Studies in Comparative Federalism: Canada

Home , Canadian Confederation, Canadian federalism, Government of Canada, Parti Acadien, Stan Roberts

AN INFORMATION REPORT

Studies In

ADVISORY COMMISSION- ON HTERWVERNMENTAL RElATlONS Washington, D.C. 20575 JULY 1981 M-127 Preface

Inthe State and Local Fiscal Assistance Amendments of 1976 (P.L. 94-488), Congress asked the Advisory Commission on Inter- governmental Relations to study and evaluate "the allocation and coordination of taxing and spending authorities between levels of government, including a comparison of other Fed- eral Government systems." The objective of this research is to determine how federal systems in other industralized nations have dealt with issues of fiscal federalism that are of current concern in the United States. To carry out this assignment, we have com- missioned studies of federal systems in three highly developed industrialized countries with strong national governments: Australia, Canada, and West Germany. In addition, a comparative study of the United states and the three countries has been prepared. Individual country studies were assigned to eminent scholars of fiscal affairs; in two cases, the au- thors were citizens of the country under study. This analysis of Canada is of particular interest because it describes a federal system during a period of great stress caused by divisive cultural and linguistic pressures, and by the impact upon provincial and national fiscal capabilities of the uneven distribution of valuable mineral resources. These pressures have caused Canada to examine anew the balance of national-provincial powers. We believe this study of the Canadian experience can make a substantial contribution to understanding some of the problems confront- ing our own federal system, as well as their solution.

James G. Watt Chairman Acknowledgments

Theprincipal author of this study is Professor Richard H. Leach, Department of Political Sci- ence and Director of the Canadian Studies I11 Center at Duke University. Special thanks go to Douglas H. Clark, Assistant Director, Federal- Provincial Relations Division, Department of Finance, Government of Canada, who not only reviewed the draft of the study and offered a great many suggestions for its improvement, but also supplied many of the figures and facts so essential to make the study accurate. At the Advisory Commission on Inter- governmental Relations, the studies of comparative federalism were under the general direction of John Shannon, Assistant Director for Taxation and Finance. L. Richard Gabler and Susannah E. Calkins prepared this study for publication. Lavinia B. Clarke typed the manu- script; Emily Crews typed the tables and prepared the map. Thanks go to a'great many officials of both the national and many of the provincial governments of Canada who willingly supplied data on request. The Canadian holdings in the Perkins Library at Duke University were the primary source of material; a debt of gratitude is owed to the staff of Perkins Library for the assistance they rendered.

Wayne F. Anderson Executive Director John Shannon Assistant Director Taxation and Finance

Contents

Canadian Federalism: Processes. Financing. Problems .....1 Introduction ...... 1 Chapter 1 Canada: Provinces and Nation ...... 5 Geographic and Historical Bases ...... 5 Constitutional Basis ...... 7 Chapter 2 The Disparate Provinces ...... 9 Current Economic Indicators ...... 9 v Overall Trends ...... 12 The Atlantic Provinces ...... 13 Quebec ...... 15 Ontario ...... 15 The Prairie Provinces ...... 16 British Columbia ...... 17 The North ...... 17 Chapter 3 Cities in the Canadian Mosaic ...... 21 Metropolitan Centers ...... 21 Municipal Government in Canada ...... 22 Chapter 4 Intergovernmental Fiscal Policymaking ...... 29 Formal Structures of Policymaking ...... 29 Policymaking by Intergovernmental Consultation ...... 30 Bureaucracies and Intergovernmental Consultation ...... 32 Interest Groups ...... 34 The Intergovernmental Process Evaluated ...... 36 Chapter 5 Fiscal Federalism in Canada ...... 39 1977 Fiscal Arrangements Act ...... 40 Cooperation in the Tax System ...... 41 Equalization Payments ...... 42 Established Programs Financing ...... 47 Impact of the 1977 Arrangements ...... 49 Canada Assistance Plan ...... 54 Other Shared Cost Programs ...... 55 Special Financial Arrangements Between the Federal Government and Quebec ...... 56 Chapter 6 Taxes and Deficits ...... 57 Overall Government Revenues ...... 60 Revenues of the Federal Government ...... 60 Tax and Transfer Revenues of Non-Federal Governments ...... 63 Government Expenditures ...... 65 The Federal Deficit ...... 69 Government Work Forces ...... 69 Chapter 7 Imbalances and Disharmonies ...... 77 Fiscal Imbalance ...... 77 Governmental Management (?) of the Economy ...... 78 The Impact of Oil Prices on Governmental Revenues .....80 Tax Harmonization ...... 82 Chapter 8 Renegotiating the Federal Bargain ...... 87 Proposals for Constitutional Reform ...... 88 The Review Process Initiated ...... 90 A New Canadian Federation ...... 90 Other Requirements for Change ...... 94

Map. Tables. Charts. and Figure Map of Canada ...... 4 Tables 1 Economic Indicators of the Canadian Provinces ...... 10 2 Provincial Transfers to Local Governments. 1967-76 .... 25 3 Frequency of Federal-Provincial Meetings and Confer- ences According to Level of Representation and Area of Government Activity. 1975 ...... 31 4 Frequency of Federal-Provincial Meetings and Confer- ences According to Category and Level of Representa- tion. 1975 ...... 31 5 Provincial Distribution of Population and Tax Bases. Federal-Provincial Fiscal Arrangements. 1977-82. for the Year 1979-80 ...... 43 6 Equalization Entitlements by Revenue Source and Prov- ince. Federal-Provincial Fiscal Arrangements. 1977-82. for the Year 1979-80 ...... 44 7 The Government of Canada's Equalization Payments. 1977-78 ...... 45 8 Federal Share of Established Programs Financing. 1977-78 ...... 4 8 Conditional Grants and Shared-Cost Programs as of March 31, 1976 and 1977 ...... 50 Revenues by Level of Government, Before and After In- tergovernmental Transfers, National Accounts Basis, 1926-79 ...... 58 National Accounts Budget for all Levels of Government: VII Preliminary 1978 ...... 61 Intergovernmental Transfers, National Accounts Basis, 1926-79 ...... 66 Expenditures by Level of Government, Before and After Intergovernmental Transfers, National Accounts Basis, 1926-79 ...... 70 Expenditures by Level of Government, Before and After Intergovernmental Transfers, as Percent of Gross Na- tional Product, 1926-79 ...... 72 National Accounts Budget for all Levels of Government, 1978 ...... 74 1980 Provincial Tax Rates ...... 83 Charts 1 Percentage Distribution of Total Government Revenue.. . 6 2 2 Percentage Distribution of Federal Government Revenue 6 2 3 Distribution of Non-Federal Government Revenue ...... 6 2 4 Government Revenues as a Percentage of Income Base. .. 63 5 Government Revenue and Expenditures as a Percentage of GNP ...... 64 6 Government Expenditures on Social Programs as a Pro- portion of GNP, 1964-76 ...... 68 Figure 1 Differences in Treatment of Businesses in Provincial Tax Policy ...... 84

Canadian Federalism: Processes, Financing, Problems

INTRODUCTION

Muchmore than in the United States, questions of federalism, intergovernmental relations, and centralization versus decentralization of power are issues of the day in Canada, not merely in scholarly writing but also in the media and on local street corners. This was especially the case as the 1980s began. In earlier days, federalism and questions of power allocation within the federal system were a matter of concern chiefly to Quebec, and much of the attention the Canadian press and academia paid to issues of federalism related to the aspirations and assertions of that province and its restlessness in confederation. More recently, it has become obvious that all ten provinces, in varying degrees of intensity, are concerned with the nature and future of the Canadian nation, and that concern is felt throughout the Canadian public. As one com- mentator put it recently, Canada today may be "the only country where you can buy a book about federal-provincial relations at an air- port."l Attention to issues of federalism has led to conflict and polarization in Canada-the national government versus the provinces, one region against another-and to a great many observations that the competition for power which it involves is harmful to Canadian development and prosperity, if not destructive to Canada's future as a single nation. Thus An- does not affect the Province of Quebec (which drew H. Malcolm's article in the 1980 New produces neither oil nor natural gas); however, York Times international Economic Survey it does affect the three most western provinces was entitled "Internal Rifts Vex Canada," and and the Province of Alberta, in particular, it referred to "the ever present regional which has accumulated a trust fund from a wrangles that . . . characterize Canada's brand portion of its oil and gas revenues which ex- of fractious federali~m."~The same author, in a ceeds $6 billion and is growing rapidly. preelection review of Canada in The New York The concern demonstrated suggests not only Times Magazine, spoke of "the fragile founda- that questions central to Canada's development tions of Canada's national unity," of "poten- in the 1980s still remain unanswered in the tially . . . disruptive" differences, and of "con- Canadian public mind, but also a wide range of stant federal-provincial confrontations,"3 opinions and options has been offered to re- leaving the impression the Canadian federation solve this issue. Perhaps the reelected Trudeau is about to come apart at the seams. His views government will provide some direction. Im- are shared by many other students and obser- mediate postelection judgments, however, were vers of Canada today. that Campaign 80 and its results suggest "an Others are much more optimistic and point increase in regional tensions" on the one hand to the many successes of Canadian federalism and a victory of centralists on the other, neither over the years and to the Quebec voter's recent of which would seem to be good omens for a rejection (May 20, 1980) of a proposal au- quick move to resolution. Indeed, what Prime thorizing the Quebec Government to negotiate Minister Pierre Trudeau heads, one commen- a form of autonomy referred to as tator remarked, amounts to "a majority coales- "Sovereignty-Association." In addition, as an cence formed in the energy consuming prov- aftermath of the referendum, there appears to inces against the oil and gas producing ones."4 be unprecedented public support in English Trudeau's Liberal Party won no seats at all in Canada for making the kind of constitutional Saskatchewan, Alberta, and British Columbia changes that could alleviate problems within and only two seats in Manitoba, as opposed to the country. However, all agree the problems 49 seats in those four provinces for the Con- facing the Canadian federation are serious and servatives and 26 for the New Democratic are likely to require many years to resolve. Party. The Liberal caucus in Parliament thus The most serious concern as the 1980s begin contains no members to the west of Winnipeg. is that of jurisdiction over natural resources This being the case, the issues of Canadian and, in particular, the governments' sharing the federalism likely will continue to evade res- lucrative resource rents from oil and natural olution in the immediate future and will con- gas. This issue has disruptive potential for any tinue to be in the forefront of national attention federation, as natural resources generally are for years to come. located unevenly throughout any given terri- This study .is not concerned with the broad tory. Historically, it is a new problem for issues of Canadian federalism touched on in federalism because, until the international oil the previous paragraphs, except as they pro- disturbance of 1973, originating in the Middle vide the setting for the fiscal side of Canadian East, governments almost never had been con- federalism. Obviously, any efforts to resolve fronted with the possibility of deriving really the situation so briefly described will impact large revenues from natural resources over an on that aspect of Canadian federalism. Thus the extended period of time. Among the three fed- final section of this study attempts to review erations the Commission is reviewing, this the alternatives posed for resolution. Before problem has assumed the greatest importance that, there are some general remarks about the in Canada. One reason for this situation is that nature of the Canadian nation and of the origi- in Canada most of the resources from which nal Canadian confederating bargain, and about revenues are derived actually are owned by the the parties to policymaking in general and fis- Canadian provinces prior to their severance. cal policymaking in particular. Attention also This gives the provinces concerned an unusu- is given to the machinery for fiscal policy de- ally strong bargaining position. This problem velopment, the revenues and expenditures of governments in Canada, and attempts at FOOTNOTES equalization and economic stabilization among the governments of Canada. Peter C. Newman, editorial, Macleans, October 1, 1979, p. 3. This study is based on a very extensive lit- The New York Times International Economic Survey, February 3, 1980,p. 39. erature on Canadian federalism. Hard data do Andrew H. Malcolm, "Canada Confronts Its West," not keep up with commentary and observations The New York Times Magazine, February 17, 1980,pp. so that although some of the data presented 22-23. A recent editorial in The Globe and Mail spoke of "the grand old Canadian tradition by which each re- necessarily are from 1977 or 1978 the com- gion views the others with dark suspicion, uncon- mentary attempts to reflect current Canadian cealed hostility, and the certainty that they are robbing thinking through the spring of 1980. The foot- it blind." (An editorial in the issue of January 24, 1980, P 6.) notes in a sense, can be considered as a bibliog- Stephen Duncan, The Financial Post, February 23, raphy for the study. 1980, p. 1. Population: 23,67 6,500 Area 9,221,000 Sq. Km. Mi.

NOVA SCOTIA Chapter 1

Canada: Provinces and Nation

5 GEOGRAPHIC AND HISTORICAL BASES

Tounderstand Canada and particularly Canadian federalism, it is necessary first to grasp the basic facts of Canadian geography and historical development (see map), for they underlie the regionalism, translated in practical terms into provincialism, that is the hallmark of Canadian society. As any elemen- tary geography text makes clear, physically Canada falls into five natural land divisions: - the eastern seacoast area, encompassing the Maritime Provinces of Nova Scotia, New Brunswick, and Prince Edward Is- land, and the Atlantic province of Newfoundland. This area is cut off from the central and western part of Canada by water (Newfoundland, except for Labrador) and by the extension north- westward of the Appalachian Moun- tains (the other three provinces); - the St. Lawrence River lowlands region of fertile soil, which encompasses the most populous portions of the provinces of Quebec and Ontario; - the great Canadian shield of pre- Cambrian rock, extending in a V-shape from across the United States border northward to the east and west in Canada, creating an inhospitable and American Revolution, the link between Ontario largely undeveloped barrier of forest and the United States was broken. The two col- and lakes between eastern and western onies in the lowlands region even then could Canada; not turn to each other for mutual support. - the open interior plains on the western Though they were developing complementary side of the Canadian shield-the Great economies, Quebec and Ontario were divided Plains of the American West extended. sharply by religious, ethnic, social, and lin- The provinces of Manitoba, Saskatche- guistic differences, which became more im- wan, and Alberta were carved out of portant with every passing year. this region; and Each of the colonies continued to develop, but they did so individually, each largely in- - the great range of mountains rising in sulated from the others, and like the French in western Alberta, forcing British Colum- Quebec, each primarily interested in its own bia, the province to its west, to face the development and prosperity. For its own pur- Pacific and, in many ways, to be more poses, Great Britain united Quebec and Ontario linked with the United States than with into one province in 1840, though "united" is the rest of Canada. hardly the appropriate word to use in that connection. The two colonies never were happy As settlement began in Canada, these geo- yoked together, and the differences between 6 graphic regions dictated the pattern. Settle- them increasingly were apparent to Britain. It ment began with the French and English estab- was partly because they were seeking a way out lishing colonies in Atlantic and Maritime of their undesirable marriage that the series of Canada, chiefly in Newfoundland and on the events leading to broader interregional linkage coasts of Nova Scotia. A little later, the French was set in motion during the 1850s. The neces- under Champlain moved into the St. Lawrence sity for solving that marital problem came at a lowlands via the river, founding the city of time when Great Britain was washed by a wave Quebec in 1608. From then on, approximately of anticolonialism, manifested by eliminating 10,000 Frenchmen bypassed the Atlantic set- the imperial preferences which had benefitted tlements and formed the nucleus of the colony its colonies, and was looking for ways to step of Quebec. Later still, English and American out from under what it was coming to see as its settlers moved into the lowlands territory west Canadian colonial burden. It also came at a of the French enclave which was to become the time when the Atlantic Provinces were ex- province of Ontario. Lord Selkirk began settle- periencing great economic difficulty as a con- ment of the prairie west. He avoided the Cana- sequence of the new age of steam and steel and dian Shield by coming into the area via Hudson at a time when the railway offered exciting Bay and its contributing rivers to found the Red possibilities for opening the Northwest and River Colony, now Manitoba. Finally, by sea overcoming distance barriers. Pushed perhaps around Cape Horn, English and other settlers more rapidly toward a "solution" than it moved into the colony of British Columbia. otherwise might have been by the threat Cana- Thus not one but five separate Canadas came dians had come to feel from their neighbor to into being, each cut off from the others and de- the south, Britain was happy to enact the veloping over time quite independently of each British North America Act in 1867 and turn her other. Whatever links their residents had out- attention elsewhere. side their own areas were more with their That act brought the colonies of Quebec and mother countries than with the other settle- Ontario (known then as Upper and Lower ments on Canadian soil. After the defeat of Canada) and Nova Scotia and New Brunswick Montcalm on the Plains of Abraham in 1759, into "One Dominion." Manitoba was included the link between Quebec and France was cut, in 1870, British Columbia decided to enter in isolating the French residents of Quebec, then 1871, and Prince Edward Island in 1873. The numbering some 60,000, and turning their other Prairie colonies were governed as ter- interests and energies largely inward toward ritories until Saskatchewan and Alberta were their own independent survival. And after the admitted as provinces in 1905. Finally, New- foundland, by Terms of Union ratified between inces, in sections 92 and 93, their own long list Canada and herself, joined in 1949, thus of exclusive powers, including power over rounding out the picture (save for the north, most aspects of their internal operations and more about which later). over most of the domestic affairs of their residents, as well as over municipal institutions CONSTITUTIONAL BASIS and, most importantly today, over most aspects of their own natural resources. With that au- The British North America Act (BNAA) spoke thorization, and with a long tradition of inde- in its preamble of forming a "union," of "fed- pendent operation as colonies behind them, it erally" uniting the provinces under the Crown. was not long before the provinces began to Like the American Constitution, however, it move in the direction of province building. As did not make clear just what it meant by those they did so, they reaffirmed their centrality in terms. It generally is conceded that the BNAA Canadian affections. Their assertions of power extended authority for both nation building had become so strong by 1896, Sir Wilfrid and province building as the two focal points Laurier, who became prime minister that year, of Canadian development. Recognizing the new pledged himself to respect provincial au- nation would need a countrywide basis on tonomy. Ever since then, except for periods of which to build for it to live in the world of na- depression and war, the provinces increasingly tions and of international trade, the act granted have demanded and exerted power for domes- strong powers to the central government; but tic purposes. 7 power over such areas as education, civil law, By the 1960s and 1970s, the relative power health and welfare, property, and civil rights positions of Canada's two levels of government was left with the provinces. Indeed, by its own had become the central issue of Canadian poli- words in the preamble, the BNAA posits "a tics. The provinces, to varying degrees, had be- Union would conduce to the Welfare of the come highly critical of the national government Provinces. . . ." The act, which has-with as it had attempted, in their view, to expand its amendments-served as Canada's constitution power at their expense. to this day, thus accepted regional differences The issue of power was broached directly at and regional expression of them as a funda- the First Minister's Constitutional Conference mental precept of the Canadian governmental in Ottawa, February 5-6, 1979, The nature of arrangement. the discussions which took place between the The BNAA does indeed create in the Cana- heads of governments at that time can be dian national government an instrument of gleaned from Prime Minister Pierre Trudeau's power. By the terms of section 91 not only does statement following the conference. Mr. the national government have an extensive list Trudeau declared the national government had of exclusive particular powers, but also they gone "a very considerable distance" at the give the national government residual author- conference "to satisfy feelings of regional ity "to make laws for the Peace, Order, and alienation, feelings of provinces who felt that Good Government of Canada" in respect to all they were endangered by federal preeminence matters not assigned by section 92 exclusively in legislative areas."' To some extent, the elec- to the provinces. The act also assures to the tions of May 1979, and February 1980, both re- central government ample taxing and revenue volved around those same issues and feelings. powers (section 91.3 gives Parliament the What is important to keep in mind, then, as power to raise "money by any Mode or System we move toward a discussion of fiscal of Taxation"). Acting from that power base, the federalism in Canada, is that both Canadian ge- national government early became a significant ography and Canadian history foreordained an policymaking force in Canada. The first Prime arrangement of government in which a sharing Minister of the new confederation, Sir John A. of power between the national government and MacDonald, was an avowed nationalist, and he the provinces was necessary and the British led Canada through an initial period of North America Act embodies such an arrange- dynamic nation building. ment in law. Through judicial interpretation At the same time, the BNAA gave the prov- and the development of governmental conven- tions, the provinces' power position has been tretemps, far from leading to disintegration, enhanced, though the national government has ultimately could lead to a strengthened Canada not been rendered impotent by any means. with an improved sharing of the power to gov- Thus, as Thomas Hockin concluded, "since ern. Canada today is remaining true to its ori- 1867 Canadians have been engaged not only in gins, which emphasize both regional, i.e., pro- nation building but in province building as vincial, and central power and do not freeze well." Throughout his Government in Canada the nation into one particular balance of power. Hockin emphasizes "the importance of provin- Nowhere is the dynamism of Canadian feder- cial governments as sources of power in the alism more observable than in the fiscal ar- Canadian condominium" and the degree to rangements between the governments of which Canadians seek to maintain and enhance Canada. regional and provincial id en ti tie^.^ As suggested already, however, sharing power has not been easy; indeed, it has pro- FOOTNOTES duced a continuous quarrel among the governments of Canada. But it is a quarrel among Quoted in Canada Weekly, Vol. 7, No. 8, February 21, 1979, p. 3. friends or at least allies. The prophets of doom Thomas A. Hockin, Government in Canada, New York, do not understand that the current con- NY, W.W. Norton and Company, Inc., 1975, p. 36. Chapter 2

The Disparate Provinces

9 B efore examining Canada's fiscal arrangements, it is necessary to look at (a) the provinces of Canada in economic terms, for it is largely to their different "economic patterns and aspirations"' that the fiscal arrangements respond, and (b) the governmental institutions, both provincial and national, through which these arrangements are worked out. CURRENT ECONOMIC INDICATORS

Table 1 contains a mass of basic data for comparing the provinces' economic situations. As Douglas Auld has observed in his own study of the economic dimensions of Canadian confederation, "one could fill pages with economic and population statistics that describe the regional diversity of Canada and still be criticized for leaving something out." There is also the problem of development over time, which a table such as Table 1 cannot show. Auld also notes the division of Canada into regions, however geographically and historically justified, tends to hide the fact "that within regions there are substantial differences in terms of wealth and income, population and resource~.''~The paragraphs that follow attempt to illustrate some of the major overall trends as well as the intraregional differences. It should be noted, first of all, three provinces have been particularly important in recent Canadian policymaking and promise to Table 1 ECONOMIC INDICATORS OF THE CANADIAN PROVINCES (all dollar figures are Canadian dollars)

