It is a terrible metaphor — sorry.

We are talking about fairness and treating all provinces the same, namely, fairly and equally. I certainly subscribe to that and would hit the barricades in defence of it. However, no matter how fairly I want my neighbour to be treated, if, after a while, he does not welcome people into his home and does not receive any visitors there, there might be some reason for that. If he were then to complain that nobody comes to do business there, no Fuller Brush man comes to the door, it ceases to be entirely a question of fairness.

Two towns or cities or provinces are in every other respect practically equal, but one, B, let us say, has a very welcoming attitude to exploitation and regards that not as an evil word. However, A has not had as welcoming a situation, environment or attitude for a long time, and continues to have a less welcoming attitude for a long time. Is it then entirely fair to say that one has not been treated fairly with respect to lost opportunities for additional, more assiduous exploration and exploitation?

Mr. Van Mulligen: We are very encouraged by the level of exploration that we are seeing in Saskatchewan. We have made changes to our oil and gas royalty structure over time, most significantly, I believe, in 2002. That has further encouraged exploration. We are seeing new finds of natural gas in the Shackleton area. We have had record drilling levels for gas for five consecutive years now. We are encouraged by the activities of oil companies who, although many oil fields have been depleted in following the normal technology, have developed new technology to see what residual oil there is, whether through horizontal drilling or through CO 2 injections, as a means of raising oil to a level at which it can be accessed. We are encouraged by all of that.

We are also encouraged by growth that we are now seeing again in our potash sector because of changes we have made in our taxation structures there. We are also exploring for diamonds in Saskatchewan.

I appreciate your comment, and I know that is of a point of view that people in Alberta have, that ``If they would only explore more and do more and provide more incentives, Saskatchewan would surely gain all kinds of additional benefit,'' and we are doing that.

However, there is, at the end of the day, an obligation on us to also provide services to our people. We have to tax ourselves to do that. When that taxation reaches a level that causes concern for people in the province, both for individuals and for corporations, we have to take steps to deal with it. We are still concerned about that.

I appreciate what you say, but the fact of the matter is that our economy is doing quite well in many ways. I believe Statistics Canada will be issuing a report today or tomorrow that shows that our economic growth last year was 4.5 per cent, which is double the rate of Alberta.

Senator Banks: Is it not fair to say that that fact, and that record level of drilling and exploration is, to a large degree, attributable to changes that the Government of Saskatchewan has made with respect to its business climate in the last few years?

Mr. Van Mulligen: Perhaps it is to some extent, although the gas drilling levels have been at record levels for five years.

Senator Banks: I meant five years.

Mr. Van Mulligen: I think that the oil and gas industry has been very supportive of Saskatchewan and has been drilling actively. I think the record drilling levels we are seeing over the last couple of years might also be in part attributable to the fact that we have record prices for oil and gas. I believe West Texas Intermediate today is roughly $37 a barrel; natural gas is still high. That is also part of it. When those prices go up, drilling activity goes up.

We like to think that the changes we have made in our royalty structure are a strong signal to the industry that Saskatchewan is a good place to also look for oil and gas.

We continue to work to develop our economy. We are encouraged by what we see. We have our problems, most significantly in the agricultural sector. The growth we had last year was on top of negative growth the year before because of severe drought in Saskatchewan. I know there was a lot of media attention paid to the drought in Alberta, but this also had an impact on Saskatchewan. BSE has also hit us very hard.

Senator Banks: My family farm is in Saskatchewan.

Mr. Van Mulligen: We have huge challenges and issues on the farm. In our cities and in resource areas, we are doing very well. The frustration is that we are doing well.

We do not see the revenues flowing to the provincial coffers that we hoped we might, given the viability and the strength of our economy.

Senator Banks: I congratulate your government on achieving what I think is the best economic performance in the country.

Senator Oliver: I must say, minister, that I have thoroughly enjoyed your presentation tonight. I have learned much and you have been clear in your responses to honourable senators.

I wish to ask a process question. You are here making a presentation before a Senate committee. You have done your lobbying and your premier lobbies and you speak with other premiers, and so forth. You have direct negotiations and you indicated in response to a question from Senator Merchant that you are trying to engage and activate civil society to get them concerned about certain inequities in the formula. Have you given some thought to a better way of doing this? If so, what might that be?

