Transitions Fiscal and Political Federalism in an Era of Change
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Canada: The State of the Federation 2006/07 Transitions Fiscal and Political Federalism in an Era of Change Edited by John R. Allan Thomas J. Courchene Christian Leuprecht Conference organizers: Sean Conway Peter M. Leslie Christian Leuprecht Institute of Intergovernmental Relations School of Policy Studies, Queen’s University McGill-Queen’s University Press Montreal & Kingston • London • Ithaca SOTF2006/07Prelims 1 9/17/08, 2:32 PM The Institute of Intergovernmental Relations The Institute is the only academic organization in Canada whose mandate is solely to promote research and communication on the challenges facing the federal system. Current research interests include fiscal federalism, health policy, the reform of federal po- litical institutions and the machinery of federal-provincial relations, Canadian federalism and the global economy, and comparative federalism. The Institute pursues these objectives through research conducted by its own staff and other scholars, through its publication program, and through seminars and conferences. The Institute links academics and practitioners of federalism in federal and provincial govern- ments and the private sector. The Institute of Intergovernmental Relations receives ongoing financial support from the J.A. Corry Memorial Endowment Fund, the Royal Bank of Canada Endowment Fund, the Government of Canada, and the governments of Manitoba and Ontario. We are grateful for this support, which enables the Institute to sustain its extensive program of research, publication, and related activities. L’Institut des relations intergouvernementales L’Institut est le seul organisme universitaire canadien à se consacrer exclusivement à la recherche et aux échanges sur les questions du fédéralisme. Les priorités de recherche de l’Institut portent présentement sur le fédéralisme fiscal, la santé, la modification éventuelle des institutions politiques fédérales, les mécanismes de relations fédérales-provinciales, le fédéralisme canadien au regard de l’économie mondiale et le fédéralisme comparatif. L’Institut réalise ses objectifs par le biais de recherches effectuées par son personnel et par des chercheurs de l’Université Queen’s et d’ailleurs, de même que par des congrès et des colloques. L’Institut sert comme lien entre les universitaires, les fonctionnaires fédéraux et provinciaux et le secteur privé. L’Institut des relations intergouvernementales reçoit l’appui financier du J.A. Corry Memorial Endowment Fund, de la Fondation de la Banque Royale du Canada, du gouvernement du Canada et des gouvernements du Manitoba et de l’Ontario. Nous les remercions de cet appui qui permet à l’Institut de poursuivre son vaste programme de recherche et de publication ainsi que ses activités connexes. ISSN 0827-0708 ISBN 978-1-55339-191-3 (bound). ISBN 978-1-55339-189-0 (pbk.) © Copyright 2008 ii SOTF2006/07Prelims 2 9/17/08, 2:32 PM In recognition of his service to the Institute of Intergovernmental Relations and to Queen’s University, this book is dedicated to Sean Conway. iii SOTF2006/07Prelims 3 9/17/08, 2:32 PM The Institute of Intergovernmental Relations would like to acknowledge the support from the following conference sponsors: iv SOTF2006/07Prelims 4 9/17/08, 2:32 PM CONTENTS vii Preface xi Contributors I Introduction 3 1. Introduction and Overview Thomas J. Courchene and John R. Allan II The Politics and Economics of Fiscal Federalism: Setting the Stage 27 2. Fiscal Federalism and the Burden of History Garth Stevenson 53 3. Strengthening Canada’s Territories and Putting Equalization Back on Track: The Report of the Expert Panel on Equalization and Territorial Formula Financing Al O’Brien 65 4. Reconciling the Irreconcilable: Addressing Canada’s Fiscal Imbalance III Equalization: Policy Perspectives 73 5. Equalization: Its Problems and the 2007 Federal Budget Janice MacKinnon 89 6. Natural Resource Revenues and Fiscal Federalism: An Alberta Perspective Paul Boothe IV Equalization: Analytical Perspectives 107 7. Natural Resource Shocks and the Federal System: Boon and Curse? Robin Boadway v SOTF2006/07Prelims 5 9/17/08, 2:32 PM 131 8. Fiscal Balance and Revenue-Sharing Jean-François Tremblay 145 9. Equalization Reform in Canada: Principles and Compromises Joe Ruggeri V Equalization: The Offshore Accords 175 10. Equalization 2007: Natural Resources, the Cap, and the Offset Payment Agreements James P. Feehan 201 11. Changes to Canada’s Major Federal-Provincial Transfer Programs: Implications for the Maritime Provinces Paul A.R. Hobson and L. Wade Locke VI Cities, Local Government, and Federalism 227 12. Rethinking Fiscal Federalism in Canada: A Local Government Perspective Anwar Shah 249 13. Major Cities as a National Priority Anne Golden 263 14. Global Futures for Canada’s Global Cities Thomas J. Courchene VII Federalism and the Spending Power 295 15. Fiscal Federalism and the Future of Canada: Can Section 94 of the Constitution Act, 1867 be an Alternative to the Spending Power? Marc-Antoine Adam 323 16. Employment Insurance