British Alberta Columbia Manitoba Seat of Government Edmonton Victoria Winnipeg Party in Power P.C. S.C. P.C. Area1 (in square kilometers) 638,200 893,100 547,700 Mid-1979 Population 2,008,900 2,566,900 1,030,500 Percent of Total Canada Population 8.5Vo 10.8% 4.4% Percent Population Increase,= 1974-79 16.6% 8.0% 2.3% Population Per Square Kilometer 3.1 2.9 1.9 Gross Domestic Product, 19784 (in billions) $24.9 $25.6 $8.5 Percent of Total Canada GNP, 1978 11.8% 12.2% 4.0% Percent Increase in Domestic Product Predicted for 1980 5.2% 2.6% 1 .PI0 Per Capita Personal Income, 19785 $8,407 $8,784 $7,456 Percent of Canada Average Income, 1978 104O/o 1 09% 9?/0 Employment, 19786 91 5,000 1,093,000 440,000 Employment Percent Increase, 1973-78' 29.6% 18.8% 9.4Oh Unemployment Rate,8 October 1979 3.5?L9 7.1% 5.0"/0 Factory Shipments, January-October 1979 (in billions) $7.2 $12.0 $3.3 New Capital Investment, 1979 (estimated in billions) $1 1 .o $7.0 $2.1 Value of Mineral Production, 1979 (preliminary in billions) $12.9 $2.7 $0.6 Average Weekly WageslSalaries, October 1979 (estimated) $320.28 $34 1 .57 $266.86 Urban Housing Starts, 1979 30,200 21,300 4,400 Retail Sales, January-October 1979 (in billions) $6.4 $7.4 $2.4 Farm Cash Receipts, 1979 (estimated in billions) $2.8 $0.7 $1.3 New Motor Vehicle Registration, January-October 1979 147,906 1 12,573 42,955 New Construction, 1979 (estimated in billions) $7.9 $4.7 $1.3 Business Failures, January-November 1979 350 654 83

N.A. Not available

'Less than 1 % or $50 million. Total area of Canada: 9,221,000 sq. km. 2Total DoDulation of Canada (mid-1979): 23.671.500. Total population increase f& ~anada,'1974-79: 5.8 %. Total GNP Canada, 1978: $210.2 billion; compilation in The Financial Post, December 8, 1979, showed it at $210.1 billion. =Per capita personal income for Canada (average): $8,049. =Total employment in Canada, 1978: 9,972,000. 'Percent of employment increase for all Canada, 1973-78: 13.8%. Seasonally adjusted unemployment rate for all Canada, March 1980, 7.4%. gSeasonally adjusted unemployment rates as of March 1980. SOURCES: The Financial Post, Third Section, November 3, 10, 17, 24 and December 8, 15, 1979; The Globe and Mail, Business Section, January 8-12, 14-18, 1980; and Financial Times of Canada, April 14, 1980, p. 8. Table I (Continued) ECONOMIC INDICATORS OF THE CANADIAN PROVINCES (all dollar figures are Canadian dollars) Newfound- Prince land and New Edward Labrador Brunswick Nova Scotia Ontario Island Quebec Saskatchewan St. John's Fredericton Halifax Toronto Charlottetown Quebec City Regina P.C. P.C. P.C. P.C. P.C. P.Q. N.D.P. 371,600 71,600 52,800 91 7,400 5,700 1,357,800 570,100 574,000 701,000 846,900 8,499,800 122,800 6,298,800 957,100 2.4% 3.0% 3.6%0 35.9% 0.5% 26.6% 4.0%

6.P/o 7.2% 4.4% 5.3% 6.6% 2.9=/0 6.4% 1.5 9.8 16.0 9.3 21.7 4.6 1.7 $2.7 $4.2 $5.2 $80.9 $0.6 $49.0 $8.6 1 3% 2.0% 2.5% 38.5% 0.3% 23.3% 4.1%

1.4% 1.P/o 3.7% * 4.1% $5,313 $5,984 $6,447 $8,735 $5,574 $7,628 $7,432 66% 74% 8P/o 109% 69% 95"/0 92.3% 166,000 238,000 306,000 3,847,000 45,000 2,520,000 400,000 9.9% 11.2% 11 3% 13.8% 15.4% 8.2% 16.6% l3.3?/09 10.7% 10.2% 6.9%9 10.6% 9.1% 4.1%

$0.8 $2.5 $2.6 $62.2 (N.A.) $32.6 $1.6

$1.1 $1.4 $1.3 $17.1 $0.2 $1 1.9 $2.8

$1.1 $0.5 $0.2 $3.3 $2.2 $1.8

$273.53 $256.27 $251 .OO $292.81 $207.18 $291 39 $284.75 1,100 1,500 2,800 50,700 300 34,000 8,500

$1.1 $1.6 $2.0 $22.1 $0.3 $1 5.8 $2.6

(N.A.) $0.1 $0.2 $4.0 $0.1 $1.9 $2.8

21,249 34,216 36,857 393,892 5,812 (N.A.) 54,764

$0.7 $0.8 $0.9 $9.5 $0.1 $7.7 $1.6 16 23 67 2,041 3 1,904 93

Parties: PC-Progressive Conservative SC-Social Credit PQ-Parti Quebecois NDP-New Democratic Party remain so in the future. Their weight is not de- three months of 1980, 68 out of every 100 Al- rived wholly from economic factors. Quebec, bertans aged 15 or over were working in paid while a potent economic force in confedera- jobs; Ontario ha[d] fewer than 63 out of very tion, also has been important because of its 100 adults in paid employment. And the pro- persistent desire to be different from the others portion drop[ped] in the less wealthy prov- and because of the leadership in province inces. In Newfoundland, for example, only 46 building it has given over time. Ontario is im- out of every 100 adults ha[d] jobs." portant, not only because of its size and wealth, Not only does Alberta have the nation's but also because much of Canada's English- highest proportion of population at work, but language publishing is done there and because also the average Alberta worker's output is of its traditional leadership assertion among much higher than that of the average worker in the English-speaking provinces. Alberta is im- every other province. portant, to be sure, because of its recent ascent "Dividing the output of the Alberta to extreme wealth, and also because it has as- economy [in 19801, as estimated by the sumed a new leadership role in national affairs. Conference Board [in Canada], by the The problem is the interests of the three more number of workers gives an average often are in conflict than in harmony. output in Alberta of $34,459 per Quebec's desires are well known; Ontario de- worker. " sires to keep the status quo of the early 1970s, 12 if not of before then; what Alberta wants, its The figure for Canada as a whole is $25,352 Treasurer Louis Hyndman has been quoted as and for Prince Edward Island, $15,916. Said saying, is "to change the face of confedera- differently, the "average Alberta employee tion," not only in terms of an increase in tangi- produces 40% more than his Ontario counter- ble benefits (higher oil prices, revised freight part and 116% more than the average employee rates) but also in terms of political power, so it in Prince Edward Island." and the west will have their due share of The total size of the provincial economies power vis-a-vis Ontario and the east.3 also reveals striking dissimilarities. According Turning to economic differences, the thrust to current projections, "Ontario's $100 billion of surveying any set of economic indicators of economy is still the largest. . .next comes the provincial economies in Canada first and Quebec with a $61 billion economy. Alberta foremost must demonstrate the shift of eco- has a $35 billion economy. . .and British Co- nomic and demographic power to the west. If lumbia comes fourth with $33 billion." The only unemployment figures are used as indi- other provinces are far behind. Saskatchewan's cators, the shift becomes obvious indeed. In economic output is expected to be $11 billion 1970 there was only a 3.3 percentage point in 1980, Manitoba's $10.4 billion, Nova Scotia's spread between the highest and lowest provin- $6.5 billion, New Brunswick's $5.3 billion, cial unemployment rates in Canada; by 1980 Newfoundland's $3.5 billion, and Prince Ed- that spread had increased to 9.8 percentage ward Island's $764 milli~n."~ points. By individual provinces, the differences were pronounced in 1979: Newfoundland had 13.3% of its workforce unemployed, with the OVERALL TRENDS Atlantic provinces as a whole ranging from 11 to 13% unemployed. Except for British Colum- If looked at as a whole, the trend toward the bia, with unemployment in the 7% range, the west is equally discernible. The most recent percent unemployed declined steadily from re- available study of the Provinces' economic gion to region as one progresses west. Quebec condition6 showed that, while the Atlantic had an unemployment rate of about 9%, On- provinces had been able to match the economic tario about 696, and the Prairie provinces ap- growth of the country as a whole between 1971 proximately 4%. Alberta's proportion of unem- and 1977, looking ahead into the 1980s, the re- ployed was only 3.5%.4 gion would continue to be marked by high un- "But unemployment rates by no means tell employment rates and "unacceptably large" the whole story. In Alberta during the first disparities between it and the rest of the nation. In the longer term, the region has "exciting de- and coordination between federal and provin- velopment prospects" if adequate investment cial authorities" in the areas of immigration, funds become available. Moreover, the 200- trade, manpower, finance, transport, research, mile fishing limit "could lead, if supported by and native peoples. The west's growth, how- appropriate policies, to considerable gains for ever, is uneven. It has been concentrated in the the region, both in terms of output and related Edmonton-Calgary area of Alberta and the employment." The development of the Atlantic lower mainland area of British Columbia. fishery, however, well may divide rather than Manitoba has fallen behind in development unite the Atlantic provinces. Newfoundland al- compared to Saskatchewan, Alberta and British ready has taken the position its fish are for its Columbia because it lacks oil and gas re- fishermen, setting off a dispute with Nova sources. Even with those caveats, "it is now Scotia fishermen. Manufacturing development widely recognized, at least in the west, that the and mineral production both are expected to economic center of gravity is moving away climb as well, but the region's forest-based in- from central Canada. . . . This trend. . .will be dustries face difficulties, and agricultural de- sustained for several years. . . ."' The Confer- velopment lags. ence Board in Canada predicted in April 1980 As for Quebec, the study showed that prov- the four western provinces taken together ince's economic position has deteriorated since would grow at more than four times the na- the mid-1960s, and it predicted there will be tional growth rate of 0.6% during 1980. little improvement over the next ten years. Demographically, Canada recently has seen Among the "basic structural weaknesses lim- some important changes: population growth is iting its long-term growth potential" were cited slowing down; the Canadian population is "persistent high unemployment, weakness in maturing as the babies of the post-war boom income and productivity, insufficient private grow up-the average age is rising; immigra- investment, deficiences in the industrial tion from abroad into Canada has decreased; structure, the relative decline of the Montreal and there have been remarkable changes in in- urban area, and the existence of considerable terprovincial movements. The West has re- regional disparity within the province." The ceived the most interprovincial migration. For manufacturing sector of Quebec's economy, the the year ending May 31, 1979, for example, Al- report recommended, should be shifted as berta saw 30,369 new arrivals, as specialists in rapidly as possible to such industries as trans- construction and drilling and persons qualified portation equipment, machinery, electrical for computer and service-oriented jobs flocked equipment, and chemicals, and away from the to Canada's boom area. British Columbia netted traditional industries based on forest resources 20,111 new arrivals and Saskatchewan 1,711. and from such labor-intensive industries as Only Manitoba in the West was on the losing clothing. end, seeing 10,394 of its residents leave for As for Ontario, the study noted its economy other provinces. The other winners were Nova has not been performing as well as previously. Scotia and New Brunswick, with 1,384 and In fact, on a per capita basis recently it has 1,333 new arrivals respectively; the other losers been the poorest performer of all the provinces. were Quebec, 32,110; Ontario, 8,069; New- Finally, the study pointed out the spectacular foundland, 1,872; and Prince Edward Island, growth of the western provinces, mainly 116. caused by the oil and gas boom, and predicted that growth prospects for the entire region will remain high, as resources are developed further The Atlantic Provinces and agriculture expanded. This study concluded the spinoff from doing so should have a Despite their recent spurt economically, the major impact on the manufacturing and service Atlantic provinces remain underdeveloped as sectors of the western economy in the next dec- compared with the rest of Canada. The national ade. The study noted, however, for the west's government's early decision to build a trans- maximum potential to be realized, there would continental railroad, which opened the more have to be an "increased level of cooperation alluring central and western portions of the country to settlement by immigration, and to What has kept the wolf from the Atlantic impose protective tariffs to help industry and provinces' door has been a heavy flow of commerce develop there, as well as technolog- transfer payments from the central government ical change, all operated over time to the eco- in Ottawa, payments both to individuals and to nomic benefit of central and western Canada governments. In particular Ottawa's equaliza- and to the detriment of the Atlantic provinces, tion program accounts for approximately one- a fact which no one has been allowed to forget quarter of total revenues from all sources for in fiscal policymaking for many years. each of the four Atlantic Provinces. What Pre- Although they are not peas in the same pod, mier John Buchanan of Nova Scotia said in the Atlantic provinces have been deficient in 1979 applies to all the Atlantic Provinces: their own energy sources other than coal and in transfer payments, he said, "are the life-blood recent years have been faced with steadily ris- of Nova Scotia. Without them we'd be dead ing energy costs. However, the hope of duck^."^ In addition, the central government harnessing the Bay of Fundy's tides for hy- devotes much of its regional economic de- droelectric power still burns bright in the velopment expenditures to the region (a Maritimes and the discovery of oil and gas off federal-provincial Small Industry Financial As- Newfoundland's southeast coast promises to sistance Program was initiated in 1979 in New alter the situation drastically, especially if a Brunswick, for example, to loan money to firms controversy between that province and the fed- with less than $50,000 in annual sales) and it era1 government over the control and sharing of maintains large defense and other federal es- 14 revenues from such resources can be resolved. tablishments there. (The Trudeau government Prime Minister Trudeau has said the question began decentralizing federal activities from of ownership must be settled by the Supreme Ottawa; a number of federal agencies were Court of Canada. Until that decision is made, moved to the Atlantic region.) Trudeau has offered an agreement which It does not stretch the truth to say the Atlan- would assume federal ownership but award tic provinces have become economic depen- revenues accruing from the exploitation of re- dents of the central government. Theirs are sources 75% to the provinces, 25% to the fed- "economies of dependency. "9 Only New- eral government. Nuclear power development foundland, with the prospects put before it by also has been undertaken in the Maritimes the discovery of the Hibernia well, has much where the Province of New Brunswick is con- immediate hope for moving from "federal de- structing a nuclear power plant at Point Lep- pendency into a golden age of self-reliant reau. The manufacturing level throughout the wealth1'10 (though if Nova Scotia can develop region is low (though it has been rising slowly its considerable gas potential around Sable Is- in New Brunswick and Nova Scotia, which land it too may be able to move toward less de- alone among the four provinces has attained a pendency). low level of economic diversity). Per capita in- A special note should be made about the come is low and the unemployment rate, as al- ~renchis~eakin~population outside of Quebec. ready indicated, is high. They still focus their According to the 1976 Census, 898,000 persons energies on agriculture, forestry, and fishing whose mother tongue was French lived (although New Brunswick and Newfoundland elsewhere in Canada. Of these, 462,000 were in have been developing their mining industries). Ontario. The French-speaking population of Tourism is an important factor in all the New Brunswick, Nova Scotia, and Prince Ed- Maritime province economies, less so in New- ward Island are referred to as Acadians. The foundland. With small populations, they are Acadians differ in many ways from the marked by small markets for their goods at Quebecois. In New Brunswick, where the 1976 home and expensive transportation links to Census showed 224,000 Acadians were con- outside markets. Many of their communities centrated primarily in the seven most northern are oriented around a single industry. As a counties of the province, an opposition party, whole, they lack adequate indigenous capital the Parti Acadien, has been active. It advocates for development purposes and to sustain a high separation of the Acadian part of the province level of research and development activity. from the rest of New Brunswick, but not from Canada itself. Currently, the Acadians are de- cause of the uncertainty created by its propos- manding more autonomy in administering als for Sovereignty-Associatioa, its term in of- schools, more jobs in the provincial civil ser- fice clearly has been marked by a downturn in vice, and faster implementation of bilingualism private sector investment which has harmed policies. The much smaller Acadian com- the economy of the province in general, and munities in Nova Scotia and Prince Edward Is- Montreal in particular. land are watching what their neighbors in New The provincial government plays a dominant Brunswick are doing with interest. What the role in the province's economy through a wide long-term impact of Acadian agitation might be range of crown corporations (which make the on the area's economy is hard to foresee. province itself the largest employer of labor), through provincial tax incentives and sub- Quebec sidies, and through regulation and control. However, the province now is far better Next to the Atlantic Provinces, Quebec con- equipped to move forward economically than it sistently has experienced the highest unem- used to be. Since the Quiet Revolution of the ployment rate in Canada. Although its econ- 1960s, Quebec's universities have concentrated omy is diversified and has a large manufactur- on producing first-rate managers trained for ing sector, basically in paper products, furni- business and government, so the province's ture, clothing and shoes, its technological base own talent pool is larger than it ever has been. is old, and it has suffered heavily from competition from outside. Though it is an oil- Ontario importing province, it does have abundant hydroelectric resources at its disposal. "The first Ontario long has been regarded by the other phase of the James Bay project, when com- provinces with jealousy, while it has been in- pleted in 1985, will add 12,000 megawatts of clined to think of itself as first among equals. It power to the present 15,000 megawatts. . . . By is used to being at center stage in Canada and the end of the century, another 35,000 to playing a pivotal role in determining the megawatts [could] be harnessed from Quebec's country's policies. The primary reason is that waters."ll Realizing these goals will give a new Southern Ontario is the industrial heart of strength to the Quebec economy. There is also a Canada and economically the most broadly- good deal of uranium potential in the James based area of the country. Its central location Bay territory, which if exploited should pro- gives it a great advantage in both the Canadian vide another boost to the economy. market and much of the United States. It also Even so, Quebec's overall economic position has benefitted greatly over time from the fed- in recent years has put it on the receiving end eral government's tariff, immigration, and of large income transfers from the federal gov- transportation policies. Although its au- ernment. Equalization payments alone tomobile and auto-parts industries loom large amounted to about 10% of the province's an- on the economic scene, it produces a wide nual revenues in the late 1970s. In addition, range of products, and it also has thriving ag- through programs of the Department of Re- ricultural, forestry, and mining sectors (the gional Economic Expansion and other pro- latter two are concentrated largely in the grams, the federal government has made grants otherwise underdeveloped northern part of the and loans to the province. province). Ontario has become Canada's in- What sets Quebec apart from all the other dustrial heartland chiefly on an energy base of provinces is its persistent demands for greater imported coal, oil, and gas. It has developed a autonomy. These culminated in the November hydroelectric system of its own, however, as 1976 election of a Parti Quebecois government well as one of the most advanced nuclear which pledged itself to hold a referendum on power bases in the world. its proposals for Sovereignty-Association-a Out of its riches, Ontario over the years has promise carried out in May 1980. Most Cana- made the largest input of all the provinces into dian observers believe the Parti Quebecois has the federal government's tax coffers, while re- given Quebec good government. However, be- ceiving comparatively little federal largess in direct return. From fiscal 1977-78 on, however, manufacturing sector is relatively weak. Under the province has been technically, at least, a the long aegis of the New Democratic Party "have-not" province as resource revenue de- leadership, a pervasive and pivotal public-i.e., ficiencies wiped out surpluses in the other rev- provincial government-presence in economic enue categories upon which the current federal management has developed and is maintained. equalization scheme is based (see Chapter 5 of The province's 17 commercial crown corpora- this study for an explanation of the equaliza- tions are predicted to do "the bulk of the capi- tion scheme). If the western provinces eventu- tal spending" in the province in 1980.13 A sort ally receive a higher price for their oil and gas, of overall "holding company" for those corpo- even if not the world price, Ontario may have rations is the Crown Investments Corporation, further difficulties. As James Gillies, former which exercises general supervision over them Prime Minister Joe Clark's senior policy ad- as well as over the extensive provincial inter- viser, commented late in 1979, "with the ests in private companies in the province. In energy rich west and with apparent huge oil addition, many expansion plans in the prov- discoveries off the east coast, Ontario could be ince are scrutinized by the provincial govern- perceived as the poor boy by 1985."12 ment; "Saskatchewan wants to control the phasing in of all resource projects to ensure an The Prairie Provinces oversupply does not force prices below production costs."14 Saskatchewan's overall eco- 16 Although they constitute a single region nomic position is currently one of the best geographically, and though they have been among the Canadian provinces-quite a treated historically as a group, in recent years change for the province, which next to the At- the differences among the Prairie Provinces lantic Provinces, was for many years at the have become more evident than the lower end of Canada's economic scale. Provin- similarities. Of the three, Manitoba, as already cial revenues from oil, potash and uranium are noted, is in the weakest economic position be- predicted to reach approximately $500 million cause it alone has not been a significant pro- in fiscal year 1980; out of those revenues, the ducer of either oil or gas. The provincial econ- province has established the Saskatchewan omy is a mixture of agriculture (mostly grains), Heritage Fund, which had assets amounting to manufacturing, base metals, and hydroelectric $600 million at the end of fiscal year 1978-79. energy. Indeed, Manitoba has an abundant Most Heritage Fund earnings are paid in the supply of hydroelectricity; besides meeting form of "dividends" to the province's consoli- internal needs, between April 1978 and March dated fund. Early in 1980, Saskatchewan an- 31, 1979, Manitoba Hydro, the provincially nounced plans to establish a Saskatchewan owned and operated power company, sold Energy Security Division within the fund and $58.3 million worth of electricity to the United to endow it with $100 million. States, $18.3 million to Ontario, and $5.3 mil- It is Alberta, however, which is the golden lion to Saskatchewan. The present Progressive province of the West, and of all Canada. The Conservative government has frozen rate in- province always has produced coal, but the creases for hydroelectricity to aid in develop- discovery and rapid exploitation of oil and gas ing manufacturing within the province. In 1979 in great quantities enabled it to zoom from the Manitoba government began a joint pro- near-poverty levels only two generations ago to gram with the federal government calling for economic heights envied by governments $64 million to be spent over a five-year period throughout the western world. Alberta cur- to aid manufacturing companies in a variety of rently produces 85% of Canada's oil, and the ways. province has about the same percentage of that Saskatchewan is in on the oil bonanza of production from crown-i.e., provincial - western Canada, although to a lesser extent lands. By 1978, Alberta's income from hy- than Alberta. In addition, it boasts a flourishing drocarbons alone had multiplied 16 times over agricultural sector (chiefly grains-wheat that of 1970, from $218 million to $3.5 billion. predominates-and live stock) and a burgeon- Under Alberta law, the province receives ing mining industry (potash and uranium). Its roughly 45% of oil and gas revenues. Because of those revenues, Alberta's tax rates in con- imported manufactured and processed goods ventional tax fields are the lowest in Canada. (manufacturing accounts for only 5% of Al- And from 30°h of those revenues Alberta has berta's economic base) although it has a strong established the Alberta Heritage Savings Trust agricultural sector (grains, livestock and sugar- Fund, which had attained assets of nearly $6 beets), and extensive forest resources. Just re- billion by the end of 1979. Through that fund, cently, the government of Alberta "has been according to Richard Osler, Alberta is able to encouraging new investment in [the province] invest in internal development. Through the as a means of diversifying the economic base Alberta Investment Division of the Fund, as of through a number of programs and incentives, October 1979, it put about one-third of its such as sharp reduction [in 19791 in the small holdings into the Alberta Housing Corporation, business tax rate," a market development as- the Alberta Home Mortgage Corporation, the sistance program, a program to help small and Alberta Agricultural Development Corporation, medium-sized manufacturing companies with the Alberta Opportunity Company, the Alberta product design, and a concentrated effort to Energy Company, and Syncrude. develop a strong research and development Alberta also makes loans (through the center in the province (a portion of the Heritage Canada Investment Division) to other Canadian Fund monies will be devoted to the latter).lg governments (to date, Newfoundland, New Brunswick, Nova Scotia, Quebec, and Man- British Columbia itoba) or to agencies guaranteed by govern- 17 ments for internal development projects, to Canada's western-most province also has a launch capital projects (public and recreational -resource-based economy, though it is more di- facilities in the province), and "quality of life" versified than Alberta's. The forestry sector (the projects (medical, agricultural, and heavy oil provincial government owns 95% of the prov- research), and still has a large amount of ince's forest reserves) accounts for about half of money left to finance provincial crown corpo- each dollar earned in the province; the mining rations and invest in marketable securities and industry (lead, zinc, aluminum, and an un- private corporations. "With the fund projected known quanitity of uranium reserves) is also of to balloon to more than $20 billion by 1985, as- key importance; tourism is important, as is the suming domestic oil and gas prices move to energy sector (chiefly gas, coal, and hy- world levels and present revenue sharing droelectricity) which makes British Columbia agreements remain, Alberta could be sitting on the second richest energy province in Canada. a financial time-bomb if it can't find palatable If offshore drilling is successful there, the ways to use the money."lS province's economy would receive a further In many ways, however, Alberta's economic boost-but activity is much less than it is off base is not well balanced. Alberta still is a Canada's east coast. At present, natural gas ex- have-not province in some sectors-it "needs ploration in the Northeast is particularly and wants a better economic mix that is not so promising. Next to forestry, fishing is the chief dependent on nonrenewable resources."16 If industry in the province. Manufacturing, ex- there should be "a major breakthrough in other cept in wood and paper products, is not well energy forms, such as solar power, Alberta's developed. Since only about 5% of the area is one major resource will lose its importance in a arable, agriculture does not constitute a very heavily industrialized national and interna- large proportion of the province's economy. tional ec~nomy."'~Even full exploitation of the Although the province's economy generally is province's oil reserves awaits development of regarded as buoyant, it is an economy highly technology to permit more efficient extraction dependent on American and overseas export of oil and gas than is possible now. "Of the 37 markets. billion barrels of conventional crude oil in Al- berta, for example, only seven billion barrels The North have been produced and only five billion more can be tapped through current methods."l8 The Yukon and Northwest Territories, The province continues to be dependent on stretching from the Alaska border north and east over Hudson Bay, comprise the Canadian claims [and call for their] settlement be- North. It should be noted, however, that the fore resource exploitation.. . takes northern part of the provinces is much less de- place. . . .20 veloped than the narrow strip of Canada along the United States border. Thus northern de- Those difficulties notwithstanding, Canada velopment in the broad sense must include the undoubtedly will accelerate development of provincial north as well as the further north the north in the 1980s to unlock the treasures federal territories. Indeed, much of northern that lie there. Whether the federal government Canada still is administered as federal govern- will yield any or much of the near total control ment territories (and thus was not included in it has exercised in the past over the pace of de- the review of the provinces). Yet, the day of velopment, much less its ownership of the nat- provincehood may be approaching, and the ural resources, remains to be seen. Although tremendous potential of the north in Canada's movements toward provincial status have been overall economic future must be dealt with, if launched in both the Northwest and Yukon only briefly. Territories, there does not seem to be very The immediate opportunities offered Canada strong support for them. In any case, it gener- by developing the north include large scale oil ally is expected the federal government will and gas reserves, the prospect of major hydro move gradually on the matter. In the case of the and thermal electric power development, and Northwest Territories a priority issue is to 18 the exploitation of several known large mineral make progress in settling native land claims. A deposits. good start already has been made in that direc- A recent study of the north noted that in the tion. past, the major developmental question was This brief survey suggests the very real dif- "accessibility" of the resources. ferences in economic position among the areas of Canada. When differences in language, reli- However, today, the critical question gion, customs, and outlook are added to the faced by metropolitan decisionmakers re- ethnic differences, the entrenched regionalism lates to the developmental consequences of Canadian life becomes more obvious. As al- of accessibility on the northern landscape ready suggested, all these differences now are and the inhabitants, the non-native and sharply defined politically. native people [the Dene (Indian) nation, the Inuit (Eskimo), and the Metis (non- status Indians)]. Despite the anxiousness For Ontario and the Maritimes, the [of] metropolitan leaders to make a deci- Liberals are the national party, the de- sion [to expolit the north's resources], fenders of their economic interests northerners argue that prior economic, so- against the growing strength of the cial, and environmental impact studies west, and their political interests should take place before any decision is against the danger of separation. For reached. . . . Furthermore, the issue has the west, the Liberals are the instru- become even more complicated by the fact ment of central Canadian regional that the native people have realized the interests.21 future consequences of resource development, and they have effectively organized How Canada weathers "the crunch" will be themselves to raise the issue of land the central question of the 1980s.