I will give you an example of the kind of thing I was thinking about. It is always difficult for members of either a provincial or a federal legislature to give themselves a raise. People have found that rather, it is better to find some sort of outside agency to make recommendations.

Have you given some consideration like that to this rather arduous process that you go through every year in trying to find ways to improve the equalization formula?

Mr. Van Mulligen: For the record, the members of the legislature in Saskatchewan and the members of cabinet have frozen their salaries. We are not getting a raise.

On the issue that some independent body might provide advice with respect to equalization, I know from the testimony that I have read that this was raised by one of the honourable senators in terms of evaluating the outcomes of equalization. I am attracted to that notion. I am attracted because my life in politics, and before that in government, suggests that when you expend something you should understand what the outcomes are. You should always be asking: Am I achieving the outcomes that I want to achieve?

We spend a significant amount of time in Canada — and again here tonight — talking about this base and that base and the amount of money from this base versus what you were clawed back, and all of these various parts of a formula. We do not talk about whether we are achieving the intended outcome. Are we achieving what the Constitution said we should? That is, to ensure that everybody has the resources to provide those services at reasonable taxation levels.

Should we be looking at defining how that can be measured? I suspect that this will be a difficult process. At the end of the day, Canadians want their governments to work together to provide them some assurance that when money is spent, it is spent to achieve the objective that you set out to achieve. There is something to be said for that. We should look at evaluating what it is we are trying to do. Perhaps some independence might be brought into that to help us.

I hope the federal government does not then misconstrue my comments as a suggestion that we can put off any substantial changes to the equalization program and returning to a 10-province standard.

I agree that it might be valuable to have some such mechanism to give all of us some comfort that what we are trying to achieve, we are achieving.

Senator Oliver: That might be an answer to a question other than the one I was asking. I know that your answer dealt with results. I was wondering about the process.

Mr. Van Mulligen: From the viewpoint that academics comment on the system — notably Professor Courchene, who I think is acknowledged as being as knowledgeable about this subject as anyone in Canada —

Senator Oliver: There is no question about that.

Mr. Van Mulligen: I venture to say that when my officials go to learn about this topic, he would be one of those from whom they would learn. We do have independent voices looking at this program. They raise questions about it. We are here, in a way, to listen to Professor Courchene. He makes very good comments. He is an independent voice. He certainly does not work for us. He was not in any way retained by us to examine this issue. He makes a very compelling case about how Saskatchewan is treated with respect to equalization. However, he also says that the federal government should be returning to a 10-province standard.

Senator Oliver: He also likes the Nova Scotia-Newfoundland offshore accords and so do you — the 70 per cent.

Mr. Van Mulligen: Yes.

The Chairman: Professor Courchene is also a native of Saskatchewan, I should add.

Mr. Van Mulligen: He has lived in Ontario and been active in the community for many years.

Senator Ringuette: I would like to take this opportunity first to set the record straight. In the last five years there have been 48 federal-provincial talks on equalization. I remember well when we were studying the one-year extension bill in February that Minister Goodale met with the ministers of finance, and that after that discussion, he decided to add $175 million to the original proposal before tabling the bill that is now in the other place. That is just to set the record straight.

I would like also to ask a follow-up question concerning the discussion that has been happening around the table here. You said that 9 per cent of your provincial budget is to service your debt; is that correct?

Mr. Van Mulligen: Yes.

Senator Ringuette: What would be the percentage of your budget on the revenue side that would be coming from the federal government, for equalization, education, social services and all of those?

Mr. Van Mulligen: Total federal transfers in our budget this year are approximately 20 per cent.

Senator Ringuette: Is that 20 per cent of your provincial budget?

Mr. Van Mulligen: That is correct. Equalization is 6.1 per cent; but that 6.1 per cent also includes, for our purposes, a $120-million ex gratia payment. The ongoing amount we estimate this year would be something less than that, but again, the equalization is an estimate based on what we think the price of oil and gas will be in the coming fiscal year.