and Parental Benefits Gordon DiGiacomo 347 17. Networked Federalism Janice Gross Stein vi SOTF2006/07Prelims 6 9/17/08, 2:32 PM PREFACE This 2006–07 edition of Canada: The State of the Federation, entitled Transi- tions: Fiscal and Political Federalism in an Era of Change, focuses on a series of consequential events and developments that have ushered in new frame- works and new challenges relating to federal-provincial and interprovincial fiscal relations. One of the most important of these was the 2007 budget’s acceptance of the equalization recommendations contained in the report of the federally commissioned Expert Panel on Equalization and Territorial Formula Financing. With the mushrooming of energy prices wreaking havoc with the new equalization program, the jury is still out as to whether this new frame- work will achieve the longevity of its five-province-standard predecessor or whether further transitions will be in order. A second area of change relates to a series of recent proposals for reworking aspects of federal-provincial politi- cal relations: open federalism and the respect for the constitutional distribution of powers; the declaration that the Québécois form a nation within a united Canada; and the Speech from the Throne commitment to circumscribe the role of the spending power. The third transition has to do with the rise of cities as the dynamic, economic and institutional motors of the Information Age. This is part of a more general phenomenon, namely the increasing im- portance of issues that are in the national interest but are under provincial jurisdiction. As this volume is going to press, Compete to Win (the report of the Competition Policy Review Panel) recommends that Canada’s largest ur- ban centres acquire more powers as well as a more stable, secure, and growing revenue source. In the chapters that follow, our distinguished roster of authors wrestle analytically and from a policy perspective with all three of these transitions. A majority of the contributions in this volume originated as papers deliv- ered at the IIGR’s conference “Fiscal Federalism and the Future of Canada” held on 29–30 September 2006. The conference was organized under the guidance of IIGR’s then Director, Sean Conway, with much of the heavy lift- ing left in the able hands of Peter Leslie and Christian Leuprecht. The Institute is pleased to thank the authors, discussants, and session chairs, including Fi- nance Minister James Flaherty, Marc-Antoine Adam, Robin Boadway, Ken Boessenkool, Paul Boothe, Don Drummond, Robert Gagné, Anne Golden, John Honderich, Guy Laforest, Harvey Lazar, Janice MacKinnon, Al O’Brien, vii SOTF2006/07Prelims 7 9/17/08, 2:32 PM Wolfgang Renzsch, Anwar Shaw, Michael Smart, Jennifer Smith, Janice Gross Stein, and Jean-François Tremblay. Special thanks for orchestrating and overseeing the staging of the confer- ence go to the Institute’s staff: Patti Candido and Mary Kennedy ably assisted by April Chang, Eric Leclerc, Reama Khayat, and Ryan Zade. As can often be the case, the march of events since the conference has had important implications for both the Institute and the conference proceedings. In terms of the former, Institute Director Sean Conway, already undertaking the oral history of the Paul Martin government, was seconded to the Office of the Principal at Queen’s. He relinquished his directorship, although he re- mained the IIGR Associate Director (External Relations). I accepted the role of Acting Director of the IIGR and then in May of 2007 I assumed the IIGR directorship for a two-year period. At this point in time John Allan joined the Institute as the operational Associate Director. On the conference front, the adoption of the new equalization formula in the 2007 budget and the rework- ing of the Offshore Accords required a reconsideration of aspects of the fiscal relations component of the proposed volume. Likewise the already-noted open- federalism/Québécois nation/spending power provisions led to reconstituting much of the remainder of the volume. In this regard we thank Anne Golden and Janice Stein for agreeing to submit new papers and we thank our new authors – Garth Stevenson, Joe Ruggeri, Wade Locke and Paul Hobson, James Feehan and Gordon DiGiacomo. Converting a set of papers into a publishable volume is never an easy task. Our Institute staff was, as always, clearly up to the challenge. Mary Kennedy kept track of the multitude of files as well as ensured that the papers were appropriately finalized. Patti Candido not only looked after the financial ac- counts but also coordinated aspects of the conference fundraising. The assistance of Sean Gray, Paul Michna, Ryan Zade, and Eric Leclerc at various stages of the production process is much appreciated. The superb editing of Carla Douglas maintained the IIGR’s high standard of presentation. Valerie Jarus deserves special praise for a careful and comprehensive approach to ensuring that the published papers reflect the work that has gone into their production. Mark Howes was responsible for the design of the conference brochures as well as the cover design for the volume.