Walcolm, "Canada Confronts Its West," p. 28. FOOTNOTES These figures are from The Financial Post, February 16, 1980, p. 8. ' Hockin, Government in Canada, p. 36. 5 Don McGillivray, "Figures Conceal the True Story," Fi- Douglas A.L. Auld, Contemporary and Historical Eco- nancial Times of Canada, April 14, 1980, p. 8. nomic Dimensions of Canadian Confederation, Occa- 6 The study was conducted by the federal Department of sional Paper No. 12, Canberra, Centre for Research on Regional Economic Expansion and was reported in Federal Financial Relations, The Australian National summary in The Globe and Mail, February 22, 1980, p. University, 1979, pp. 11-12. 84. 'Peter Cook, The Financial Post, January 5, 1980, p. 2. Trust Fund and Power Shift West: Myth or Realty?", a Quoted in The Christian Science Monitor, Special Sec- paper presented at the Annual Meeting of the Canadian tion on Nova Scotia, June 6, 1979, p. 81. Sociology and Anthropology Association, Montreal, The phrase of William J. Woodfine, "Economies of De- Quebec, June 4, 1980. pendency," Report, May 1979, p. 29. l6 Richard Osler, The Financial Post, December 8, 1979,p. lo Peter Foster, The Financial Post, February 9, 1980,p. 1. 53. 4, 1979, B1. The Globe and Mail, December p. l7 Jeff Sallot, The Globe and Mail, December 11, 1979, p. 12Quoted by Lawrence Martin, The Globe and Mail, B4. November 2, 1979, p. B2. la Roberta Steklasa, The Financial Post, November 10, l3 15, Donald Humphries, The Globe and Mail, January 1979, p. 20. 1980, p. B6. 141bid., p. B1. l9 Jeff Sallot, The Globe and Mail, January 17, 1980,p. B4. l5 Richard Osler, The Financial Past, October 27, 1979,p. 20 Paul M. Koroscil, "Introduction: The Canadian North- 516. See also the supplement to Canadian Public Policy land," in The Canadian North: Frontier or Homeland, VI, February 1980, which is devoted in its entirety to Canadian Issues, Vol. 2, No. 2, Willowdale, Ontario, The "The Alberta Heritage Savings Trust Fund. An Overview Association for Canadian Studies, 1979, p. 7. of the Issues" and Gordon F.N. Hearn, "Excursus on 21 Richard Simeon, "And Now the Crunch," Report, April Two Recent Conferences: The Alberta Heritage Savings 1980, p. 22.

Chapter 3

Cities In The Canadian Mosaic

21 METROPOLITAN CENTERS

Another aspect of regionalism in Canada must be examined, albeit briefly-the impact of the metropolis or city on regions. As early as 1954, the distinguished Canadian historian, J.M.S. Careless, noted the emergence of the regional city dominating "not only its sur- rounding countryside, but also other cities and their countrysides, the whole area being organized by the metropolis, through control of communications, trade, and finance, into one economic and social unit. . . ."I In today's Canada, there are the two traditionally dominant national metropolises: Toronto, including the Hamilton and St. Catharines-Niagara areas, [the extended Toronto metropolitan area approached four million (3,634,393) in population in the 1976 census] and Montreal (2,803,485 in 1976).2 About one in every four Canadians lives in one or the other of those two metropolitan areas. As national cities, their influence extends not only over the immediate region in which they are located, but also over the entire country. In addition, there are provincial metropolitan areas-regional cities- which have a more limited range of influence but whose presence is felt increasingly in Canadian economic life and in governmental decisionmaking: in British Columbia, Van- couver (1,166,348 in 1976); in Alberta, the Edmonton-Calgary nexus (1,014,145 in 1976); economic power, particularly that which is in Manitoba, Winnipeg (578,217 in 1976); in extended or supported by political decisions," the Maritimes, Halifax (267,991 in 1976); and noted L.D. McCann, that generates regional in Newfoundland, St. John's (143,390 in 1976). anger against the metropoli~.~Today, some The Ottawa-Hull areas (693,288 in 1976) must students contend the resentment felt by their be noted as well, although it is hard to classify hinterlands against urban centers exerts addi- that area as a regional city like the others. tional strains on the fabric of Canadian In addition to the national and regional federalism. cities, a number of other cities (Victoria in British Columbia; Regina and Saskatoon in MUNICIPAL GOVERNMENT Saskatchewan; Kitchener, London, Windsor, IN CANADA Sudbury, and Thunder Bay in Ontario; Quebec City in Quebec; and Saint John in New So far, however, the metropolis has not been Brunswick) have been growing rapidly and are very successful in winning recognition in the exerting their own pressures on their provin- fiscal arrangements arrived at by the provincial cial governments. All of these urban areas have and federal governments. For the most part the developed their own momentum, a momentum intergovernmental consultation process so which still is mounting and whose force is hard central to policymaking in Canada (see Chapter to quantify. The regions they dominate look to IV of this report for discussion of that process) 22 these regional cities not only for economic is confined to the federal and provincial levels. leadership, but also for social, political, and Pretensions of the regions, provinces, and cultural direction. They control "the flow of groups are directed at legislators and bureau- capital, entrepreneurship, technology, and crats in the federal and provincial govern- labor-the factors of production-that are used ments. However, the local government level in regional development. In return, [they re- delivers important government services and is ceive] raw materials and profit, as well as supported by one of the strongest property tax people who migrate to [their] center[s] in systems in the world, as well as by provincial search of greater well-being." Their "social grants, some of which are unconditional in values, business practices, and communica- nature. Indeed, generally local government in tions techniques" become those of their re- Canada is vastly more important than it is in gion~.~Over time, the regional cities have Australia, and in many ways it is stronger than worked, Jane Jacobs argues, "primarily as in the United States. With the possible excep- service centers for the exploitation of resources tion of Quebec, local government is subject to from their hinterlands. . . [rather than] as crea- extensive provincial control; on the other hand, tive economic centers in their own right. . . . Canadian municipalities exert considerable in- Canadian regional cities boom while the fluence on provincial policymaking. exploitation of their hinterlands is boom- Under Section 92 of the BNA Act, as noted ing. . . but then characteristically stagnate earlier, power over municipal institutions in when the resource exploitation reaches a the provinces was confined exclusively in the plateau. "4 provincial legislatures. Like American local Although the regional cities have much in government, municipal governments in Canada common, each has its own personality. And all are thus creatures of provincial governments, of them must be recognized as power centers. having only those powers and duties assigned On the one hand, by their distinctiveness they to them by provincial law or practice. "Home serve to heighten provincial/regional con- rule" has not won a following in Canada; the sciousness and to emphasize regional differ- provinces for the most part assume it is their ences; on the other hand, the interests of these right and duty to speak for their urban citizens regional cities do not coincide necessarily with and for their local governments as well in those of the provinces in which they are lo- making most of the policy decisions that affect cated. Indeed, there is some evidence that a them. protest movement of the hinterlands against As might be expected in such a context, the their regional cities is developing. "It is [their] character, duties, and powers of the roughly 4,200 municipalities in Canada vary exten- areas are assigned elsewhere by the sively from one province to another and even province. For example, in every prov- within individual provinces. Such variation ince public education is administered frustrates attempts to present a unified por- through separate school boards, the trayal of Canadian municipal government and usual responsibility of the municipality also to develop a national policy to deal with being to provide the tax funds neces- the problems and needs of Canada's urban sary for school operation. Other areas of sector. activity frequently administered by But if there are ten distinct "systems" of special districts or boards are hospitals, municipal government in Canada, there are police, public libraries, parks, public many commonalities among them: health, conservation, and community planning. In general, counties do not 1. Municipalities fall within various occupy the important place in the categories such as: city, town, village, Canadian governmental structure they rural district, township, county, and do in the United States. regional government. 6. Municipal governments, following the 2. The general provisions of a provincial American reform pattern at the turn of municipal act ordinarily constitute the the century, generally have been de- legal base of a municipality, but a few politicized, which tends to put them cities have special charters. outside the political channels of 23 3. In addition to a charter, most prov- policymaking and place them instead inces' statutes and regulations further in the provincial bureaucratic channel. define the authority of municipalities in the functional areas assigned to 7. To an increasing extent, regional gov- them, set out the conditions under ernments are being superimposed on which certain forms of provincial fi- urbanized areas by provincial legisla- nancial assistance will be made avail- tures to meet area-wide needs not being able, and provide for a large degree of met by individual municipalities. The provincial regulation and control over best known examples are Metropolitan municipal activities. Over the years, Toronto and Winnipeg, but regional the number of provincial statutory and governments have been established in supplementary regulations applying to metropolitan areas in Ontario, British municipalities has increased geometri- Columbia, and Quebec. By now, "re- cally, and provincial-municipal rela- gional governments are. . . understood tions have become complex and mul- not as innovative experiments but as a tiform. halfway step, a political compromise at 4. Provincial-municipal relations have the provincial level, on the path to been institutionalized in the provinces municipal integrati~n."~ through departments of municipal af- 8. Most of the major municipal govern- fairs and, in the provinces that utilize ments in Canada came into existence them, through departments or minis- prior to World War 11, with the result tries of intergovernmental affairs. Pro- that their authority and structure are vincial fiscal officers are becoming in- often not in keeping with present-day creasingly important. Where condi- realities. For the most part, they origi- tional grants are involved, a variety of nally were assigned a "community other provincial departments come into housekeeping role," their main con- play as well. cerns being maintaining and operating 5. A municipality is seldom the only local the local physical plant, roads, water government authority within its geo- supply, sewage systems, fire protec- graphical limits. Frequently, local re- tion, etc. Local safety services also were sponsibilities in particular functional provided, and municipal governments were expected to support libraries as ministration of justice have been taken well as the public schools. over. At the same time, they have found The process of urbanization and the it hard to yield new tax sources to dramatic surge in urban population municipalities. For the most part, they across Canada in recent years has have opted to make grants-in-lieu of changed the context of municipal gov- taxes for provincial property within ernment drastically. There has been a municipal boundaries and a variety of steady increase in the number and other grants to municipalities and to range of services municipalities have set up provincial loan funds for meet- been called upon to perform. At the ing municipal capital expenditures. same time, under the post-war welfare Provincial transfers to municipalities state as it has developed in Canada, are especially "important, constituting governments at higher levels have in- 50% of total local government revenue creasingly placed an administrative from all sources. . . in 1977. In other load on local authorities. words, on average, Canadian local gov- All too often, new responsibilities ernments depended for revenue as have been placed on municipal gov- much on provincial transfers as they ernments without providing sufficient did on revenue sources under their own revenue sources to support them. Al- control (such as the property tax)" most all municipalities in Canada have 24 during that year. "These transfers con- been experiencing financial problems. stituted 22% of provincial expenditures As in the United States, the real prop- in that year (or almost the same amount erty tax constitutes the chief revenue as the provincial governments received source for Canadian municipalities. in federal transfers). The importance of Personal property taxes and poll taxes these provincial transfers to local gov- are not levied but considerable revenue ernments has grown significantly in re- is derived from a unique type of prop- cent years, rising from only 25% of erty tax, levied on occupants of busi- local revenues in 1963 to 43% in 1970 ness property, and known as a "busi- and then growing more slowly to the ness occupancy tax." Local improve- 50% level by 1975.'" ment levies and special assessments, "Provincial grants have been chiefly license and permit fees, interest and tax conditional (special purpose), where penalties, and income from municipal the province agrees to contribute to the enterprises make up the rest of the support of particular municipal ser- municipal revenue potential. The vice(~)if certain standards are met and municipalities regularly resort to bor- procedures are followed. In recent rowing as a means of financing capital years, grants for education have been undertakings. the most important by far, constituting 62% of all provincial grants to Cana- 9. All provinces continually are faced dian municipalities in 1976. Most con- with pressure from municipal govern- ditional grants are "'closed' (. . . their ments and municipal residents for a amount. . . determined by the prov- greater share of provincial revenue. ince), not 'open' (a fixed percentage of The provincial governments are aware recipient expenditure) as [is] the case of the desirability of perpetuating local with the major federal-provincial con- participation and control and generally ditional transfer^."^ have refrained from exercising one op- Other provincial transfers to tion open to them (an option widely municipalities are unconditional (gen- used in Australia), that of taking over eral purpose) grants, under which the existing or developing new services at province supplies funds on a per capita the provincial level. However, some or other basis to be used more or less at services in the area of welfare and ad- the discretion of the local authorities. In Saskatchewan, for example, in that provincial influence over local fi- 1977-78, a total of $39.1 million was nances has increased significantly in distributed to municipalities in the recent years. The increased importance form of conditional grants and $22.1 of grants is only one way in which pro- million in the form of unconditional vincial control is exerted over local fi- grants. The former were for such as nance in Ontario. There is also tight police, water and sewer, neighborhood provincial control over municipal bor- improvements, road maintenance, and rowing, provincial control over the cultural and recreational activities; the major tax base (real property assess- latter include equalization and per ment) as well as over the structure of capita grants, the equalization grants property tax rates (e.g., the degree of being paid on a formula basis to discrimination among types of prop- municipalities in the pro~ince.~Table erty), frequent and arbitrary local gov- 2 shows the division of total provincial ernment restructuring, and numerous transfers between general purpose and provincial requirements controlling specific purpose grants over the 10 year local expenditure patterns (e.g., in edu- period 1967-76. cation). In Ontario at least, the "'pro- As Richard Bird concludes, provin- vincialization' of municipal govern- cial-local transfers demonstrate grow- ment has gone a long way. . . . [Indeed, ing centralization "in the sense that, it] is more misleading than not to con- 25 increasingly, local governments are sider local government as an 'inde- acting more as agents-spending pro- pendent' level of government."1° vincially provided funds on provin- What is true of Ontario applies in cially designated activities-than as general to the other provinces. On the independent decisionmakers." other hand, recently there has been a A closer look at the situation in On- trend towards the increased use of gen- tario tends to confirm the impression eral purpose (i.e., unconditional) grants by the provinces for purposes other than education. Quebec recently has Table 2 undertaken a spectacular reform of its PROVINCIAL TRANSFERS TO LOCAL local government finance. As of 1980, GOVERNMENTS, 1967-76 Quebec gave virtually the whole prop- (in millions of Canadian dollars) erty tax field to municipalities. This was done by transferring most of the Other school portion of the property tax to Year General Education Specific Total municipalities, decreasing provincial Purposes Purpose grants to municipalities, and by raising 1967 $231 $1,820 $2,051 provincial grants to school boards. The 1968 232 2,310 2,542 new arrangement could give hprec- 1969 24 1 2,619 2,860 edented autonomy to municipal gov- 1970 298 $2,272 $ 624 3,194 ernment in that province. Furthermore, 1971 361 2,641 1,076 4,078 the fact that federal-provincial transfers 1972 410 2,674 1,351 4,435 are increasingly unconditional is in- 1973 680 2,878 1,306 4,864 fluencing the provinces to move in the 1974 823 3,604 1,510 5,937 same direction with their munici- 1975b 1,066b 4,082b 1,678b 6,826b palities. 1976b 1,140b 4,644b 1,733b 7,517b While provincial grants have been increasing and now constitute roughly "General purpose" includes grants-in-lieu of taxes. Figures for 1975 and 1976 are estimates. half of municipal revenues, the grants jOURCE: Statistics Canada data as compiled in Provincia, have not been based "on any set of ob- nd Municipal Finances, Toronto, Canadian Tax Founda. jective criteria, but on annual negotia- on, biennial, Chapter 7. tions between the two levels of government or on provincial discretionary cumstances with respect to costs and judgments. . . .This type of annual services."l2 practice has created uncertainty and In 1980, Saskatchewan began to inflexibility in municipal finance man- index its revenue sharing program with agement" and reemphasizes the lack of municipalities. municipal autonomy throughout Canada." 10. For its part, the federal government has directly assisted municipalities by Very recently, most of the provinces making grants in lieu of taxes on fed- have been faced with the necessity of eral property within municipal bound- reexamining their financial relations aries. Ottawa announced early in 1980 with municipalities. In some provinces a new municipal grants program, to be the total amount of grants to local gov- phased over a four-year period, to ernments has begun to be tied to the broaden the range of federal properties yield of specified provincial taxes; and on which grants in lieu will be paid. a number of provincial grants to local Virtually all federal holdings in urban government have incorporated equali- and rural areas, including those of fed- zation or fiscal need components. Sev- eral crown corporations, will be in- eral provinces have instituted revenue cluded in grant calculations. The fed- sharing programs. Quebec, Ontario, eral government also indirectly has af- Saskatchewan, Manitoba and British fected municipal economies (and land Columbia have instituted programs use planning) by establishing harbors, which "provide municipalities with a airports and rail installations, military defined proportion of provincial rev- bases, post offices, etc. Other federal enues collected." Saskatchewan's pro- programs in the areas of housing, in- gram rolls certain former conditional dustrial development, urban renewal, and unconditional grants-but not all and home insulation have been insti- of them-into revenue sharing, those tuted, as have programs specifically di- rolled in being different for rural and rected at strengthening the municipal urban municipalities in the province. infrastructure. The amount of money Two pools, the size of which is deter- granted to local governments under the mined annually, have been established, latter programs always has been very one for urban municipalities as a small and for the most part has been group, the other for rural munici- channeled through the provinces. An example of a federal program directed palities. Annual increases in the pools toward municipalities is that signed in (set at $35.4 million for the urban 1979 between the federal government group and $26 million for the rural and Quebec, under which the federal group for 1978-79) are "determined ac- government will make grants of over cording to an 'escalator' that reflects $47 million in 1979 and $78 million in provincial economy growth. (The escalator is tied to the growth rate of the 1980, which, added to from provincial grants, will permit the improvement of provincial tax base). Finally, the two community facilities in the province, pools are distributed among their re- assist in urban park development and spective municipalities according to in constructing high density housing, two specific formulas. Grants for rural municipalities are distributed in much go toward installing water systems, and assist in building water purification the same way as previously. The grants plants. for urban municipalities are distributed under a three-part formula: a flat 11. In 1970, the federal government created amount per community, a per capita the Ministry of State for Urban Affairs, amount, and a "'foundation grant' which was designed to coordinate fed- which. . . recognize[s] special local cir- eral programs affecting urban areas and to serve as the main contact point provincial affairs led to the demise of within the federal government for the the process after only a few attempts to provinces concerning urban matters. make it work. One result of the effort, The provinces did not respond well to however, was to lead some of the the new ministry's existence, feeling it provinces to establish either formally or infringed upon their total responsibil- on an informal basis some sort of ity for municipal instititution as pro- provincial-municipal consultative vided by the BNA Act. "Although there forum within the province. was little doubt that the federal government exercised major direct and in- 13. The fact that municipalities are crea- direct responsibilities that affected tures of the provincial governments, urban areas, there was considerable un- and the provinces' desire to keep it that ease lest the federal government enter way, so far have resulted in the prov- the field. . . and, either through direct inces working to limit the development spending or conditional grants, stall of direct relations between the federal and frustrate provincial priorities and and municipal governments. programs."l3 There was also concern that federal policies and programs In sum, urban centers and the municipal would not recognize that urban prob- governments which represent them have not lems and issues differed in different re- become a part of the overall intergovernmental 27 gions of Canada. Provincial opposition policy consultation process at the national eventually led to abandonment of the level. There are no Canadian equivalents of the Ministry. American local government interest groups to 12. The early 1970s also saw the emergence press their cause in national policymaking. Put of an institutionalized pattern of what more exactly, the Canadian counterparts to the was called "tri-level" consultation. U.S. Conference of Mayors, the National These consultations were to be held on League of Cities, and the National Association a national and regional basis. They in- of Counties-the Federation of Canadian volved the federal government (through Municipalities and the Canadian Association of the Ministry of State for Urban Affairs, Municipal Administrators-have not used referred to above) and the provincial techniques similar to those the American and municipal governments in dis- groups have employed to be effective in the cussing the problems facing cities and policy process. To the extent municipalities in considering possible solutions to (and other local governments) are represented them. The hoped-for outcome was to in that process, it is through the provinces. (To provide the national government with be sure, if what has occurred in the United policy directions that would come from States-state governments failing to respond the grass roots rather than being de- adequately to .the needs of the central cities vised wholly in Ottawa. Like the plagued with racial and economic prob- Ministry of State for Urban Affairs, re- lems-were replicated in Canada, sistance by the provinces to this "intru- municipalities might well have found ways to sion" of the federal government into be heard in Ottawa.)