We project that the price of oil, as an example, will fall and will be in the neighbourhood of $26 per barrel. On that basis, we project what kind of equalization entitlement we should have.

Senator Ringuette: The general consumer of energy will be happy if your predictions are right.

Mr. Van Mulligen: We may be wrong on that. We believe that our total equalization payment at the end of the year will probably be about $40 million.

The Chairman: Did you say $40 million?

Mr. Van Mulligen: Yes, that is correct.

The Chairman: What will you get from the CHST in the same year?

Mr. Van Mulligen: About $750 million.

Senator Ringuette: That is a significant amount of money.

Have you accessed on a yearly basis all of the amounts that were allocated to the provinces to upgrade health care with regard to home care and so forth?

Mr. Van Mulligen: I believe that we have. We appreciate the opportunity to work with the federal government to improve health care. We wish that there were more resources available from the federal government to do that, but their priorities, primary care and home care, are the kind that we pursue.

Primary care in particular is, out of necessity in Saskatchewan, something that we have worked hard to implement. We have rural areas that have difficulty in retaining doctors and we find that doctors working in conjunction with registered nurses, nurse practitioners, as part of a team can provide more services to more people. That is a direction in which we want to proceed.

I might say, too, that because of the medicare crisis, we have a tradition in some of our cities of primary care cooperative models being developed. We want to encourage that trend and we appreciate the recognition by the federal government of the importance of moving in that area.

Senator Ringuette: It was mentioned earlier that you engaged in an advertising campaign. Would that be a provincial one, and in addition to the health care advertising campaign that all the provinces participated in?

Mr. Van Mulligen: Yes.

Senator Ringuette: That was an advertising campaign on the equalization issue in your province. Was that before or after you received $120 million?

Mr. Van Mulligen: This would be before we received the $120 million, and I just want to assure you that this has nothing to do with sponsorships. We felt it was important that the public understand the implications of this equalization program, because it is not something in which people had really been engaged. We saw people in the legislative assembly, at the officials' level and some of the media with some knowledge of this issue or appreciation of the problem, but the public was not, as we say, engaged, and we wanted to engage the public and at least make them aware that there was an issue out there. To some extent, we have been successful in doing that. We think it was important to do that.

Senator Ringuette: As a receiving province of the equalization program, how much money did you spend on this advertising program?

Mr. Van Mulligen: The total campaign was $62,000.

Could I say, in response to the senator's comment about how we have had, over the years, 48 meetings to deal with equalization, that we accept this? We think this is part of being Canadian. Other jurisdictions may have challenges of geography and climate that are their curses, and maybe our curse is to be forever having meetings on the Constitution and equalization, but we accept that and think it is necessary. Again, when we have objectives that we agree on, we think that we should put them in the Constitution, and it is very important that we meet to see how we can achieve those objectives.

Senator Ringuette: I wish to follow up on a question from my colleague, Senator Ferretti Barth, who asked you if the equalization program, as an option, were to be administered by the provinces, would that be a more acceptable, fair and equitable process?

Mr. Van Mulligen: That is an interesting and intriguing question. At the end of the day, equalization is about a transfer of resources from the federal government to the provinces to enable them to deliver the programs and services that they must provide to their citizens, and so I guess in a manner of speaking, the provinces do administer that.

I might say that the provinces try wherever we can to find some level of comfort, when we hold discussions about renewal, about respecting each other's points of view and recognizing that one province's gain might be another's loss. Nevertheless we try to respect each other's point of view and to find some level of comfort together in our discussions with the federal government.

Senator Ringuette: I understand that. The question from Senator Ferretti Barth was that given the same amount of money to be transferred from the federal government to the provinces for equalization purposes, would that option — taking into consideration that everyone is trying to look out for their own backyard, which we have to acknowledge is human nature — whereby the federal government would say, ``Listen, we have this amount of money, and since we do not seem able to agree on what we were trying to achieve with the equalization program, we will give it to you and you deal with it,'' be attractive?

Mr. Van Mulligen: That is certainly a challenge, and if that were the challenge then we would rise to the occasion.

The Chairman: I think it is quite academic, senator, frankly. It ain't going to happen any time soon, I would say.