L.D. McCann, "The Myth of the Metropolis: The Role of FOOTNOTES the City in Canadian Regionalism." A paper presented to a seminar at Duke University, February 12, 1980, pp. J.M.S. Careless, "Frontierism, Metropolitanism, and 2 and 5. Canadian History," The Canadian Historical Review, Jacobs, "The Question of Separation," p. 90. 35:17, 1954. McCann, "The Myth of the Metropolis," pp. 5-6. Jane Jacobs argues Montreal has lost its status as a na- James Lightbody, "Local Government in Canada," tional metropolis and must now be rated only as a re- Canadian Public Administration, 22: 651, Winter 1979. gional city. Jane Jacobs, "The Question of Separation: A 'Richard M. Bird, Financing Canadian Government: A Tale of Two Cities," The Canadian Forum, February Quantitative Overview, Ottawa, Canadian Tax Founda- 1980, p. 90. tion, Financing Canadian Federation: 1, p. 61. Ibid. l2 Ibid., pp. 577-578. See 0.Yul Kwon. "Revenue Sharing as an Im~rovement l3 H. Ian Macdonald. "Federal-Provincial Relations in in provincial-~unici~alRelations & ~anada:-~nEvalu- Canada," A paper presented to the International Semi- ation of Saskatchewan Revenue Sharing," Canadian nar on Cooperative Federalism, Instituto di Studi Sulle Tax Journal 27: 576, SeptemberlOctober 1979. Regioni, Villa Serbelloni, Bellagio, Italy, April 23, 1976, lo Bird, pp. 61-62. p. 3. Ibid. Chapter 4 lnteraovernmental Fiscal Policvmakina

29 "The story of intergovernmental fiscal relations in Canada is largkly that of the transfer of funds from the Government of Canada to the various provincial governments. It has been one of a continuing attempt, if of varying intensity, to provide a structure in which the realities of nationhood could be adapted to a federal system. To an important degree, this has been a struggle to develop a workable fiscal balance between the needs, the ambitions, and the capabilities of the two levels of government, the federal government and the governments of the provinces."l To a large extent, however, the formal structures of Canadian government have not been the arena in which that struggle has occurred. Rather, it takes place, as already has been suggested, within an elaborate structure of intergovernmental consultation that has been built up in Canada over the years. As Richard Simeon has noted, "In- tergovernmental relations expressed mainly through. . .federal-provincial conferences are simultaneously the arena within which the multiple tensions of Canadian life are expressed and fought out, and the forum which is expected to work out and resolve those tensions. "2 FORMAL STRUCTURES OF POLICYMAKING The Canadian government's formal structure consists of 11 competing legislatures, ten provincial and one national, operating under the lumbia, for example, concedes only that "Inter- parliamentary system. There are no great dif- governmental consultation has allowed for the ferences between the federal Parliament and resolution of conflicts and has introduced a the provincial legislatures. They follow many certain degree of flexibility into the ~ystem."~) of the same traditions and rules, except all the In any case, that process bears a much greater provinces have single chamber legislatures, burden in Canadian governmental policymak- which generally makes for somewhat less for- ing than it does in the United States. In par- mal pro~eduresthan are adhered to in Ottawa. ticular, it is acknowledged widely that inter- Similarly, the cabinets, the Prime Minister and governmental consultation has become central premiers, the ministers and departments, play to Canadian domestic policymaking and espe- much the same roles at both levels of govern- cially to the development of Canadian fiscal ment (though it would be too much to expect and economic policy. the same departmental structure in all 11 governments). The element theoretically giving cohesion to a parliamentary governmental system is the CONSULTATION political party mechanism. Strong executive For the most part, the process works well. As leadership within the dominant party and party Simeon points out, among its "notable suc- discipline in following that leadership in cesses" in recent years have been the fiscal ar- 30 enacting legislation reputedly is the dominant rangements and equalization program de- characteristic of parliamentary systems. In scribed in the next chapter of this study, estab- Canada, however, the party system no longer lishment of the welfare state, and production of plays the role of achieving cohesion in national "some consensus on basic directions" for policymaking. For some time, and especially at Canadian economic policy. He even argues present, all the provinces have not been repre- "despite the acrimony over oil pricing and rev- sented in the majority party caucus in the fed- enues" that has marked recent relations be- eral Parliament. Nor are the parties in power in tween Ottawa and Alberta in particular, "the the provinces the same party in power in Ot- present tradeoffs between producers and con- tawa. The 1980 national election confirmed sumers and between federal and provincial emphatically what had been becoming evident government. . .are as fair to all sides as one for some time: Canada has basically regional could imagine any other process producing." parties rather than national ones. And because The intergovernmental process breaks down the parliamentary system usually responds to only "when issues are posed in sharp regional votes of confidence rather than to set terms of terms, or when the institutional interests of office in changing governments, changes in the governments are directly involved," or when 11 legislative bodies in Canada are not made at both of these forces combine.5 the same time. Thus the party system has not The intergovernmental consultation process served well as a mechanism of representation is carried on at virtually every level of federal and accommodation between governments in and provincial administration in Canada, from Canada, nor is it likely to do so at any time in nearly annual meetings of the First Ministers the near future. (the Prime Minister and the ten provincial Partly as a result of the national party sys- premiers) and regular, often annual, meetings tem's failure to perform that role, and partly of ministers in the many areas of domestic gov- because the subject matter of governmental ernmental concern, to frequent meetings of policymaking in Canada, as elsewhere, has be- deputy ministers and the senior departmental come so extensive and complicated that it does (and occasionally, agency) officials. Tables 3 not lend itself to legislative consideration and and 4 show something about those meetings' decisionmaking, "the executive and adminis- frequency, level, and areas of concern during trative process of federal-provincial confer- one recent year. ences" has become the main device for national It probably would not be possible to draw a integrati~n.~(The case might be made a little comprehensive picture of the entire spectrum less strongly. The government of British Co- of intergovernmental consultation. Some of the Table 3 FREQUENCY OF FEDERAL-PROVINCIAL MEETINGS AND CONFERENCES ACCORDING TO LEVEL OF REPRESENTATION AND AREA OF GOVERNMENT ACTIVITY, 1975 Assistant Minis- Deputy Deputy Off i- terial Ministerial Ministerial cials Total General Government 3 11 - 4 18 Finances 3 7 1 6 18 Agriculture 8 9 4 2 23 Transportation 15 15 14 13 57 Education 2 2 - 5 9 Energy and Resources 12 27 6 3 51 Environment 19 29 20 25 93 Manpower-Labour 23 8 2 11 44 Statistics 2 1 4 30 37 Welfare 4 5 9 4 22 Health 2 15 6 15 38 Industry and Trade 7 55 43 50 157 Urban Affairs 23 9 14 32 78 Justice and Laws 13 3 3 3 22 Consumer Affairs 7 4 1 3 15 Communications 6 1 - 2 9 Native Affairs 11 4 12 11 38 Miscellaneous 7 18 15 13 53 Total 167 223 154 232 782 SOURCE: Kenneth Kernaghan, ed., "Federal-Provincial Administrative Liaison in Canada," Public Administration in Canada Toronto, Methuen, 1977, pp. 80-81.

Table 4 consulting groups are old and well established, FREQUENCY OF have interim secretariats of their own, and are FEDERAL-PROVINCIAL MEETINGS highly visible to the media; others are rela- AND CONFERENCES ACCORDING TO tively new on the scene, have not developed a CATEGORY AND LEVEL OF set procedure, and often fail to catch the atten- REPRESENTATION, 1975 tion of the media (and so of the public). Some Bi- Re- Multi- meet more often than others. And the process lateral gional lateral Total differs by subject matter; what applies in health does not necessarily apply in energy. Nor are 'irst Ministerial 4 - 2 6 the process results necessarily the same for Wisteria1 99 10 58 167 every subject matter area; in some areas, policy leputy Ministerial 148 12 63 223 directions are necessary; in others, discussion Issistant Deputy and sharing information suffice. Ministerial 111 14 29 154 What does characterize the process as a lfficials 1 28 9 95 232 whole (with the exception of First Ministers' rota1 490 45 247 782 conferences) is the important role bureaucrats ;OURCE: Kenneth Kernaghan, ed., "Federal-Provincial play. For a long time the federal bureaucracy idministrative Liaison in Canada," Public Administration in dominated intergovernmental consultation. :anada, Toronto, Methuen, 1977, pp. 80-81. During the past two decades, however, "the Provincial public services slowly became more between those in line agencies and those in the competent to deal with their federal counter- central agencies, the so-called "superbureau- parts on a basis of both partnership and com- ~rats."~Whereas earlier those in line agencies petition. While the gap has now been closed to frequently were important in the consultation an important extent, there is still some un- process, the superbureaucracy now clearly evenness among the Provinces." And, as might dominates all but the highest levels of the in- be expected in recent years, "with the swing tergovernmental process, the first ministers' toward greater Provincial autonomy there has and ministers' meetings. Even for those groups, been a marked resurgence of independence on they make a heavy input through the prepara- the part of Provincial officials. . .[and] minis- tion and follow-up agenda. The superbureau- ters. Along with the recovery of financial and cracy at the federal level in its present form was administrative authority, they have developed largely the creation of Pierre Trudeau. The a new and often over-aggressive self- agencies encompassing that bureaucracy are assurance," which has tended to make the con- the Privy Council Office, the Department of Fi- sultation process more arduous and pro- nance, the Prime Minister's Office, the Trea- tracted.6 sury Board Secretariat, the Federal-Provincial It could be argued that bureaucrats in the Relations Office, and more recently, the Minis- Canadian policymaking system, as in the tries of State for Economic Development and American system, regard programs as the ex- Social Development. 32 pected outcome of the intergovernmental con- In so far as fiscal federalism and inter- sultation process at work. They continually governmental relations are concerned, the most emphasize developing policies which lead to important roles are played by the Federal- continuation of existing or initiating new pro- Provincial Relations Office and the Department grams, often regardless of the economic, or- of Finance. The FPRO is responsible for the in- ganizational, or management bases on which creasingly important meetings of First Minis- the policies and programs must be built. Thus, ters of Canada and, together with the Depart- the 100th Annual Report of the Auditor Gen- ment of Justice, for matters relating to the Con- eral of Canada concluded that policymakers in stitution. The Department of Finance is respon- 1978 apparently deemed the public purse as sible for the very important fiscal arrangements "bottomless" and to have offered few incen- between the federal government and the prov- tives "for developing effective financial man- inces. This is handled by the Federal- agement and control systems" for the programs Provincial Relations and Social Policy Branch they put in m~tion.~However, the EPF ar- of that department. The department also is rangements of 1977, discussed in Chapter 5 concerned with fiscal harmonization and a below, have resulted in a new structure which wide range of economic matters. However, clearly is providing large savings by eliminat- federal-provincial relations cover such a broad ing the most important shared-cost programs range of government activities every federal and replacing them with a GNP-escalated pro- department is involved in this area. gram. FPRO was reduced in importance during Prime Minister Clark's short tenure in office, BUREAUCRACIES AND but evidently has been brought back by Prime INTERGOVERNMENTAL Minister Trudeau in the new government. CONSULTATION Whether it will be carried on as it was before or somewhat recast remains to be seen. All we As in the United States, different Canadian know at this writing is Mr. Trudeau has as- bureaucracies respond to particular constituen- signed one of the secretaries to the cabinet spe- cies in the Canadian public, constituencies cial responsibility for federal-provincial rela- whose interests often conflict as you move tions and has indicated he will take particular across the range of government activities in- personal interest in the area himself, thus volved. Moreover, as Colin Campbell and perhaps supporting Michael Pitfield's conclu- George J. Szablowski have demonstrated so sion that since well, the bureaucracies are divided themselves [slo many of the federal government's decisions are by the nature of to foster the balanced economic growth of all federalism important to the prov- sections of the country. Its reports and recom- inces. . .it is natural that the Federal- mendations consistently demonstrate it recog- Provincial Relations Office should be nizes the multigovernmental dimension of in partnership with the Privy Council Canadian policymaking to that end. The prov- Office under the Prime Minister's im- inces are not represented formally in the coun- mediate dire~tion.~ cil's membership, however, and thus there is no assurance the kind of economic research For their part, most provinces have some of will be conducted which the provinces might the same superbureaucratic institutions, writ view as essential to understanding the impact small, as they have been adapted to provincial of national economic policies on their regional use. The FPRO commonly is duplicated at the economie~.~~In fact, the Economic Council has provincial level either by a free-standing office not played an important role in fiscal federa- or ministry of intergovernmental affairs or by lism. It has completed some studies in this assigning someone at a high level in provincial area, but these studies apparently have little government the responsibility for inter- influence on major fiscal negotiations. Up to governmental relations. A premier frequently the present, the council has written relatively assumes some aspects of that responsibility little about the fiscal arrangements in effect himself. In addition, the Council of Maritime since 1977. Premiers and the Western Premiers Conference As Table 3 suggests, many line department 33 and their staffs and working groups serve as officials of both federal and provincial govern- multi-provincial policy-recommending bodies. ments continue to be involved in their own set Considering such agencies as FPRO and the of intergovernmental consultations. Of par- provincial intergovernmental relations agen- ticular importance lately have been the con- cies, Simeon wonders if the professional sultations between ministers and officers re- bureaucrats staffing them have not come to sponsible for industry and trade, environment, constitute "an internal diplomatic corps" more and energy and resources. One federal line de- concerned with the process than with the sub- partment in particular is intimately involved in stance of intergovernmental relations and so consulting and negotiating with the prov- perhaps have changed the nature of the process inces-the Department of Regional Economic itself.10 Expansion, established in 1969. It has com- One other body deserves comment (though prehensive responsibility for planning and the Economic Council of Canada escapes coordinating action between the two levels of Campbell and Szablowski's analysis as a government to reduce regional disparities. Its superbureaucratic institution). The Economic target is those sections of the country which Council's involvement in the consultative historically have suffered from high unem- process is quite different from that of the agen- ployment rates, underemployment, and low cies just described. When the Council was productivity employment-chiefly the Atlantic created in 1963, its form was "influenced by Provinces and Quebec. However, its activities the Canadian federal system. While there were extend to designated areas within all ten thoughts of creating more expertise within the provinces. Treasury Board, the Department of Finance, The impact of government agencies and op- and the Privy Council Office," in the end the erations outside these traditional departments decision was made to locate the Council out- and agencies on policymaking and the inter- side the framework of any of them, so it might governmental process bears mention-specifi- serve as "a somewhat neutral body to provide cally, the crown corporations and nonbudget- economic information and advice to both the ary funds of which Canada makes such great federal government and the provinces."ll The use. Through crown corporations, governments act creating the council specifies one of its in Canada have a much more "substantial in- duties shall be "to seek full and regular con- volvement in the public sector" than in the sultation with appropriate agencies of the gov- United States. A crown corporation is an in- ernments of the several provinces" as it seeks stitution in which a government owns or shares in the ownership with another government or INTEREST GROUPS with a private sector entity. It is cast in a corporate form but removed by design some distance Governments and bureaucrats in Canada do from the direct political control of cabinets and not make policy in a vacuum, any more than parliaments. A wide range of structures is used, they do in the United States. In fact interest with some being independent of government group activity has increased tremendously in control and others not. Although almost always recent years. This has resulted from a massive under a cabinet minister, crown corporations increase in the scope and scale of government operate much like private corporations. Crown in Canadian life, the vastly larger number of corporations often can act with relative inde- officials available to pressure and persuasion, pendence; they usually are not obligated le- and the awakening of Canada's citizenry, as in gally to bring their operations into line with the United States, to an activist role in politics, federal or provincial economic or fiscal objec- which has brought them in contact with many tives and policies; and their financial expen- more government officials as they plead their ditures and commitments often are not subject to cases. government approval or continuing scrutiny. It is obviously necessary for the several gov- This situation may be expected to change. ernments in Canada to respond to the two quite Thus, the federal government introduced different mind-sets and demands of the legislation late in 1979, the Crown Corpora- English- and French-speaking societies as they tions Act, to provide for control, direction and make policy. But they respond to other pres- 34 accountability for crown corporations. There sures as well. As they do so, they generally are about 400 crown corporations at the federal have "eschewed programmatic, doctrinaire and provincial levels of government in politics in favor of empiricism, incremen- Canada.13 The Canadian Development Corpo- talism, and the evolution of policies which re- ration and Petro-Canada are examples of crown spond to the demands of interested parties . . . . corporations at the federal level; even Prince Canada generally accepts the pressures of a Edward Island has its industrial Enterprises In- pluralist society in which major policy deci- corporated, which operates two industrial sions emerge not from the coherent and con- parks, helps firms through financing and sistent program of . . . ideologically-based labor-force training, and provides management political part[ies] but from the bargaining of and technical advisory services. Some crown numerous groups." l4 corporations are joint enterprises of the federal In Canada bargaining is focused more on the government and a province. One example of executive branch-the cabinet, ministries, and such a corporation is the Waterfront Develop- the civil service-than on the legislative ment Corporation, Ltd., which is funded jointly branch, as in the United States. Again, unlike by Ottawa and the Province of Nova Scotia to the United States, Canada's smaller population renovate the historic harbor section of Halifax. and correspondingly much smaller number of The Canada Pension Plan and Quebec's officials (political and bureaucratic elites), as Caisse de Depot et de Placement du Quebec well as the smaller number of governments, (which manages the funds collected under makes contact between them and interest group Quebec's own pension and car insurance representatives easier and more natural. plans), as well as the Alberta and Saskatche- But like the United States, the fact Canada is wan Heritage Funds, mentioned earlier, are a federal state and thus contains 11 centers of examples of the most important government policymaking means interest groups do not fund agencies. push their causes only in Ottawa. And like the While the management of crown corpora- United States too, provincial governments in tions and government funds is outside the Canada, "while at one level aggregating special bureaucracies involved in ordinary intergov- and local interests into provincial policies, at ernmental consultations, it wields an economic another level act as spokesmen for particular clout most important in intergovernmental re- interests of their own" vis-a-vis the federal lations. This is true of both federal and provin- government.15 Thus both private sector groups cial bodies. and provincial governments themselves exert pressure on the federal government. The former pressure groups.19 Finally, former civil ser- maintain the expected bevy of lobbyists in Ot- vants, former Members of Parliament and tawa. l6 legislatures, and former cabinet members have For its part, the federal government exerts followed American precedents and have of- pressure on provincial policymaking, chiefly fered their expertise to interest groups as lob- through its own bureaucracy but also through byists or c~nsultants.~~ the institution of federal-provincial confer- Analysis of private interest groups' impact ences. Conferences provide occasions for fed- on Canadian government policymaking in the eral participants to comment on those matters intergovernmental context is in the infant under provincial jurisdiction which are in the stage. Speaking about the impact of those national interest. One obvious area of federal groups on the policy process in general, Meisel concern is the broad field of education. In this noted as he sees it "not all relevant interests and other areas, however, the "protective in- are represented in the . . . process and some stincts" of the provinces often come to the fore, [the rich] are much better placed to exert influ- and the provinces tend to resist proffered fed- ence than others [the poor]."21 And he points eral comment or advice." out that since the spokesmen for interest As for private pressure groups, P. Aucoin groups often "do not accurately represent the noted in 1975 that increasingly they are find- wishes of their members . . . the brokerage ing : process does not necessarily produce solutions which are in the best interests of the commu- 35 I) they can no longer rely as exclu- nity as a whole." Finally, he notes, increasing sively as they once did on their public awareness of interest group influence contacts with departmental bureau- "undermines trust in the integrity and effec- crats but also must penetrate central tiveness of government. . . ."22 If the advisory mechanisms, such as the policymaking process as a whole is so per- PMO, PC0 and Treasury Board; meated by these factors, it is not unreasonable 2) they must be prepared to present to assume they carry over into policymaking more formal presentations, based on through the intergovernmental consultation the views of their own experts, process. rather than simply communicate With regard to public sector interest groups, their demands in friendly chats with unlike the United States which is dominated by bureaucrats or Cabinet members; a few groups of equal weight, Canada is not. 3) they must formulate their demands Unions of municipalities do exert pressure on in a way that enables the political provincial legislatures, as the Council of and bureaucratic sectors to compare Maritime Premiers and the Western Premiers them to demands from competing Conference do on the federal Parliament. But groups; and for the most part, the public sector is not highly organized or cohesive. On the other hand, the 4) they must be more willing to engage provincial and federal bureaucracies are linked in public discussion, at least in the closely. It may be as they interact in the inter- forum of legislative committees.ls governmental process, each bureaucracy as- Meisel points out other changes: as govern- sumes the role of public sector spokesman on ments have added a number of boards and particular issues and on particular occasions. commissions with responsibilities in the public In the end, the intergovernmental process sector, they have tended "to appoint spokes- culminates in a federal-provincial conference. men for particular interests" to board member- The consulting teams of superbureaucrats and ship. This has resulted "in the line between the line agency officials go to work armed with private and the public sector becoming blurred numerous weapons-parliamentary and legis- and, in a sense, in each becoming contami- lative mandates, cabinet directives, Economic nated." Too, patronage appointments to gov- Council studies, the fiscal force of crown cor- ernment boards and commissions increase the porations and government fund managers- interdependence between government and and the knowledge of group desires and interests, and supported by their own "homework." provincial process has become "inherently ad- The process is far from monolithic, as Tables 3 versarial and hence counter-productive in na- and 4 make clear. Consultation occurs con- t~re."~~The government of British Columbia, stantly at several levels and on many different in its 1978 series of Constitutional Proposals, subjects and issues, often simultaneously. As observed changes in the consultative Gerard Veilleux points out, "the inter- mechanisms too often have been made governmental machinery can be put into oper- "piecemeal" and on a short-term basis, "with ation on very short notice and can deal with little regard for long-term objectives and matters of enormous complexity . . . ."23 priorities." It expressed the opinion that the intergovernmental process consists of a "rather THE INTERGOVERNMENTAL nebulous clutter of committees . . . often with- PROCESS EVALUATED out consistent objectives or formal organiza- tion. There has been little attention paid to Even so, intergovernmental consultation is coordinating the activities of the vast network not an easy process to use. It has been of . . . meetings and conferences that take place criticized over the years on a number of each year" across the range of policy areas. grounds. There are apt to be a great many left "Very little information flows between these hands that do not always know what the right various bodies and no mechanism [exists] for hands are doing. Simeon sees the process as es- resolving overlap and in~onsistency."~~ 36 sentially undemocratic, removed as far from Other criticisms of the process include: the public as it is;24as costly; and as tending to frustrate functional consultation between gov- - the inevitability of bargaining, which is ernments and business and labor in Canada, inherent in the negotiation process; which is "equally required in contemporary -the length of time involved in the pro- advanced states . . . ."25 Gordon Robertson, cess, which means there is usually a speaking from his intimate personal experience major time lag between the identifica- as a federal bureaucrat involved in the process, tion of a problem and the beginning of is bothered by a recent shift in the nature and action to alleviate or solve it; perception of many intergovernmental meet- - the impediment to final action presented ings. He felt these meetings once offered op- by the necessity of bureaucrats having to portunities for coordination and consultation refer a "decision" back to provincial and in the classic administrative sense, but in re- federal governments for acceptance and cent years they have become occasions "for the implementation; articulation of distinct provincial interests and for provincial intrusion into wholly federal - the possibility "the feds are [not] telling everyone the same story" in the many areas of concern." 26 Michael Kirby, formerly president of the Institute for Research on Public consultations occurring at the same Policy and in 1980 appointed deputy secretary time;30 to the cabinet for federal-provincial relations, -the tendency of governments to use the noted in a lecture delivered at Carlton Univer- process "to clear their consciences by sity, April 1980, "Provinces, like individual putting off problem solving to a later citizens, are now tending to take an indi- date . . .;"31 and vidualistic rather than a collective view of the -the failure of the process to follow country, and the result is a tension in federal- through, in any organized or general provincial relations on a scale that is unpre- way, by reviewing and evaluating these cedented in Canadian history."27 Moreover, programs once they have been im- there has been a noticeable tendency recently plemented. for provincial team members to "gang up" on those from Ottawa at federal-provincial confer- Even more basic worries have been voiced by ences, using the occasions to make demands two serious students of the process at work. rather than for genuine consultation. Gerard Richard Simeon sees it challenged by the Veilleux questions whether the federal- growth of the parallel forces "of provincialism and Quebec nationalism" and by erosion of the Finally, most students of the intergovern- perceived "legitimacy and effectiveness of the mental process would agree the focus of the central government on the one hand and by the process has been changing gradually, making need for Canadian governments to devise ef- one wonder if it will serve as well in the future fective strategies for development in an often as it has in the past. A decade or so ago, discus- hostile world setting" on the other. The latter sions focussed "mainly on matters of taxation, suggests to him the need for greater coordina- tax sharing, the provision of major new public tion and planning among governments; the services and the use of shared-cost programs as former, he says, "makes that much harder to a means to this end." More recently, other achieve."32 Gerard Veilleux is concerned matters have come to the fore. In addition to whether the federal-provincial negotiation providing opportunity for regular discussions process can continue to function as success- of the general economic outlook, discussions fully as it has in the past in the face of a are increasingly directed to "economic policy number of "deep-rooted problems" which he issues relating to the structure and longer-term believes have developed recently. Those prob- development of the economy . . . energy, trade, lems include: manufacturing and industrial development . . . ." In other words, "whereas in the 1960s much of [the consulting teams'] attention was I) "the growing complexity of the concerned with the means of financing new economy and of the problems to be programs and services, much of it is now con- solved; 37 cerned with means of implementing expendi- 2) the increasing involvement of gov- ture restraint. "34 ernments in each others' operations In any case, what eventually must be an- (for example, the interdependency swered in Canada, Richard Simeon has con- of governments on each others' eco- cluded, are three fundamental questions: nomic forecasts) and the consequent blurring of responsibility of differ- "first, are the regional divisions so ent governments for taking action in deep, the competing ambitions and specific areas; development priorities of federal and 3) the increasing public cynicism con- provincial governments so different, cerning the capacity of governments and the policy-instruments for to solve problems; policymaking so widely shared among the two levels of government, 4) the increasing fiscal pressure on that [Canada] is unable to meet the governments (with the conspicuous challenge to develop coherent na- exception of those that are able to tional economic and social policies? derive large revenues from natural resources); second, are the ethnic and regional tensions so great, the forces of prov- 5) the substantially increased capacity ince and Quebec nation-building so of the provinces to develop solu- strong, the integrative factors so tions to complex fiscal and eco- weak [,I that [Canada] will be unable nomic problems without having to to resolve the constitutional issue, rely on federal leadership; short of fragmentation? 6) the increasing sophistication and assertiveness of provinces in matters third, is the present, or potential, machinery of intergovernmental re- of economic development which lations able to meet these two chal- appear to be leading them into conflicts with each other as well as lenges ?" 35 [with] the federal government; and Even with all these caveats, there is nearly 7) some evidence of growing unanimous opinion in Canada among prac- isolationism in some parts of the titioners and scholars of government that inter- country." 33 governmental consultation remains a necessary and vital part of the Canadian process. The which discusses -proposals - for constitutional problem is not to do awav with it but to im- revision in Canada, suggests some ways to do prove it. The concluding section of this report that.

FOOTNOTES more than 1,500 groups. The Globe and Mail, November R.M. Burns, Intergovernmental Fiscal Transfers: Cana- 21, 1979, p. B 17. dian and Australian Experiences, Research Monograph l7 Gordon Robertson, "The Role of Interministerial Confer- No. 22, Canberra, Centre for Research on Federal Finan- ences in the Decision-Making Process," in Richard Sim- cial Relations, The Australian National University, eon, ed., Confrontation and Collaboration-Intergov- 1977, p. 3. ernmental Relations in Canada Today, Toronto, The In- 2 Richard Simeon, Intergovernmental Relations and the stitute of Public Administration in Canada, 1979, p. 84. Challenges to Canadian Federalism, Discussion Paper l8 P. Aucoin, "Pressure Groups and Recent Changes in the No. 7, Institute of Intergovernmental Relations, Queen's Policy-Making Process," quoted in Meisel, Exorcising University, Kingston, Ontario, The Institute, 1979, p. 1. the Pluralist Heaven . . ., p. 11. The paper is reproduced under the same title in Cana- l9 Meisel, pp. 11-12. dian Public Administration 23: 14-32, Spring 1980. 20 Thomas Hockin raises the point of whether the growing 3 Ibid., p. 2. intervention of Canadian governments in private indus- Province of British Columbia. British Columbia's Con- try does not "raise profound reservations about the au- stitutional Proposals, Paper No. 5, September 1978, p. tonomy and independence of interest groups in general 11.- -. . . . ." He wonders if the involvement of interest group 5 Simeon, Intergovernmental Relations . . ., p. 4; regarding representatives directly in the policymaking process the successes of the intergovernmental consultation does not cause them to lose their independence and so 38 process, see also Gerard ~&eux, "Intergovernmental to make "pressure group politics . . . less real than they Canada: Government by Conference? A Fiscal and Eco- seem," Hockin, Government in Canada, p. 84. nomic Perspective," Canadian Public Administration, 21 Meisel goes on to note "The federal government has 23:34, Spring 1980. tried to reduce disparities between opulent interests and R.M. Burns, "Financial Centralization and Administra- relatively indigent ones by making grants to certain or- tive Capacity in Canada," in Political and Administra- ganizations and groups . . . [Recent] financial con- tive Federalism, Research Monograph No. 14, Canberra, straints, however, have . . . led the government to slash Centre for Research on Federal Financial Relations, The these expenditures." In Exorcising the Pluralist Heaven Australian National University, 1976, p. 10. . . ., pp. 29-30. J.C. Strick, reviewing the 100th Annual Report of the ZZIbid.,p. 14. Auditor General of Canada to the House of Commons, l3Veilleux, p. 38. Fiscal Year Ended March 31, 1978, Ottawa, Ministry of AS Tim Creery has noted, "programs requiring federal- Supply and Services Canada, 1978, in Canadian Public provincial agreement become very complex and difficult Administration, 22:316, Summer 1979. for the ordinary citizen to understand. They require ex- 8 Colin Campbell and George J. Szablowski, The Super- tensive negotiation through a form of diplomacy among bureaucrats: structure and Behavior in Central Agen- the many governments involved, and this gives the cies, Toronto, Macmillan, 1979. negotiating teams of civil service experts much power in 9 Michael Pitfield, "The Shape of Government in the shaping them. And these negotiations, being at the 1980s: Techniques and Instruments for Policy Formula- executive level, are secret." In "Up the Road,"Report, tion at the Federal Level," Canadian Public Adminis- December'l9791January 1980, p. 46. tration, 19:15, Spring 1976. l5 Simeon, Intergovernmental Relations . . ., pp. 9-11. 10 Simeon, Intergovernmental Relations . . ., p. 11. 26 Gordon Robertson, quoted in Richard Simeon, ed., Con- 11 R.W. Phidd, "The Economic Council of Canada: Its Es- frontation and Collaboration . . ., pp. 82-83. tablishment, Structure, and Role in the Canadian Poli- 27 Quoted in The Financial Post, May 3, 1980, p. 7. cymaking System," Canadian Public Administration, Veilleux, p. 40. 18: 437, Fall 1975. 29 Province of British Columbia, British Columbia's Con- 12 This complaint is voiced in Province of British Colum- stitutional Proposals, Paper No. 5, "Improved Instru- bia, "Regional Economic Accommodation." Towards an ments for Federal-Provincial Relations," September Economic Strategy for Canada, Background Papers, Feb- 1978, pp. 7-8 and 10-11. ruary, 1980, p. 28. 30 The concern of an adviser to Premier Bill Davis of On- l3 Comparative Facts on Canada, Mexico, and the United tario, quoted in The Financial Post, November 17, 1979, States, Factbook No. 2, The Dean Rusk Center, Univer- p. S 19. sity of Georgia Law School, Athens, GA, The Center, 31 The opinion of the Deputy Minister of Intergovernmen- 19j9, p. 94. - tal Affairs of Quebec, quoted in Quebec Update, Vol. 11, l4 John Meisel, Exorcising the Pluralist Heaven: Interest No. 49, Quebec Government Office in Atlanta, GA, De- ~rou~sin Canadian society, a paper prepared for the cember 10, 1979, p. 2. Seminar on Canadian-United States Relations, first draft, 32 Simeon, Intergovernmental Relations . . ., p. 5. Harvard University, October 30, 1979, pp. 4-5 and 9. 33 Veilleux, p. 40. 'SIbid., p. 6. 34 Ibid., pp. 36-38. l6 The Clark government began to set up a central registry 35 Simeon, Intergovernmental Relations . . ., p. 2; see also of lobbyists in 1979. By November, the registry listed Veilleux, pp. 42-53. Chapter 5

Fiscal Federalism In Canada

39 Thedetailed information about the intergovernmental consultation process outlined in Chapter 4 of this report was included to identify it as the process through which most basic decisions about Canadian fiscal federalism are made, at least decisions about transfers and payments of federal funds to the other governments of Canada. The importance of federal payments to provinces and municipal governments will be understood more fully when it is realized these payments were estimated to reach $11.2 billion in fiscal 1979-80 and to constitute about 22% of estimated total federal budgetary expenditures in that year. Federal funds have been transferred to the other governments of Canada since the beginning of confederation. No attempt will be made here to give an historical account of the changing pattern of federal transfers and payments over time. That has been done amply elsewhere.1 It is necessary to note only that issues of fiscal federalism came to the center of the intergovernmental stage after World War 11. In order to meet the post-war needs created by rapid population growth, increased urbanization, and an increased emphasis on education throughout the country, the provinces demanded and won from Ottawa impressive concessions in terms of the effective transfer of revenues from the federal government through a series of tax abatements. That transfer was forged under what might be called "confrontation federalism," in which one issue domi- one of the most important milestones in the nated, namely, which government would bear long history of intergovernmental financial ar- the political cost of levying the personal in- rangements in [Canada] . . . [It] continues a come tax. As federal policymakers yielded basic structure of harmonized definitions and more and more income tax ground to the tax collecting arrangements that was begun provinces, they began to realize they were over 36 years ago[;]. . . it . . . preserves the giving the provinces tax room at zero political elaborate system of equalization payments di- rigk to provincial leaders on the one hand, rected towards the less favoured provinces; [it while on the other hand they soon would en- incorporates] . . . measures to assure the rela- counter difficulties in meeting necessary fed- tive stability of provincial government rev- eral expenditures. Finally, in 1966, the federal enues; and . . . it provides a major and much- government drew the line, telling the provinces needed disentangling of the responsibilities in effect to look elsewhere than to the further and financing for three major social programs and continuous abatement of federal income in which there has been a formal sharing of taxes to solve theitr fiscal problems. When costs between the federal and provincial gov- Pdime Minister Trud~eauentered office in 1968, ernments, namely Hospital Insurance, Medi- the search for other possibilities was con- care and Post-Secondary Education." tinued, until finally in 1977 the existing fiscal As a result of these arrangements, the Eco- arrangments were esitablished. nomic Council of Canada predicted "the mix of The issues involvied in fiscal federalism ob- government surpluses or deficits" would be 4 0 viiously produce tensions among Canadian gov- altered, since under them the federal govern- ernments, tensions which, many believe, will ment transferred more of its financial resources not be reduced without a number of constitu- to the provinces; having gained "the increased tional adjustments (see Chapter 7 of this flexibility they sought," the provinces would study). In any case, some of the existing ar- be able to adjust their delivery systems "to pro- rangements for federal transfers and payments vide services at lower cost and . . . thus have were made only after a "series of long and greater incentive to control spending" as well sometimes arduous negotiations" which in- as to "shift expenditures to programs that volved an unprecedented unanimous joint command higher priority." For its part, the submission by the provinces to the Finance federal government would be able to maintain Ministers' meeting in December 1976 and "the growth of its program contributions in which culminated in an agreement between the line with the expansion of GNP." federa! government and the provinces, sub- The overall results of the new ar- sequently embodied in the Federal-Provincial rangements will bring a major change Fiscal Arrangments and Established Programs in the structure of the public accounts Financing, Act, 1977.2 Those arrangements at both levels of government, reducing were set for a five-year period; thus another both federal revenues and expendi- round of negotiations already has begun with a tures and increasing provincial rev- view to legislation by April 1, 1982. enues should the provinces choose to Besides the arrangements under that author- enter the tax fields that the central ity, there are numerous other arrangements for government has abandoned. This, in transfering funds from Ottawa to the provinces turn, will increase the need for even which also are the product of consultation and better coordination of federal- negotiation. Under most of these, the costs of provincial fiscal policies through the services are shared half and half by the two already existent federal-provincial ley-els of government. The 1977 arrangements meetings of finance ministers. This package is discussed first and then the other ar- coordination should not be limited to rangements. fiscal policies but should also embrace 1977 FISCAL ARRANGEMENTS ACT other important policy areas . . . debt management [for example.] The 1977 agreement and act "is undoubtedly Not enough time has elapsed since the arrangements were implemented to collect suffi- 2. The "provincial corporation income tax cient data to judge whether all the Economic shall be expressed as a percentage of the Council's predictions have been borne out, taxable income of a corporation earned though there are indications some of them in the province in the year." have. Thus what follows is more descriptive 3. The '"rovince will, in respect of each than evaluative. year, impose only one rate of individual income tax . . . ." Cooperation in the Tax System 4. The "province will accept as final and Since 1941 Canada has had important ar- binding all assessment, decisions, and rangements governing the Federal-provincial other steps taken by the [federal] De- joint occupancy of the personal and corpora- partment of National Revenue under the tion income tax fields. These revenues ac- Federal Income Tax counted for about 38% of total government rev- In return for accepting these conditions, the enues in Canada in fiscal 1979-80, with federal government incurs the entire collection slightly more than 60% of this accruing to the cost and remits the amount of tax assessed federal government and almost 40% to the under each provincial act to that province in provinces. A distinctive feature of the Canadian full. (The amount of payments on account are income tax system is the tax collection agree- determined by the federal government and paid ments between the federal governments and to the provinces in installments through each 41 nine provinces. Continuing earlier practices, fiscal year. Final adjustment payments are established in 1962, the 1977 act authorizes the made 15 months after each fiscal year and are federal government to offer the use of its in- based on actual tax assessed.) Either party may come tax collection facilities to provincial gov- modify or terminate a tax collection agreement ernments, so they may be spared the expense of upon sufficient notice. establishing their own administrative machin- Under this arrangement each government ery for collecting such taxes. All the provinces levies its taxes on a uniformly defined tax base, save Quebec currently participate for provin- and each government is free to establish the cial personal income taxes and all except rate to be applied to that base. (For current tax Quebec and Ontario participate for provincial rates, see Table 16, Chapter 6.) If they wish, corporate income taxes. Alberta announced in the provinces may impose special surcharges April 1980 that beginning with the 1981 tax or grant tax credits or rebates on taxes. (If they year it will implement its own corporate tax do so the federal government charges a small system. The act provides for bringing the two fee for administering them.) Such possibilities territories into the tax collection agreement; the give the provinces additional flexibility and Northwest Territory entered into the agreement permit diversity in the personal income tax in 1978. across the country. But they do not require ad- Under this arrangement a tax collection ditional filings by individuals. Since the bases agreement is entered into between the federal used by the federal government, with minor government and each province, by the terms of exceptions, have been used by Quebec and which the federal government collects the in- Ontario, as well as by the provinces under a tax come taxes imposed by the province upon its collection agreement, Canada has a strikingly residents at the same time and in the same uniform income tax system. In addition, there manner as it collects its own income taxes. The has been virtually no double taxation because general conditions of the agreements between there have been uniform residence require- Ottawa and the provinces provide that provin- ments for persons, and uniform rules for al- cial tax systems conform to the following prin- locating the profits of corporations operating in ciples: more than one province. The various provincial 1. The "provincial individual income tax tax credits and surcharges, however, have shall be expressed as a constant percent- eliminated the previously uniform progressiv- age of the federal tax payable by the in- ity of the combined federal and provincial per- dividual for the year." sonal income tax system. In earlier tax agreements, the federal gov- are calculated in light of the provinces' capac- ernment had provided some assurance of a rev- ity to derive revenue from taxation, its purpose enue "floor" to the provinces. "Not surpris- relates equally to provincial expenditures- ingly, the future of this Revenue Guarantee was that purpose being to enable each province to a major issue in the . . . round of negotiations provide its residents with a reasonable level of [leading up to] the [I9771 federal-provincial ar- public services. Since 1967, the system has rangements." In the end, the federal govern- been based on the sophisticated "representa- ment surrendered one percentage point of its tive tax system" pioneered by the U.S. Advi- personal income tax to the provinces and gave sory Commission on Intergovernmental Rela- them the equivalent of another one percent in tions in the 1960s. That system takes all pro- cash on a one-time basis. The federal govern- vincial revenue sources into account. A prov- ment presented this transfer as final. However, ince whose per capita revenue receipts from the federal government did agree to protect such a representative system are less than the each province against a reduction in its per- national average per capita yield for any year, sonal income tax revenue due to the province receives a special federal payment equal to the as a result of a change in the federal personal per capita shortfall multiplied by its popula- income tax structure. The federal government tion in the form of an unconditional, no- estimates the revenue impact of any federal strings-attached grant. An "equalization for- personal income tax change for each tax year. mula" is applied to determine the difference 42 Where change reduces the federal basic tax for each revenue source between what each more than I%, each province is paid its share province would receive if it had an average tax of the amount exceeding 1%. This guarantee base and applied the national average tax rate applies only if the federal change(s) is an- to it and what it would receive if it applied that nounced after the beginning of a tax year to rate to its actual tax base. These differences are take effect in that same year. then added to provide the figure for the amount "This guarantee limits the exposure of pro- of equalization, if any, to which the province is vincial governments to unpredictable changes entitled. The provinces contribute the data for in their revenues arising from maintaining a calculating equalization payments, with most uniform tax system. But it also limits the fed- of it being certified by Statistics Canada. eral government's commitment to the first tax The 1977 act identifies 29 revenue sources in year in which a change is in effect. Initially this its construct of a representative provincial rev- guarantee was applicable only to the nine enue structure. Table 5 lists those sources as provinces for which the federal government they were figured for each province for the collects personal income tax. After a request 1979-80 fiscal year; provincial entitlements from Quebec, however, the guarantee was made determined by applying the formula are shown available to that province also for instances by province in Table 6. Equalization payments when it changes its personal income tax in are made regularly to seven of the ten prov- parallel with moves at the federal level." inces, which between them account for approximately 45% of the natian's population. Equalization Payments The other three provinces receive nothing from this $3 billion program. The payments are Since 1957 the federal government has made made free of any conditions. As a consequence what have been termed "equalization pay- of these transfers-and the receiving prov- ments" to provinces with tax yields below inces' willingness to impose relatively high some specified standard. Since 1967 the pur- taxes-there appears to have been remarkably pose of the program has been to provide fiscal small differences between provinces in terms of support to those provincial governments un- their public services. Table 7 lists the prov- able to raise sufficient revenues from their own inces receiving equalization payments in fiscal economies through a broad range of taxes to 1977-78 and the payment amounts. maintain an adequate level of public services "Throughout the history of equalization in without having to resort to relatively high rates Canada, it has been accepted that the payments of taxation. Thus while equalization payments should go only to needy provinces. Those with Table 5 PROVINCIAL DISTRIBUTION OF POPULATION AND TAX BASES, FEDERAL-PROVINCIAL FISCAL ARRANGEMENTS, 1977-82, FOR THE YEAR 1979-80 (in percent) Population Receiving and Tax Bases Nfld P.E.I. N.S. N.B. Que. Ont. Man. Sask. Alta. .B.C. Provinces Population (June 1) 2.43% 0.52% 3.59%0 2.97'30 Personal Income Taxes 1.30 0.28 2.48 1.85 Business Income Revenues 1.03 0.20 1.75 1.34 General Sales Tax 1.73 0.35 2.79 2.42 Tobacco Taxes 1.79 0.45 2.94 2.87 Gasoline Taxes 1.73 0.52 3.38 3.07 Diesel Fuel Taxes 1.85 0.15 2.93 2.79 Noncommercial Vehicle Licenses 1.35 0.48 2.93 2.50 Commercial Vehicle Licenses 1.79 0.36 2.77 2.77 Revenues from Sale of Spirits 2.01 0.60 3.69 2.06 17.86 38.71 5.06 4.72 11.26 14.04 36.00 Revenues from Sale of Wine 0.76 0.28 2.34 1.34 28.78 34.89 3.60 2.43 8.85 16.74 39.52 Revenues from Sale of Beer 2.38 0.42 3.08 2.24 29.75 36.07 4.13 3.11 7.66 11.15 45.12 Hospital Medical lnsurance Premiums 2.07 0.46 3.50 2.82 25.00 38.75 4.06 3.50 8.37 11.48 41.40 Succession Duties, Gift Taxes 0.79 0.19 1.85 1.19 25.38 42.78 2.76 3.19 10.37 11.48 35.37 Race Track Taxes 0.09 0.39 1.39 0.88 22.50 49.28 3.52 1.01 10.80 10.14 29.78 Forestry Revenues 2.68 - 0.53 3.32 18.19 14.77 0.91 1.40 2.12 56.06 27.04 Crown Oil Revenues ------0.20 11.49 85.27 3.04 11.69 Freehold Oil Revenues - - - - - 0.75 3.33 13.48 82.15 0.30 16.80 Crown Gas Revenues Freehold Gas Revenues Sale of Crown Leases Other Oil and Gas Revenues Mineral Revenues Water Power Rentals lnsurance Premium Taxes Payroll Taxes Property School Taxes Lottery Revenues 1.50 0.36 2.93 2.23 24.87 39.67 4.16 3.77 8.61 11.91 39.82 Miscellaneous Provincial Taxes 1.36 0.29 2.48 1.98 23.49 39.04 4.07 4.01 11.36 11.91 37.68 Shared Federal Revenues 0.74 0.52 1.45 1.11 33.08 36.12 3.89 2.33 9.94 10.82 43.12 SOURCE: Third estimate for 1979-80 of payments under the Federal-Provincial Fiscal Arrangements and Established Programs Financing Act, 1977, Canada, Department of Finance. Table 6 EQUALIZATION ENTITLEMENTS BY REVENUE SOURCE AND PROVINCE, ARRANGEMENTS, 1977-82, FOR THE YEAR 1979-80 (in thousands of Canadian dollars)