I believe we were not hearing each other well. Perhaps it is my fault and I did not hear you well. The federal Department of Finance has the numbers on CHST. I think you were right when you said $750 million.

Mr. Van Mulligen: Thereabouts.

The Chairman: It is $747 million. CHST seems to be $462 million. I think I heard you say $40 million, or I said $40 million. It is $462 million. I beg your pardon, CHST is $747 million — the time is late — and it is $462 million in equalization.

Mr. Van Mulligen: That is our forecast.

The Chairman: Is that for 2004?

Mr. Van Mulligen: Yes, 2004-05, but the question was about the equalization that we received last year. The final numbers are not in yet, but the forecast is it will be somewhere in the vicinity of $40 million.

Senator Banks: Net of the clawback. Is that what you mean?

Mr. Van Mulligen: That is what we will get, yes, $40 million.

The $120 million that was provided to us as an ex gratia payment is included in the budget for this year, 20004-05, but last year, we received $40 million in equalization from the federal government. By way of contrast, our neighbour, Manitoba, I believe received in excess of $1billion.

Mr. Ron Styles, Deputy Minister, Department of Finance, Government of Saskatchewan: The numbers we are talking about are the cash payments actually received by Saskatchewan. You may be referring to the entitlement numbers.

The Chairman: I am.

Mr. Styles: The entitlement numbers are larger. I believe it was $120 million for last year, if I remember correctly. However, there are a number of adjustments that come into it, so we tend to talk about equalization in terms of the actual dollars received in a particular year. That would be the difference between the Department of Finance numbers and the numbers that we are talking about here.

The Chairman: What adjustments are you talking about? Do you mean the adjustments that are made after the fact for population forecasts, economic growth forecasts and the like?

Mr. Styles: Yes, after four open years, and so your 2003-04 entitlement number is adjusted then for the previous three years.

The Chairman: Let us take that one. This will give us an idea of the problems that finance ministers face. The number for 2003-04 in entitlement was $122 million. You are telling us that what you got was what?

Mr. Styles: Forty million dollars. I would add, as well, there would be subsequent adjustments to the 2003-04 entitlement year. Our fourth quarter was very positive in terms of oil and gas revenues. We are still adding the numbers up, but in the end, you will find that our entitlement will probably drop considerably below $122 million.

The Chairman: Okay. I think we had better do a count of the discrepancy between the entitlement numbers and the actual cash delivered in equalization payments. That can be quite a disagreeable surprise at the beginning of a fiscal year for a provincial minister of finance. Sometimes it is agreeable surprise, is it not?

Mr. Van Mulligen: There are some disagreeable surprises too.

The Chairman: However, sometimes it is agreeable, is it not? Sometimes you get more than you counted on?

Mr. Van Mulligen: Not lately, I am informed.

Senator Oliver: You are doing too well.

The Chairman: Thank you, minister. Thank you, Mr. Styles. This has been a real treat. This has been comprehensive and informative and helpful to the committee.

Honourable senators, next Tuesday morning, we will hear from the Minister of Finance from the Province of Manitoba, the Honourable Gregory Selinger. One week from tonight we will deal with the reference made to us yesterday by the Senate, being the motion to ratify the appointment of Maria Barrados as President of the Public Service Commission. She will be here next Wednesday night. We hope also to hear from one minister to briefly give us an idea of the government's intentions in this matter.

Senator Ringuette: We have been hearing on the equalization issue from provinces that are recipients of payments. Will we hear from provinces that are not recipients?

The Chairman: There are only two. Alberta does not normally participate in parliamentary committees and I am not aware that Ontario has expressed an interest. Have they been invited?

Ms. Line Gravel, Clerk of the Committee: They have been invited.

The Chairman: There is no interest.

I need a motion to request $5,000 from the Internal Economy Committee for professional and other services, being our total budget for the fiscal year 2004-05. The budget is very small and cost-effective. Last year, we spent $1,310 and another $2,700 in the second session.

Senator Oliver: I so move.

Senator Ferretti Barth: I second the motion.

The Chairman: Is it agreed?

Hon. Senators: Agreed.

The committee adjourned.