Nfld. P.E.I. N.S. N.B. Que. Ont. Revenue Source Personal Income Taxes $1 21,470 $25,881 $1 19,477 120,176 $229,377$-425,853 Business Income Revenues

General Sales Tax Tobacco Taxes Gasoline Taxes Diesel Fuel Taxes

Noncommercial Vehicle Licenses Commercial Vehicle Licenses

Revenues from Sale of Spirits Revenues from Sale of Wine Revenues from Sale of Beer

Hospital Medical Insurance Premiums Succession Duties, Gift Taxes Race Track Taxes

Forestry Revenues Crown Oil Revenues Freehold Oil Revenues Crown Gas Revenues Freehold Gas Revenues

Sales of Crown Leases Other Oil and Gas Revenues Mineral Revenues

Water Power Rentals Insurance Premium Taxes Payroll Taxes Property School Taxes Lottery Revenues

Miscellaneous Provincial Taxes Shared Federal Revenues

Total Entitlements 343,842 79,053 418,943 355,595 1,574,388 255,049

SOURCE:Third estimate for 1979-80 of payments under the Federal-Provincial Fiscal Arrangements and Established of Finance. I Table 7 FEDERAL- PROVINCIAL FISCAL THE GOVERNMENT OF CANADA'S EQUALIZATION PAYMENTS, 1977-78 (in Canadian dollars) Seven Recipient Total Per Capita Man. Sask. Alta. B.C. Provinces Payments To (in millions) Newfoundland $278 $494 Prince Edward Island 63 524 Nova Scotia 342 41 0 New Brunswick 273 398 Quebec 1,323 21 1 Manitoba 237 230 Saskatchewan 58 62

SOURCE: Department of Finance, Seventh Estimate of Fiscal Eaualization, March 31, 1980.

high levels of personal income, a large business 45 community, and abundant revenue from natural resources . . . should not receive federal subsidies." Only Ontario never has received an equalization payment; however, it merited interim* entitlements "of $113 million for 1977-78, $203 million for 1978-79, and $255 million for 1979-80." Because its personal income per capita consistently has been above the national average, it was excluded from interim equalization payments pursuant to regulations. Two bills to exclude such provinces from final payments were introduced in Parli- ament. The first bill was introduced in De- cember 1978. The second was introduced in May 1980 because the first bill expired when elections were called early in 1979. David Perry concludes the exclusion of Ontario is "rather arbitrary and creates obvious problems for the equalization program. " The federal government undoubtedly took into account the size of payments to Ontario, and given the federal deficit, concluded payments of that magnitude would not be appropriate. "It may also be argued that making payments to Ontario, when its personal income per capita continues to be well above the national average per capita, would weaken

294,817 51,517-2,657,708-715,5023,118,15! *The Federal Fiscal Arrangements Regulations, which Programs Financing Act, 1977, Canada, Department govern equalization payments, provide for interim payments and final adjustment payments which need not be calculated until 35 months after the end of a fiscal year. the overall credibility of the program." What- transferring rapidly rising resource revenue ever the reasons for excluding Ontario, Perry from the richer to the poorer provinces . . . ." feels they will not be valid "over any extended Rather, a provincial revenue sharing arrange- period of time if Ontario continues to qualify ment might be worked out, under which "the for equalization. It is therefore clear that the rate at which revenue would be redistributed treatment of Ontario is one of the principal would be set by interprovincial negotiation, matters that will have to be examined in estab- with the upper limit determined according to lishing a new equalization formula when the the willingness of the richer provinces to present one expires at the end of the 1981-82 share." fiscal year."5 Helliwell is convinced such a system would The other side of the Ontario coin is the have two great advantages: it would preserve whole question of revenue from natural re- "intact all constitutional resource rights, while sources and how to deal with it in the equali- making quite clear to the recipients that the zation program. Obviously, provinces with system was made possible by the goodwill of great resource reserves, particularly of oil and the richer provinces;" and it would redistribute gas, began to reap immense revenue bonuses automatically "the forthcoming bulge in oil from 1974 on, while those provinces which and gas revenues in a way that [would] not dis- lacked resources and had only traditional tax criminate between those revenues and other sources to rely on were disadvantaged. In an forms of provincial revenues."6 attempt to rectify the situation, the 1977 ar- Whatever change may eventuate, the re- 4 6 rangements permit revenues from any non- source revenue issue is bound to be a major renewable resource to be equalized only up to point of contention in the intergovernmental 50%. "In addition, a ceiling was placed on negotiations concerning equalization leading equalization in respect of natural resource rev- to the 1982 fiscal arrangements. enues of all kinds (both renewable and non- One other attempt at lessening regional dis- renewable) so that not more than one-third of parities which deserves brief comment is the total equalization could relate to these rev- federal government's regional development enues . . . The end result of. . . these changes is program under the auspices of the Department that although actual provincial revenues from of Regional Economic Expansion. By and large, oil and gas rose at an average of 46% a year DREE, as it is nicknamed, has approached its from 1972-73 to 1979-80, the revenues taken assignment on the macro level by attempting to into the [equalization] formula rose by less than provide incentives to industry to locate or ex- 30% a year." pand in below-par areas of the country and Despite this cutback, equalization entitle- thus to generate sustained development in ments for these revenues rose from an average those regions over time. The focus has been on of 18% of total equalization in 1972-73 to reducing regional disparities by providing em- slightly more than 33.3% in 1980-81. As a ployment opportunities, but rather than help- consequence the natural resources ceiling has ing individuals with limited employment and been triggered for the first time. mobility opportunities, the help has been ex- Economist J.F. Helliwell advocates aug- tended to firms. The mechanism of transferring menting or replacing equalization payments by funds has been a General Development Agree- establishing a provincial revenue sharing plan ment negotiated between the province and which would transfer revenue from provinces DREE. (Prince Edward Island, however, oper- receiving more revenue than the average to ates under a different kind of arrangement.) those earning less than the average. "As it The program as a whole does not appear to stands now," he argues, "if equalization pay- have been very successful as the country's de- ments were raised to compensate other prov- pressed regions remain in much the same inces for Alberta's oil revenue, the bulk of the status they occupied a decade ago at the pro- extra payments would have to come from gram's inception. Besides changing the focus provinces other than Alberta . . . . Con- from aid-to-firms to aid-to-individuals, subsequently, a[n] . . . equalization system fi- sidies might be offered to unemployed persons nanced by federal tax revenue is unsuitable for for migration to areas of greater employment opportunity, or equalization payments might are tied to provincial outlays in the three spe- be increased and DREE eliminated altogether. cific program areas ("although the provinces have committed themselves to continue to meet Established Programs Financing certain standards in some key respects"). Under the new arrangements, the federal The third important area which the Fiscal contribution consists of a cash payment in the Arrangements Agreement of 1977 covers is the form of a block grant, and tax transfers. The financing of three big shared-cost programs block grant consists of an equal per capita whose antecedents date back many years- payment to each province. The initial payment Hospital Insurance, Medicare, and Post- level was set roughly equal to half the national secondary Education. "Part of the rationale for average per capita amount (the other half to be the expansion in 1967 of federal programs sup- provided by tax transfers) paid under the old porting Post-Secondary Education . . . was program arrangements in 1975-76. In each suc- bringing the superior resources and credit ceeding year, payments are automatically ad- standing of the federal government to bear in justed to reflect growth in GNP. (As part of the an area where heavy financial pressures were negotiated settlement, this basic cash payment developing on provincial governments. A part was supplemented by an unconditional grant of the background to the federal presence in equalling one percentage point of the personal Hospital Insurance and in Medicare was a con- income tax per capita in 1975-76.) The cash cern for such national standards as portability payments are divided among the three pro- 47 of coverage across provincial boundaries. A grams on the basis of their respective propor- more general argument, too, has been that, be- tion of the total amount in the base year. cause other provinces or the nation as a whole The second part of the federal support is pro- may bear some of the social and economic costs vided through tax transfers. The federal gov- produced by a shortfall in public services in a ernment yielded 13.5 percentage points of the particular province, there is a broad national federal personal income tax and one percentage interest in certain minimum services being point of the federal corporate income tax to the provided in all provinces." In all three pro- provinces. The amounts provided to the prov- grams as originally conceived, the federal gov- ince by the tax transfer are roughly equal since ernment essentially matched provincial outlays the general equalization program insures that on a dollar-for-dollar basis and with no no province receives less from the imposition maximum federal commitment. Over the years of a tax than they would if they had a tax base the federal government's costs increased of average size. There are also special transi- sharply as the provinces, to varying degrees, tional payments equal to the difference, if any, added services and programs to be matched. between the cash grant and the tax transfer to For their part, the provinces began to feel fed- assure that no province loses as a result of its eral incentives in these areas undermined their accepting part of the federal contribution in the control over provincial priorities. form of a tax transfer. There were other considerations, of course, Finally, a special arrangement was made to but by the mid-seventies it became necessary to provide grants for the first time to the prov- rethink the arrangements, at least in the most inces under an Extended Health Service Pro- extensive and expensive program areas. gram. Payments under this program (made on a Under the 1977 arrangements, a system of per capita basis, escalated by growth in per Established Programs Financing (EPF) was ini- capita GNP) assist the provinces in providing tiated to provide the provinces with the federal supplementary services in the health care field, contribution toward the cost of hospital insur- such as residential care or nursing home care. ance, medical care, and post-secondary educa- Table 8 presents a view of EPF at work for tion. Under EPF, federal contributions no the 1977-78 fiscal year. Under the EPF ar- longer are related directly to provincial ex- rangements, the federal contribution to the penditures but instead are tied to the econ- provinces for the three health programs and omy's growth rate. Federal government grants post secondary education will grow to about to the provinces for these programs no longer $470 per capita in 1981-82. The cash payments Table 8 FEDERAL SHARE OF ESTABLISHED PROGRAMS FINANCING, 1977-78 (in millions of Canadian dollars) Cash Payments Tax Transfers Extended Post Health Hospital Secondary Care GRAND Payments To Insurance Medicare Education Subtotal Direct Equalization Subtotal Total Transfer TOTAL Newfoundland $ 35 $12 $ 23 $ 71 $ 39 $35 $ 74 $144 $11 $156 Prince Edward Island 7 3 5 14 8 8 16 30 2 33 Nova Scotia 56 20 37 113 74 36 110 223 17 240 New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia TOTAL

Notes to table 1. Component figures may not add exactly to totals because of rounding. 2. Under the new arrangements for financing established programs, the federal government's contribution is not linked specifically to provincial outlays. The distribution of the cash payments among the programs therefore is arbitrary; the figure here for each program is based on its share of the total for the three programs in the 1975-76 fiscal year. 3. The figures are estimates for 1977-78 rather than final figures and do not include adjustments to be made during 1977-78 in respect of payments during previous years. 4. The direct tax transfer consists of an abatement of 13.5 percentage points of federal personal income tax and 1% of taxable corporate income. The equalization payments associated with these taxes and shown in this table also are included in the equalization payments shown in Table 7. 5. The cash amount for Quebec includes the value of a personal income tax abatement to place the figure on the same basis as those for the other provinces. SOURCE: Treasury Board, Federal Expenditure Plan, How your tax dollar is spent, Ottawa, 1977, Table 22. Minutes o, +'rc?ceedings and Evidence of Standing Committee of House of Commons on Finance, Trade and Economic Affairs, March 8, 1977, Appendix "FTE-12." require federal outlays of $6.4 billion while the this connection is justified because it assures tax transfer reduces federal revenues by about maintenance of "the portability of Canadian $5 billion. citizenship" and the right of all citizens to "basic levels of services. . . the same in every IMPACT OF THE 1977 part of the country."* Whether that assurance is ARRANGEMENTS present may be subject to question. As Carl Law noted in The Financial Post, "Ottawa suspects As a result of the 1977 arrangements in oper- the provinces are taking the money and run- ation, the structure of Canadian fiscal arrange- ning. They contribute some funds of their own, ments has been moved "closer to the structure but it appears several [provinces] are nowhere of responsibilities provided for in the Con- near the level of dollar-for-dollar matching. A stitution. . . ."' At the same time, the provinces' futher problem is that the federal government financial position has been improved substan- has no accountability mechanism sensitive tially. "Counting the equalization payments as- enough to quantify those suspicions in accurate sociated with the transferred tax points, the figure^."^ federal contribution for 1977-78 [was] $924 In any case, it was not clear in the EPF ar- million higher than it would have been [under rangements if federal grants were intended to the old arrangements];" and the difference be used wholly in the designated areas of continues to grow. In addition, the federal gov- health and education or whether part of the ernment "now has clearly defined obligations funds could be used at provincial discretion to 49 for its contributions in support of three of the cover losses incurred by them in other parts of major shared-cost programs. . . . It also has the the overall fiscal arrangement. The provinces assurance that the provinces will continue to generally have taken the latter view, so "there maintain standards in such facets of these pro- is no question that EPF has proved both a boon grams as portability and degree of coverage." to provincial treasuries and an invitation for For their part, the provinces are considerably provinces to increase their gains by eroding freer than they were to devise their own pro- their services" in those areas. To some extent, grams, and they are assured of continuing, pre- they have cut back on their own expenditures dictable receipts. Nor do they have to submit to or have added charges for some services that detailed federal monitoring and auditing of were formerly free, particularly in the health their outlays in the three EPF areas. field, resulting in some "falling away from the Summing up, the Bank of Nova Scotia con- principles of public financing, comprehensive cluded coverage, and universal access," which Cana- dians had come to expect to be observed.1° because there is no longer dollar-for- Enough concern has been voiced about falling dollar federal matching of provincial away in the health care (Medicare) area that the spending, any progress a provincial entire program currently is under review by a government is able to make in con- royal commission headed by ~ustiekEmmett taining the growth of its spending in Hall, who fathered the 1964 report on the sub- these [EPF] areas will be completely, ject and is generally regarded as the father of rather than half, reflected in a better- Medicare in Canada. His report may provide ment of its fiscal position. All told, the some guidelines to ensure continuation of new arrangements are an entry on the comprehensive medical care coverage in constructive side of the national Canada. ledger. Finally, it should be noted, as Health Minis- On the other hand, evidence indicates that a ter David Crombie in Prime Minister Clark's number of entries may be made on the opposite government observed, the 1977 Fiscal Ar- side of the ledger. Merely continuing "federal rangements Act "could have done two things cash grants in support of programs at the pro- . . . it did [not]: bring together a hodgepodge of vincial level is a measure of the extent to which enabling legislation under one roof [and] de- a revenue-responsibility mismatch may still fine once and for all medicare's guidelines so exist," unless the federal government's cost in there would be a legislative base" for deter- Table 9 CONDITIONAL GRANTS AND SHARED-COST PROGRAMS AS OF MARCH 31,1976 AND 1977 (in thousands of Canadian dollars)

Department and Project Provinces Participating1 Federal Contribution

AGRICULTURE Crop Insurance 4-H Club Assistance Freight on Livestock Shipments To and From the Royal Agricultural Winter Fair, Toronto - 8(PEI, Ont.) Crop Loss Assistance Que., Man. 8(0nt., Man.) Contributions for Rabies Que., Ont., Man., Sask. Que., Ont., Man., Sask. Aid to Universities-(veterinary teaching) Que., Ont. 9(0nt.) Other 7(PEI, Que., Ont.) - EMPLOYMENT AND IMMIGRATION Agricultural Manpower 10 10 Manpower Training Research PEI, NB, Ont., Sask. PEI, NB, Ont., Sask. ENERGY, MINES AND RESOURCES Aeromagnetic Surveys Nfld., Que., BC + NWT Que., BC + NWT BC-YT-NWT boundary and Sask.-NWT boundary Sask., BC BC Mineral Development Program Nfld., Sask. Sask. Alberta lron Processing and Peace River lron Ore Programs Alta. Assistance to Provinces For Energy Substitution and Conservation Programs - PEI, NS Bay of Fundy Tidal Power Study NS, NB NS, NB Energy and Energy-related Research Fund - Aka. Non-renewable Resource Evaluation Man., Sask. Man. Uranium Reconnaissance Program Ont., Man., Sask. NB., Ont., Man., Sask., BC Saskatchewan Heavy Oils Program Sask. -

ENVIRONMENT Metropolitan Toronto and Upper Thames Ont. Ont. ~igratoryBirds Crop Depredation Man., Sask., Aka. Man., Sask., Aka. Shore Damage to Property on Great Lakes Ont. Ont. Industrial Development 7(Man., Sask., Alta.) 8(Sask., Alta.) Fraser River Flood Control BC BC Environmental Assessment Que. Que. Delta Project-Manitoba Man. Man. Alberta Oil Sands Environment Research Program Alta. Alta. Flood Risk Mapping Agreement - NB, Que., Ont., Man. Forest Engineering Research Institute of Canada Nfld., Que. Que. Montreal Area Flooding Que. Que. Okanagan Basin Implementation - BC Prairie Provinces Wate.r Board Man., Sask., Alta. Man., Sask., Alta. Preservation of Atlantic Salmon in Saint John River - NB Qu'Appelle Valley Agreement Sask. Sask. Solid Waste Disposal and Management - NS, Ont. Souris River Study Man., Sask., Alta. Man., Sask. Southwestern Ontario Dyking Ont. Ont. St. Lawrence Water Quality Studies Que. Que. Feasibility Study of Reclaiming Marketable Waste Paper - Canada Land Inventory Nfld., Man., BC Churchill, Nelson Basin Studies Sask. Hydrometric Agreements Ont., Man., Sask. Lac Seoul Agreement Que. Lake Winnipeg, Nelson and Churchill Rivers Man. Prince Rupert Environment Assessment BC Riviere des Roches Weir Sask., Aka. Water Quality, Great Lakes and Lower Lakes Ont. NDIAN AFFAIRS AND NORTHERN IEVELOPMENT Community Development and Off Reserve Nfld. Nfld. Child Care Agreement Man., Sask.+YT Man., Sask.+YT Maintenance of Highway- Rocky Harbour to St. Pauls Nfld. Nf Id. Forest Fire Protection Agreements Ont. Ont., Man., Sask. Registered Trapline Fur Agreement Man. Man. Roads On and To Reserves Sask. Man., Sask. Natural Resources Agreement Ont. Ont. Purchase of Land Nfld., PEI, BC Nfld., NB, BC Table 9 (Continued) CONDITIONAL GRANTS AND SHARED-COST PROGRAMS AS OF MARCH 31,1976,AND ign, (in thousands of Canadian dollars) Provinces Participating1 Federal Contribution Department and Project 1977 Agricultural Representative Agreement Sask. Development Services Wildlife Agreement - Man. Forestry Operations Man. Man. Fredericton Military Compound NB NB High-level Fixed Highway Bridge Across Chambly Canal Que. Que. Indian Policing Agreements Ont. Ont. Maintenance of National Historic Parks PEI, NB, BC PEI. BC Qu'Appelle-Corridor Recreation and Tourism Planning Sask. Canada-Ontario-Rideau, Trent, Severn Waterways Ont. Vocation and Technical Training Ont. INDUSTRY, TRADE AND COMMERCE Tourism 10 + YT and NWT JUSTICE All Programs Included 10 + YT and NWT 10 + YT and NWT NATIONAL DEFENSE Contributions to Provinces and Municipalities for Civil Defense Purposes 10+ NWT 10 + YT and NWT UATIONAL HEALTH AND WELFARE Health Care Programs Health Resources Fund Act 9(PEI) 8(PEI, Alta.) Training of Health Personnel 10 10+ NWT Medical Care Act 10 + YT and NWT 10 + YT and NWT Hospital Insurance and Diagnostic Services Act 10 + YT and NWT 10 + YT and NWT Income Security and Social Assistance Programs Old Age Security Nfld., Que., Ont., Man., Alta. Nfld., Que., Ont. Blind Persons Allowance 9(BC) + NWT 9(W Disabled Persons Allowance 9(BC) + NWT 9(W Guaranteed Income Experimental Projects Man. Man. Unemployment Assistance Aka. + NWT Alta. Canada Assistance Plan 10 + YTand NWT 10 + YT and NWT Services to Young Offenders NB, Ont. NB, Ont. Nursing Home Care Ont., Man., Alta. Ont., Man., Alta. National Welfare Grants NS, NB, Ont. + NWT Ont., Sask. + NWT Vocational Rehabilitation of Disabled Persons 9(QUE.)+YT and NWT 9(Que.) + YT and NWl PUBLIC WORKS Maintenance Cost of Perley Bridge (agreement that federal government pay 75'10, Ontario 25%). Maintenance cost of Macdonald-Cartier Bridge (agreement that federal government pay 33 113%, Ontario 66 213%). Ont. Ont. REGIONAL ECONOMIC EXPANSION Fund for Rural Economic Development (FRED) ~~riculturaland Rural Development (ARDA) Special Areas Infrastructure and Highways General Development Agreements Interim Planning Agreements Misceilaneous Agreements

SECRETARYOFSTATE 10 Post-secondary Education Language Texts for Citizenship Que., Ont., Man., Alta. 6(Nfld., PEI, NB, BC) Classes 10+YT and NWT 10+YT and NWT Bilingualism Development Citizenship and Language Instruction NS, Que., Ont., Man., Aha. 7(Nfld., PEI, NB) for Immigrants

TRANSPORT Contributions to Assist in Extending the Network of Highways and Road Facilities in the Northern Part of the Province Man., Sask., Alta., BC Man., Sask., Alta., BC mining whether the provinces acting under it have preserved the principles of universal access. "In fact, it did [not] do either of these things-even worse, the federal government left itself with, in effect, no monitoring or sua- sive powers." Moreover, based on the intergovernmental consultation process as it is, the act cannot be amended without the consent of all the provinces; even then by its own terms it requires three years' notice to terminate federal payments. "The only power the federal government really has [is] cutting funding [which] is almost certainly politically untenable."ll Nor, finally, did the 1977 arrangements touch the whole matter of borrowing. No balanced budget concept was built into the arrangements, nor was a limit placed on the ability of governments to issue debt. Thus deficit spending seems to be assumed as a proper course of action. The federal government relies most heavily on the issuance of bonds and de- bentures and to a lesser extent on short-term notes (payables), while the provinces and municipalities use a broader range of sources for borrowed funds, including borrowings from financial institutions and loans and advances from the federal government.

Canada Assistance Plan

One major shared-cost program not included under the Established Programs Financing is the Canada Assistance Plan (Table 9). This is a major program designed to provide adequate assistance to needy Canadians which became effective in 1966. It is perhaps unique among products of the intergovernmental consultation process in that it came about as the result of provincial initiatives, with federal policy then designed to accomodate Alberta and Ontario. As the plan was developed, federal negotiators had to make changes and concessions to ensure provincial support for the program, the reverse of the more common situation in which the federal side proposes and the provincial side responds.12 The provinces conduct three general types of programs under CAP: - public assistance to needy individuals and families. - child welfare, including child protec- projects demonstrating the potential for energy tion, juvenile delinquency programs, savings or encourage the development of alter- services to unmarried mothers, and native energy sources. Table 9 lists the shared adoption services. cost programs in effect in 1976 and 1977 (including the Canada Assistance Plan and those - preventive social services, including subsumed under the 1977 Fiscal Arrangements community development programs, Act). The many agreements and programs come early childhood services, counseling in a variety of guises and involve a range of services, homemaker projects, and financing, payment, and management arrange- senior citizens services. ments. Some programs are regarded by the parties to them as temporary or one-time ar- The federal government pays half the costs of rangements; others obviously are regarded by operating the several programs in each prov- the parties as relatively permanent, since they ince. The province may choose to administer a do not involve a set termination date. As Table program itself, designate a municipality as a 9 demonstrates, some of the programs are bilat- "provincially approved agency" to conduct a eral, while others are multilateral. program (in which case it may pass on to the Although Table 9 suggests the number, vari- municipality a share of the program costs), or ety, and range of individually negotiated may use agencies operated by private groups federal-aid arrangements between the federal government and the provinces, it does not which may be designated as "provincially ap- 55 proved agencies." The federal government suggest the continuing attention given to de- establishes programs which are eligible for veloping and nurturing shared cost programs cost-sharing; the provinces determine which by agencies and departments of these two gov- particular individuals and families receive ernmental levels. The total aid package of each payments under the plan and which projects province constantly is being altered as new will be developed for consideration by the fed- agreements are reached and old ones are re- eral government. A province may not require a drawn or dropped. Thus it is hard to ascertain residence period as a condition of assistance at any particular moment the federal govern- eligibility. At the provincial authority's re- ment's total shared cost commitment to the quest, the federal government, through the fed- provinces, or how much federal money is eral Department of Health and Welfare, will coming into each province at any one time as a make available to a province, where feasible, result of all existing financial agreements. Nor consultative services for developing and is it clear to the average Canadian citizen just operating assistance and welfare services pro- what the mix of governmental funding is in the grams. range of governmental services he receives, in- asmuch as shared cost arrangements vary from one program to another. Survey data from On- Other Shared Cost Programs tario in 1975 show a substantial proportion of respondents "had no idea" (or were not willing Over the years the federal and provincial to indicate they did) of then-existing fiscal ar- governments have negotiated between them rangements between governments or of the agreements to share costs through conditional total tax burden they bore to support them.13 grants in a wide variety of fields, and those (Recognizing that problem, the federal and agreements today are one of the distinctive New Brunswick governments negotiated an features of Canadian federalism. The most im- agreement in 1978 to cooperate in informing portant grants under these agreements are citizens about jointly financed programs; a those which compensate a province for one- similar agreement has been in effect since 1975 half of its costs within the defined area. A typi- with Manitoba.) Moreover, the division of labor cal program is the $18 million agreement be- in most shared cost programs between federal tween Ottawa and Saskatchewan, initiated in and provincial administrative agencies reduces 1980, which provides that over four years the the possibility of both governments' accounta- two governments will share equally the costs of bility for the operating programs' effectiveness. Special Financial Arrangements reduction in federal revenues from the personal Between the Federal Government and income tax is taken off the federal cash trans- Quebec* fers which otherwise would be paid to Quebec. As a consequence, Quebec has no financial ad- Since 1964 the federal government has had vantage over the other provinces. However, it special financial arrangements with Quebec, has an enlarged income tax system and is less often referred to as the "contracting out" ar- dependent upon federal cash transfers than rangements. These arrangements relate mainly other provinces. This arrangement originally to financing hospital insurance (now a part of was offered to all provinces, but only Quebec Established Programs Financing), and the accepted the offer. As of 1979-80, approxi- Canada Assistance Plan. While other provinces mately $800 million was transferred to Quebec receive large federal transfers for these pro- through this special contracting-out arrange- grams in the form of cash, for Quebec these ment. cash transfers have been replaced partially by a personal income tax transfer, effected by a re- * This section is reproduced virtually verbatim from a duction in the amount of federal tax Quebec "Summary of Intergovernmental Fiscal Arrangements in Canada," supplied by D.H. Clark, Assistant Director, residents must pay, enabling that Province to Federal-Provincial Relations Division, Department of Fi- increase its tax correspondingly. The amount of nance, in Ottawa.

J.F. Helliwell, remarks to the 1979 annual conference of the Canadian Tax Foundation, quoted by Edward Clif- FOOTNOTES ford, The Globe and Mail, November 27, 1979, p. B2. See also Helliwell's paper for the Seminar on See Bird, Financing Canadian Government. . . . Advi- Canadian-U.S. Relations at Harvard University, Feb- sory Commission on Intergovernmental Relations, In ruary 1980, "The Distribution of Energy Revenues Search of Balance-Canada's Intergovernmental Ex- within Canada: Functional or Factional Federalism?" perience, Report M-68, Washington, The Commission, 'Michael Walker, ed., Canadian Confederation at the 1971; and Auld, Contemporary and Historical Eco- Crossroads: The Search for a Federal-Provincial Bal- nomic Dimensions of Canadian Conferation. ance, Vancouver, The Fraser Institute, 1978, p. 12. 2 The Bank of Nova Scotia, "The New Federal-Provincial Ibid. Fiscal Arrangements," Monthly Review, Toronto, The Financial Post, March 15, 1980, p. 3. March-April 1977. Unless otherwise indicated, the lo Leonard Shifrin, "Health System Eroded," Report, De- quotations in this chapter are from that source. cember 1979lJanuary 1980, p. 8. Economic Council of Canada, Fourteenth Annual Re- llAs quoted by Carl Law, The Financial Post, March 15, view, Into the 1980s, 1977, pp. 26-27. 1980, p. 3. Province of Alberta, Department of Federal and Inter- l2 Leslie Bella, "The Provincial Role in the Canadian Wel- governmental Affairs, Inventory of Federal-Provincial fare State: The Influence of Provincial Social Policy Ini- Programs in Alberta, 1977-1978, Edmonton, The De- tiatives on the Design of the Canada Assistance Plan," partment, 1979, p. 579. Canadian Public Administration, 22:439-52, Fall 1979. =David B. Perry, "Fiscal Figures. Equalization and l3 D.A.L. Auld, "Public Sector Awareness and Preference Shifting Provincial Revenues," Canadian Tax Journal, in Ontario," Canadian Tax Journal, 27:174, MarchIApril 27:731-732, NovemberlDecember 1979. 1979. Chapter 6

Taxes and Deficits

This chapter details the revenues and expenditures of the two principal levels of gov- 57 ernment in Canada and makes some observations about problems in the Canadian economy's public sector. As suggested in Chapter 1, both levels of government in Canada are endowed with adequate revenue-raising powers. Although framers of the BNA Act distinguished between the two levels by giving the federal government authority to raise "Money by any Mode or Sys- tem of Taxation" (section 91.3) and the provinces authority to levy direct taxes "within the Province in order to the raising of a Revenue for Provincial Purposes" (section 92.2), as time went by and the provinces exerted their power to tax, and courts interpreted the meaning of the BNA Act's grants, it became clear that in fact both the federal government and the provinces have constitutional access to all the major forms of taxation, i.e., taxation of wealth, income, consumption and resource rents. l In practice, the federal government derives nearly all its revenues from taxes on income and consumption (including customs duties); it does, however, obtain a relatively small amount of revenue from resource rents, partly through an export tax on oil. The provinces also derive revenues from taxes on income, consumption, and resource rents. Their overall revenues from resource rents have grown rapidly in recent years, but they accrue almost entirely to the three westernmost provinces containing between them less than one-quarter Table 10 REVENUES BY LEVEL OF GOVERNMENT. BEFORE AND AFTER INTERGOVERNMENTAL TRANSFERS, NATIONAL ACCOUNTS BASIS, 1926-79 (dollar figures in millions of Canadian dollars) Percent Distribution of Revenue After Intergovernmental Percent Distribution of Revenues From Own Source Own Source Revenue ~ransfers- Revenue After Transfers Total Year Federal Provincial Local Revenue Federal Provincial Local Federal Provincial Local Federal Provincial Local 1926 $ 867 43.1% 17.8% 39.1% 1927 906 42.8 18.1 39.1 1928 982 44.0 18.2 37.8 1929 1,002 40.0 20.3 39.7 1930 878 30.5 23.8 45.7 1931 805 24.0 25.1 50.9 1932 768 22.3 27.7 50.0 1933 780 26.9 28.6 44.5 1934 853 28.7 28.3 43.0 1935 922 28.0 31.6 40.5 1936 1,054 31.4 32.4 36.2 1937 1,141 33.3 33.5 33.2 1938 1,106 31.7 33.3 35.0 1939 1,162 34.6 31.4 34.0 1940 1,622 50.2 25.2 24.6 1941 2,299 63.9 18.1 18.0 1942 2,780 68.1 16.7 15.3 1943 3,241 71.6 14.9 13.5 1944 3,412 72.0 14.4 13.6 1945 3,338 69.2 16.7 14.1 1946 3,614 68.0 17.8 14.2 1947 3,961 65.2 20.1 14.6 1948 4,100 62.6 21.3 16.1 1949 4,167 60.3 22.2 17.5 1950 4,634 59.8 22.8 17.5 1951 6,053 64.5 20.1 15.4 1952 6,662 64.8 19.3 15.8 1953 6,895 63.8 19.5 16.7 1954 6,819 61.3 20.5 18.2 Excluding Oil Export Tax 36.7 11.4 22,195 20,937 37.0 12.1 22,912 23,270 37.5 12.5 26,215 27,220 40.6 12.5 25,703 32,001 42.4 12.6 26,493 36,556 42.3 12.1 30,755 39,944

SOURCE: Data provided by the Federal-Provincial Relations Division, Department of Finance, Canada. of the nation's population. The resource rev- higher tax bracket solely because of wage in- enues are distinctive as most of them come creases that only keep up with prices. Indexing from resources actually owned by the prov- thus has kept personal income taxes from ac- inces up to the time of their severance. counting for an even larger share of govern- Municipalities and other local governments, of ment revenue in recent years. Charts 1, 2, and course, have only those areas of tax power 3 illustrate graphically the percentage dis- permitted them by the provinces. For the most tribution of government revenue among the part, as indicated earlier in this study, they several revenue sources. have been left the property tax field, and they The charts indicate the rising importance of have cultivated it intensely. investment income as a revenue source for governments in recent years. As a share of total OVERALL GOVERNMENT REVENUES revenue, investment income has more than doubled since 1950. Part of the reason for this There has been almost a total reversal in the sharp increase is attributable to interest rev- governmental revenue picture in Canada since enues of the Canada and Quebec Pension Plans World War 11. In 1945, Ottawa received 71.5% and to interest from such government-held of all revenues derived from taxes in the na- funds as public service superannuation action; the provinces and local governments re- counts. More recent figures would indicate the ceived the remainder. In 1979, Ottawa's share revenue being derived in Alberta and Sas- 45.6% katchewan from their provincial heritage 60 had been reduced to with the rest going into provincial and local c~ffers.~ funds. Not only have the last three decades seen a Chart 4 makes it clear indirect taxes have re- shift in the flow of funds from federal to pro- mained constant as a percentage of GNP since vincial treasuries, but also they have witnessed 1950, while corporate taxes as a percentage of a large growth in the total amount of revenue gross corporate profits have declined and per- collected and "a major shift in the income sonal direct taxes as a percentage of total per- sources of all public sector^."^ Table 10 shows sonal income have risen considerably, though the trend in overall revenues from 1926 to they appear to be declining toward the end of 1979, while Table 11 shows each level of gov- the period. ernment's revenue, by source, for 1978. Finally, all levels of government in Canada In terms of sources, total governmental rev- derive funds from borrowing. The BNA Act enues from both indirect taxes and direct taxes does not limit the ability of either the federal on corporations and government business en- government or the provinces to borrow, though terprises have declined significantly over the the provinces control borrowing by local gov- past thirty years. In 1950, indirect taxes ac- ernments in a variety of ways. During the counted for 48 % of all government revenue and 1970s borrowing increased at all levels of gov- were by far the largest income producer; by ernment. Most of these increases occurred after 1978, they accounted for only 34% of public 1973 in the case of the federal government and funds. Direct taxes on corporations declined after 1974 in the cases of the provinces and from 22.4% of government revenue in 1950 to local governments. The most striking increases slightly less than 10% in 1978. Both levels of have occurred at the federal level since 1976 government have shifted significantly to direct and are attributable to the higher federal defi- taxes on persons; personal income has become cits of recent years. As of 1979, total federal the preferred tax base of both the federal and borrowing was $7,632 million, total provincial the provincial governments. The proportion of borrowing $2,720 million and total municipal revenue generated from direct taxes on persons borrowing $617 milli~n.~ increased from 20.6% of revenue in 1950 to 40.3% of revenue in 1978. REVENUESOFTHEFEDERAL Since 1974, the federal government has been GOVERNMENT indexing the personal income tax brackets to the rate of inflation. This policy is designed to Chart 5 clearly indicates federal revenue preclude individuals from moving into a grew about equally with GNP for much of the Table I I NATIONAL ACCOUNTS BUDGET FOR ALL LEVELS OF GOVERNMENT: Preliminary 1978 Revenue (excluding intergovernmental transfers) (in millions of Canadian dollars) Pro- CPPI* Federal vincial Local QPP Total Direct Taxes- Personse $1 7,387e $1 3,03ge - $2,736e $33,152 Income Taxes Contributions to Pension Plans (g~vernmental)~ Contributions to Unemployment Insurancea Contributions to Workmen's Compensation Direct Taxes-Corporate and Government Business Enterprises Direct Taxes-Non-resident ndirect Taxes Customs Duties General Sales Taxes Alcohol and Tobaccob Oil Export Tax Gasoline Real and Personal Property Taxes Other Xher Transfers from Persons Hospital and Medical Insurance Premiums Otherc nvestment Incomee lnterest on Government Held Funds Interest on Loans and Investments Remittances from Government Enterprises Royaltiesd >apital Consumption Allowance rota1 Own source Revenue 38,177 lncludes both employee and employer contributions. lncludes profits of liquor commissions, special excise duties and taxes. Includes certain licenses, fees, fines, etc. Excludes miscellaneous taxes on natural resources. Direct taxes-Persons and Investment Income for CPPIQPP and Hospitals subtotals include amounts for programs not shown in the detail. CPP-Canada Pension Plan. QPP-Quebec Pension Plan. jOURCE: Reproduced from David B. Perry, "National Accounts Budget," Canadian Tax Journal, 27: 500, JulyIAugust 1979. Chart I PERCENTAGE DISTRIBUTION OF TOTAL GOVERNMENT REVENUE* - lndlrect Taxes --- Dlrect Taxes. Persons - Dlrect Taxes, Corporatlon and Government ,,-,,,,,. lnvestment lncome Buslness Enterpnses

40 ,' 30 30 - ,------, --.*I---, -----# -C C a, a, 20 ,oQ, a2a, 20

* The total government revenue on whlch the chart data are based does not Include capltal consumption allowances

Chart 2 PERCENTAGE DISTRIBUTION OF FEDERAL GOVERNMENT REVENUE - lndlrect Taxes --- Dlrect Taxes. Persons - Dlrect Taxes Corporatlon and Government lnvestment lncome Bus~nessEnterpnses ' 50 50 ,------'\ , .-0' 0 I

10 10 ,.\-3''''-..1., ,.\-3''''-..1., ,,,,,,,,,,,,, / ((~,1,,,,,1,,,,,,,,,,,,,,,,,~,,,,,~,111-1 11111"~"-~~~~'-""'- *,,,,,,,,,,,,,,,,, ,\,,,\m~~~~~-t~~~~,!13!- 0 0 1950 55 60 65 70 75 78

Chart 3 DISTRIBUTION OF NON-FEDERAL GOVERNMENT REVENUE - lndlrect Taxes --- Direct Taxes, Persons MI Dlrect Taxes, Corporatlon and Government m~'-8'tu- lnvestment lncome Buslness Enterpr~ses +t Federal Transfers

SOURCE: Mark J. Daniel "Where the Government Gets its Money." The Canadian Bus~nessRevfew, Sprlng 1979, PP. 54 58. Chart 4 GOVERNMENTREVENUESASAPERCENTAGEOFINCOMEBASE

Percent Percent

i,~CC.15:‘.it) i,~CC.15:‘.it):mw.Corporate Taxes as Percent of Gross Corporation Profits * Indirect Taxes as Percent of GNP ---- Personal Direct Taxes as Percentage of Personal Income Taxes on government business enterprises have been SOURCE: Statistics Canada and Mark J. Daniel, "Where excluded from corporate direct taxes for this calculation. the Government Gets its Money," The Canadian Business Review, Spring 1979, p. 54. period between 1950 and 1975. However, it de- showed some 190 tax exemptions, deductions, clined rapidly after that, reaching 16.5% in write-offs, and special incentives included in 1978. Chart 2 shows the story of federal rev- present federal tax law and regulations cost the enues from its four major sources. The personal federal government millions yearly in lost rev- income tax obviously has become somewhat enues. The revenue loss from each of the tax less important at the federal level, contributing expenditures tends to increase over the years. only 46.3% of total federal revenues in 1978, as While this study recognizes the legitimacy of compared with over 50% in 1976. The major such items, it points out they generally are reason for decline in the late seventies was im- open-ended, with no ceilings as to total cost to plementation of the Fiscal Arrangements Act of the government.5 1977, which moved from federal cost-sharing with the provinces to transfer of taxing author- TAXANDTRANSFERREVENUESOF ity to the provinces for hospital and medical NON-FEDERAL GOVERNMENTS care and post-secondary education. The effect of the shift was to decrease that portion of fed- Non-federal government revenues as a pro- eral revenue coming from personal income portion of GNP have increased greatly over the taxes. Federal income deriving from direct period since 1950 (see Chart 5). At the same taxes and taxes on corporations and govern- time there has been a major shift in revenue ment businesses has been declining generally sources at the non-federal level (see Chart 3). since 1950, with a little upswing in the late The steady decline in the role of indirect taxes 1970s. Income from invested funds has risen as sources of revenue for non-federal govern- considerably over the period. ments since 1950 is perhaps the most dramatic The federal government's revenue position is change to be noted. From almost 63% of total affected adversely by the many so-called tax revenues in the mid-fifties, indirect taxes expenditures permitted under federal law. A slipped to 35.4% in 1979. Even so, they still 1979 federal Department of Finance report constitute the largest source of tax revenue for Chart 5 Government Revenue and Expenditures as a Percentage of GNP*

Percent Percent

40 Total Government 40

35 35 EXPENDITURES - REVENUES 30 30

2 5 25

20 20

FEDERAL GOVERNMENT

GOVERNMENT 20 20 EXPENDITURES

15 15

10 10

0 0

' Federal government revenue and other government rev- SOURCE: Statistics Canada and Mark J. Daniel, "Where enue together do not equal total government revenue since the Government Gets its Money," The Canadian Business other government revenue includes transfers from the fed- Review, Spring 1979, p. 53. era1 goverment and the total government revenue includes the Canada and Quebec Pension Plans which are not included in the other sectors. provinces. Of such taxes, retail sales taxes pro- eration or distribution to the public of electric- duce by far the greatest proportion of revenue. ity, gas, and steam. For the fiscal year ending Exemptions from sales taxes, however, have March 31, 1980, a total of $66.5 million was broadened over time. Commonly exempted transferred to the provinces under this provi- now are food, medicine, books, many clothing ion.^ items, and other items in common household Through making available some of its own use. Thus retail sales taxes "have ceased to be services and facilities to the provinces and broad consumption levies and have increas- municipalities the federal government contrib- ingly become semi-luxury taxe~."~Direct taxes utes further to non-federal governments, on persons, which were a minor source of rev- though not in strictly monetary terms. A single enue in 1950-about 6%-had become the example of such a contribution is the Canadian second most important revenue source at the Police College, which was opened in Ottawa in provincial level by 1978-at about 24% of the 1976 as a federal government activity. It pro- total. In dollar terms, "personal income taxes vides unified training facilities for executive raised by the provinces were about $2.8 billion and middle-management police officers from in 1972-73 and about $10.4 billion by 1979-80, all across Canada-the Royal Canadian representing an average annual growth of Mounted Police (RCMP), provincial police, and 20%."~Investment income also has risen sub- municipal police. stantially, while revenue derived from taxes on corporations has fallen overall. GOVERNMENT EXPENDITURES Revenues from oil and gas are an increasingly important item in provincial budgets. Total government expenditures in Canada as "Total provincial revenue from oil and gas, a percentage of GNP have almost doubled since mostly accruing to Alberta, British Columbia, 1950, rising to a high of 41.6% in 1978. (Chart and Saskatchewan, grew at an average annual 5). The Economic Council of Canada noted in rate of nearly 46% from 1972-73 to 1979-80. 1978 that "Government expenditures in the They amounted to approximately $397 million 1966-76 period rose rapidly, largely as a re- at the beginning of the period and by 1979-80 sult of the development and enrichment of were in excess of $5.5 billion."s . . .programs in the fields of health, education, The importance of federal government and social security. . . ." (Chart 6). The Council transfers to the provinces' revenue position went on to note most of the increase in the gov- merits special note. Table 12 shows the growth ernmental share of Gross National Expendi- of those transfers between 1926 and 1979 and tures (GNE) occurred between 1966 and 1970, also of the very small transfers from the federal "rising from 30.9 to 36.4%. In the space of government to local governments. It is signifi- [those] four years, Canada's GNE increased by cant that federal transfers to the provinces $24 billion, half of which came from govern- nearly doubled between 1974 and 1979. ment, particularly provincial government, In addition to the intergovernmental trans- spending.""J As a result of government actions fers involved in the Fiscal Arrangements Act of to relieve the economic distress that plagued 1977 and other legislation, the federal govern- Canada in the early seventies, government ex- ment also pays certain statutory subsidies to penditures as a proportion of GNE continued to the provinces under the Constitution. The BNA climb. Toward the end of the 1970s, however, Act authorizes subsidies to support provincial the growth in overall government spending governments and per capita allowances, special began to moderate. "The overall population grants, and allowances for interest on provin- growth was slowing, and the effects could. . .be cial debts to be made to the provinces yearly. seen in the diminution of the numbers of pri- These amount to only a little more than $30 mary and secondary school children." How- million annually. The Public Utilities Income ever, unemployment and inflation marred the Tax Transfer Act requires the federal govern- economy which necessitated government ac- ment to remit to the provinces 95% of the tax it tion. This forced an increase in federal spend- collects on the income from investor-owned ing. Even so, the Economic Council reported public utilities which is derived from the gen- total government expenditures (net of inter- Table 12 INTERGOVERNMENTAL TRANSFERS, NATIONAL ACCOUNTS BASIS, 1926-79 (in millions of Canadian dollars) Federal- Federal- Local Federal Provincial Transfers Intergovernmental Transfers Transfers Transfers as Federal Federal Provincial Local as Percent as Percent Percent to to to to Revenues From Own Source of Federal of Provincial of Local Year Provincial Local Local Provincia11 Federal Provincial Local Revenues Revenues Revenues 1926 $ 23 $6 $ 389 3.9% 9.6% 1927 24 4 404 4.0 9.5 1928 27 5 449 3.8 9.2 1929 30 7 41 8 4.1 8.1 1930 36 10 293 8.5 11.9 1931 54 10 249 22.5 29.5 1932 38 10 233 26.6 34.6 1933 20 10 266 21.1 31.6 1934 26 10 31 6 22.5 38.2 1935 22 10 332 22.3 32.3 1936 27 10 422 21.6 34.1 1937 28 7 485 21.6 35.2 1938 30 7 437 19.7 28.2 1939 32 7 48 1 16.4 25.4 1940 29 7 884 7.9 1941 31 7 1,523 3.5 1942 37 7 1,957 3.3 1943 40 7 2,380 2.5 1944 58 7 2,524 2.7 1945 63 7 2,385 3.2 1946 79 7 2,555 3.8 1947 101 7 2,696 4.2 1948 129 9 2,681 4.3 1949 157 10 2,659 5.5 SOURCE: Data provided by the Federal-Provincial Relations Division, Department of Finance, Canada. Chart 6 GOVERNMENT EXPENDITURES ON SOCIAL PROGRAMS AS A 25 - PROPORTION OF GNP, 1964-76

10 -

5 - Social Securit

0 - Percent

SOURCE: Economic Council of Canada, Fifteenth Annual Review. "A Time for Reason." 1978. D. 100. governmental transfers) grew only 12% in Tables 13 and 14 show total governmental 1977,compared with an average of 20% in each expenditures between 1926 and 1979; Table 15 of the previous three years.ll shows 1978 government expenditures (ex- From 1978, both levels of government have cluding intergovernmental transfers) in terms undertaken to maintain "the commitment to re- of dollar allocations for specific general pur- strain spending they made at the February 1978 poses. What is not obvious from any of the ta- First Ministers' Conference, thus tacitly bles is the increase in the relative importance acknowledging the widespread public senti- of government spending on goods and services. ment that the trend in government expenditure In 1948, it amounted to 43% and in 1978 to growth should be held, on average, to less than 49.5% of total expenditures. Transfer payments the corresponding growth in the value of total to individuals represented 25.4% of total ex- output."12 That decision culminated in a series penditures in 1948 and 26.3% in 1978. Interest of policies which were to be put into effect on the public debt declined from 16.5% in from 1975 on to reduce expenditures as part of 1948 to 11.3% of total expenditures in 1978. a broad anti-inflation program. Since then, Gross capital formation was 11.6% of all ex- pressures for continuation of committed pay- penditures in 1948 and accounted for 8% in ments under established programs have met 1978.14 more resistance than they did formerly. "For Table 13 shows the degree to which sub- the longer term," the Bank of Nova Scotia con- national government spending exceeded cluded, "the real need continues. . .for the de- spending by the national government in 1978. velopment of mechanisms and institutions that That trend is continuing, and it constitutes a will provide thorough and on-going assess- sharp reversal of traditional government ments of government programs and ensure spending patterns. In 1945, at the end of World adequate public attention to those assess- War 11, the federal government of Canada spent ments," to the end that government spending over 80% of the public funds then available for may be rationalized.13 use; in 1979, the provinces and municipalities spent over 60% of available funds (after inter- Since that year, expenditures have exceeded governmental transfers).l5 This exchange of revenues, and that gap has been widening. places led the Economic Council of Canada to More recent data indicate a federal deficit of note in its 1978 review that Canada's fiscal $12.1 billion for 1978-79, $11.45 billion for system has come to differ "substantially from 1979-80 and $14.2 billion for 1980-81.20 that of most other nations."16 The cost-sharing What can be done about the deficit situation programs initiated largely by the federal gov- in terms of further reducing government ex- ernment "have been the single most important penditures is problematical. Many of those ex- factor explaining the rapid increase in govern- penditures "are recurrent and relatively in- ment expenditures during the past decade compressible and . . . do not lend themselves to (1969-1979). In a situation where roughly half discretionary decision^."^^ Moreover, the pro- of every dollar is provided by some other gov- grams for which they have been incurred are ernment, normal spending restraints [were] generally popular with Canadians. Indeed, the greatly relaxed."17 That source of growth has Economic Council noted in 1978, "for some been considerably reduced in importance, Canadians any breach of the principle of uni- however, by the 1977 Fiscal Arrangements Act. versality [in government programs], especially Reference back to Chart 5 clearly indicates in contributory schemes, would be ideologi- total government expenditures have exceeded cally unac~eptable."~~A systematic review of total revenues since 1975. The current gap "is responses to Canadian Gallup Polls from 1941 running at an extremely high level, with the to 1979 showed while the people are "greatly 69 difference in 1979 amounting to over $8 billion in favor of balancing the federal budget and . . . (3.2 % of GNP). " l8 In examining the individual cut[ting] federal spending," there is no evi- levels of government, data show the provinces dence they want government to withdraw from taken together yield a small surplus. The pic- such services as welfare, unemployment insur- ture is not an even one, however. Alberta has ance, universal health care, pensions and fam- accumulated huge surpluses and both Sas- ily allowances-the very programs which have katchewan and British Columbia consistently led governments into deficit spending.23 Fi- have surpluses as well. However, the seven nally, the impact of government borrowing is Eastern Provinces have had deficits of various to cause a steady increase in expenditures re- sizes. What this represents, a study by the quired to cover interest payments. Conference Board in Canada suggests, "is a large-scale transfer of wealth from the oil con- GOVERNMENT WORK FORCES suming to the producing provinces similar in kind to the global transfer of wealth that is oc- As a result of the recent increase in govern- curring from industrial nations to the [OPEC] ment expenditures, a companion increase in states. . . ." Given the Canadian constitutional the size of the government work force might be arrangement, "which rests in the provinces expected, and in fact it has taken place. "In the ownership of natural resources, such as oil, space of a generation, the number of workers that are unequally distributed across the coun- employed in government administration . . . try," nothing much can be done to ameliorate increased by close to 450,000 and, in the . . . the situation save by some kind of equalization decade [1967-19771, about half a million addi- scheme under the aegis of the federal govern- tional jobs [were] created in the education and ment. l9 hospital fields. Taken together, government administration, education and hospitals . . . THE FEDERAL DEFICIT provide [d in 19771 employment for one out of every five Canadian~."2~Since 1977, there has The provincial surplusldeficit situation, been a considerable slowing down of public however, is small potatoes compared to that of sector employment, as the policy of expendi- the federal government. While Chart 5 shows ture restraint has taken hold. the federal government had more revenue than Basically, the public employment sector in- expenditures in 14 of the last 30 years, it also crease has come at provincial and local levels, indicates those happy days ceased in 1975. as suggested. Primary responsibility for most Table 13 EXPENDITURES BY LEVEL OF GOVERNMENT, BEFORE AND AFTER INTERGOVERNMENTAL TRANSFERS, NATIONAL ACCOUNTS BASIS, 1926-79 (dollar figures in millions of Canadian dollars) Percent Distribution of Percent Distribution of Expenditures Before Expenditures Before Expenditures After Expenditures After lntergovernmental lntergovernmental lntergovernmental lntergovernmental Transfers Total Transfers Transfers Transfers Expendi- Provin- Provin- Provin- Provin- Year tures Federal Local Federal cial Local Federal Local Federal cia1 Local 1926 $ 810 $ 321 $ 323 39.9% $ 306 $ 340 37.8% 20.2% 42.0% 1927 859 336 342 362 37.3 1928 898 344 347 369 36.4 1929 991 362 389 41 2 34.8 1930 1,099 389 434 460 33.1 1931 1,116 409 421 465 31.6 1932 1,047 387 399 427 31 .O 1933 956 380 336 346 33.9 1934 1,041 409 332 348 32.5 1935 1,093 453 333 345 34.7

33 1 348 33.9 333 354 31.6 336 359 34.9 340 365 33.5 335 357 56.5 333 357 66.9 332 362 83.2 340 373 84.9 350 401 86.4 366 422 82.3

425 497 72.1 504 598 59.3 598 71 8 53.3 666 81 3 53.0 74 1 Excluding Oil Import Compensation Expenditures

SOURCE: Data provided by the Federal-Provincial Relations Division, Department of Finance, Canada. Table 14 EXPENDITURES BY LEVEL OF GOVERNMENT, BEFORE AND AFTER INTERGOVERNMENTAL TRANSFERS, AS PERCENT OF GROSS NATIONAL PRODUCT, 1926-79 (dollar figures in millions of Canadian dollars) Expenditures Before Expenditure After Total Intergovernmental- Transfers lntergovernmental Transfers Exhibit: Expenditures as Percent of GNP as Percent of GNP Gross as Percent of National Year GNP Federal Provincial Local Federal Provincial Local Product 1926 15.7% 6.2% 3.2% 6.3% $ 5,146 1927 15.4 6.0 3.3 6.1 5,561 1928 14.8 5.7 3.4 5.7 6,050 19% 16.1 5.9 3.9 6.3 6,139 1930 19.2 6.8 4.8 7.6 5,720 1931 23.8 8.7 6.1 9.0 4,693 1932 27.5 10.1 6.8 10.5 3,814 1933 27.4 10.9 6.9 9.6 3,492 1934 26.2 10.3 7.6 8.4 3,969 1935 25.4 10.5 7.1 7.7 4,301

1936 23.5 9.9 6.4 7.1 4,634 1937 22.4 9.1 6.9 6.4 5,241 1938 23.8 9.9 7.5 6.4 5,272 1939 21.4 8.6 6.8 6.0 5,621 1940 25.2 15.3 4.9 5.0 6,713 1941 27.0 18.7 4.3 4.0 8,282 1942 42.3 35.8 3.3 3.2 10,265 1943 45.4 39.1 3.2 3.1 11,053 1944 50.5 44.2 3.4 3.0 1 1,848 1945 42.4 35.5 3.8 3.1 11,863

1946 31.6 23.6 4.4 3.6 1 1,885 1947 23.7 14.9 5.1 3.7 13,473 1948 21.8 12.4 5.6 3.9 15,509 1949 22.8 12.9 5.9 4.0 16,800 1950 22.1 12.6 5.5 4.0 18,491 Excluding Oil Import Compensation Expenditures 14.5 4.8 15.8 15.1 8.8 14.4 4.9 15.3 15.0 8.8 15.0 4.7 15.7 15.5 8.9 15.0 4.8 16.3 15.6 8.9 15.0 4.3 15.2 15.1 8.6 SOURCE: Data provided by the Federal-Provincial Relations Division, Department of Finance, Canada. Table 15 NATIONAL ACCOUNTS BUDGET FOR ALL LEVELS OF GOVERNMENT, 1978 Preliminary Expenditure Excluding Intergovernmental Transfers (in millions of Canadian dollars) Pro- Hos- Federal vincial Local pitals Total Current Expenditure on Goods and Services $1 1,862 $1 3,304 $1 5,878 $6,580 $47,695 Nondefense 39,795 Defense 4,080 Capital Consumption Allowance 3,820 Transfers to Persons2 25,3142 Family Allowances 2,224 Unemployment Insurance 4,536 Pensions to Government Employees 905 Old Age Security 5,244 Direct Relief 2,057 Grants to Postsecondary Institutions 2,611 Grants to Benevolent Associations 2,007 Subsidies2 3,2232 Agriculture 734 Canadian Dairy Commission 287 Oil 644 Capital Assistance 61 6 Transfers to Nonresidents 998 Interest on Public Debt 10,880 Gross Capital Formation 7,689 Total Expenditure 96,415

CPP, Canada Pension Plan. QPP, Quebec Pension Plan. 2Transfers to Persons and Subsidies subtotals include amounts for programs not shown in the detail SOURCE: Reproduced from David B. Perry, "National Accounts ~udgeti,"Canadian Tax Journal, 27:501, JulyIAugust 1979. government domestic service delivery also lies ernment federal employees-including the there. The overall federal government work armed forces-was recorded between the first force, on the other hand, has remained stable, if quarter of 1978 and the first quarter of 1979, it has not in fact decreased in recent years. A but there was a slight increase in the number of one percent drop in the number of general gov- employees of federal government enterprises.25

FOOTNOTES This section draws heavily on Mark J. Daniel, "Where the Government Gets Its Money," The Canadian Busi- 1 See Gerard La Forest, The Allocation of Taxing Power ness Review, Spring 1979, pp. 52-55. Reference should under the Canadian Constitution, Canadian Tax Paper also be made to Canadian Tax Memo No. 62, March No. 46, Toronto, Canadian Tax Foundation, 1967. 1980,Toronto, Canadian Tax Foundation, 1980. 2Government of Canada, Department of Finance, Eco- 4Bank of Canada Review, January 1980, Table 29. The nomic Review, April, 1980,Table 76. amount for provinces excludes borrowings from the Canada Pension Plan and other pension plans. p. 124. SDepartment of Finance, Government of Canada Tax Ex- l7 Grant Reuber, "Monetary, Fiscal and Debt Management penditure Account, 1979, summarized in The Globe and Policies," in R.B. Byers and Robert W. Redford, Canada Mail, December 7,1979, p. B1. See also Jonathan R. Kes- Challenges: The Viability of Confederation, Toronto, selman, "Credits, Exemptions, and Demogrants in Cana- Canadian Institute of International Affairs, 1979, p. 230. dian Tax-Transfer Policy," Canadian Tax Journal, 27: lBGovernment of Canada, Department of Finance, Eco- 653-54,NovemberlDecember 1979. nomic Review, April 1980, Tables 11.1 and 11.7. 6 John F. Due, "Changes in State, Provincial and Local l9 The Conference Board paper (by Diane Burrows) is the Sales Taxation in the Last Decade," Canadian Tax Jour- subject of an article by Ronald Anderson, The Globe and nal, 27:43, JanuarylFebruary 1979. Mail, November 15, 1979, p. B2, from which the quota- 7 David B. Perry, "Fiscal Figures. Equalization and Shift- tions are taken. ing Provincial Revenues," Canadian Tax Journal, 27:73, Government of Canada, Minister of Finance, News Re- NovemberlDecember 1979. lease, 80-27, April 21, 1980. Ibid. 21 Economic Council of Canada, Fifteenth Annual Review, 9Department of Finance figure provided to the author, p. 124. June 19, 1980. ZZIbid., p. 101. loEconomic Council of Canada, Fifteenth Annual Review, 13The Financial Post, February 9, 1980, p. 7; see also A Time for Reason, 1978, pp. 99-100. Auld, "Public Sector Awareness and Preferences in On- "Ibid., pp. 100, 116. tario," p. 182. lZIbid.,p. 18. l4Economic Council of Canada, p. 99. The Bank of Nova Scotia, Toronto, Scotiabank Monthly 25 Canada Weekly, vol. 7, No. 24, June 23, 1979,p. 8,and Review, September 1978, p. 3. Vol. 8, No. 2, January 9, 1980, p. 1. See for a general l4 Figures are from David B. Perry, "National Accounts discussion of the public sector work force Richard M. Budgets," Canadian Tax Journal, 27:501, JulylAugust Bird, in collaboration with Meyer W. Bucovetsky and 1979. David K. Foot, The Growth of Public Employment in l5The Globe and Mail, January 8, 1980, p. 4. Canada, Toronto, Institute for Research on Public Pol- l6 Economic Council of Canada, Fifteenth Annual Review, icy, 1979. 75

Chapter 7

Imbalances and Disharmonies

FISCAL IMBALANCE

Asthe provinces have become more assertive and the federal government responsive to their assertions, the federal government's fiscal position has weakened and the provinces' has strengthened. An extensive quotation from the Economic Council of Canada's 1979 review summarizes what has happened.

Over the post-war period the public sector has grown faster than the rest of the economy. That trend has emerged in all industrialized countries, but has been particularly pronounced in Canada, where governments grew from around 20 percent of GNP to current levels of 42 percent. Even this does not tell the whole story, because of so much public participation in commercial activity through Crown corporations, utilities, and joint ventures of various kinds. This expansion was facilitated by strong economic growth. The progressive income tax yielded rapidly rising revenues, especially when inflation began to add substantially to growth of nominal incomes in the late sixties and early seventies. In addition, governments increased many indirect tax rates and collected more social secu- but also because areas within provin- rity contributions. Widespread ad- cial jurisdiction have become essential vances in real income softened the ingredients in most national economic higher tax bite and governments had policies. no problem financing escalating de- In sum, the Council concluded, by 1980 the mands for public goods and services. revenue distribution had changed so much But all this growth of government pro- there was "a new context for economic man- duced a mutation in the public sector. agement and federal-provincial relations" in A problem of "fiscal imbalance" de- Canada. veloped, with demands for incremental services being directed towards one The federal government, which en- level of government while the money joyed buoyant revenues up to the early needed to meet those claims was in the seventies, now finds its finances hands of the other level of government. strained to the limit. Among the prov- For example, during the 1960s the fed- inces, imbalances have developed as eral government enjoyed the lion's the result of uneven distribution of share of direct taxes while the em- revenues from exploitation of natural phasis was on education, health care, resources. [These are not] temporary welfare, and the provision of social aberrations from a well-balanced 78 capital, domains which are mostly structure; on the contrary, they are provincial. likely to persist and will require political resolution. Without such action, [So the federal government began to the [federal] government's manage- transfer funds to the provinces through ment of the economy will become in- sharing costs, the equalization pro- creasingly powerless, to the peril of gram, and loans to the provinces.] the country as a whole and the welfare The net result of these changes was of every Canadian. that provincial and local government expenditures rose in 20 years from less than 10 percent of GNP to about 25 GOVERNMENTAL MANAGEMENT (?) percent by 1975. Meanwhile, the OF THE ECONOMY federal-expenditure share of GNP remained roughly constant at around 15 In all fairness, it should be noted the fiscal percent. In 1978, provincial, local and imbalance that has come to exist between the hospital expenditures at $56.8 billion governments of Canada is not the only reason were about 1% times those of the fed- why federal management of the economy has eral government. not been effective. It is not only the revenue Besides this . . . the share of federal clout of the provinces and their independent expenditures devoted to transfers grew spending and borrowing proclivities, but also from one-quarter to more than one-half their increasingly aggressive and regionally between 1955 and 1975. oriented mind-set that makes them an unruly The federal government's role as a di- team, hard to manage. To a certain extent, the rect purchaser of goods and services in provinces have come to feel they can better re- the economy is now relatively minor, flect and guide the regional will than Ottawa at least in comparison with provincial can. The point remains, however, that Ottawa's and local governments. ability to manage the Canadian economy has been diminishing. In brief, the centre of gravity of the A number of analyses of the effectiveness of public sector has drifted progressively federal fiscal policy in terms of national eco- towards the provinces, not only be- nomic stability and growth have been made in cause of the change in the relative size recent years. Though their conclusions are not of federal and provincial governments identical, they lend support to the Economic Council's conclusion. For they all find the im- as it is on the road to balkanization, it seems pact of such policies on the economy generally the provinces must play a more responsible has been ineffective or perverse rather than role in managing the economy than they have otherwise.2 And an analysis of the impact of thus far. A leading Canadian economist re- federal fiscal and monetary policies on the cently noted "in this era of reconsideration of critically important natural resources sector of the . . . general issues of the federal-provincial the Canadian economy concluded those division of powers . . . junior levels of govern- policies had served only to amplify "the cycli- ment should assume increased responsibility" cal booms and busts in the resource sector^."^ for economic ~tabilization.~And in its 1977 re- Other observers point to the federal govern- view, the Economic Council of Canada con- ment's failure to prevent some balkanization of cluded "that there [was] considerable scope for Canada's economy. Separate provincial indus- the provinces to use fiscal policy more effec- trial development programs which subsidize tively than they have in the past to offset fluc- parts of the private sector already are in place. tuations in their levels of economic activity."' These agree to draw on intraprovincial rather One of the Council's major recommendations than external sources of capital, labor, and that year was that provincial governments as- supplies; provincial policies for purchasing sume a greater role in the area of countercycli- goods and services from a province's own cal fiscal policy. In 1979, the Council urged the suppliers and labor pool in preference to pur- provinces to work with the federal government chase from outside the province; cultivation of in developing a joint "comprehensive, inte- 79 trade relations abroad by one province without grated, medium-term fiscal outlook" to present coordination with the other provinces or with to the public and to legislatures for their delib- the federal government; provincial investment eration. Such an outlook, the Council con- plans designed to keep capital inside the cluded, should "clearly identify the nation's province; and a number of "special deals" be- economic potential consistent with the rela- tween a single province and Ottawa entered tively full employment of its resources, along into without regard to the impact of such ar- with the expected federal surplus or deficit po- rangements on the other provinces or the sition." The Council went on to note in "mak- country as a whole. As of April 1, 1980, the Al- ing this recommendation, we recognize that berta Petroleum Marketing Commission took there exists an extensive network of federal- over sales of crude oil from Crown lands; the provincial discussions of both financial and commission refuses to sell crude to companies non-financial matters. We believe that these without refineries in the province. Concern has discussions can be improved by the addition of been expressed that such barriers to moving an open, consistent presentation of medium- goods, capital, and labor across provincial lines term federal and provincial fiscal prospect^."^ may convert Canada into ten markets instead of The Government of British Columbia seemed one and so weaken the country's overall situa- to agree with that recommendation. In a study tion in the world market still f~rther.~ of its own, it concluded "the provinces inde- In a recent study of the problem Edward pendently should not pursue major stabiliza- Safarian concluded that overcoming the trend tion objectives through tax-expenditure ad- toward balkanization is complicated by the fact justments," but they should participate actively that "decentralization is fashionable at the in a coordinated way in attempting to develop moment'' in Canada and by the need currently a national stabilization policy. In fact, because felt to curb the federal government as a way to provincial revenues increasingly have been get at its increasing deficit. At the least, Safa- based on the "cyclically sensitive" income tax rian suggests, "the constitution could be re- and because the percentage of provincial (and written to prohibit non-tariff barriers to trade- municipal) expenditures in terms of share of currently it only prohibits tariffs between GNP has increased so significantly in recent provinces." years, their participation "in joint consultation In light of their new position on the Cana- in the planning of stabilization policy" appar- dian fiscal stage and in view of the responsi- ently is required. Before that comes about, bility they must bear for moving Canada as far however, British Columbia argued better data-particularly provinciallregional trade creased to roughly one-half on the second $2 a data-must be available and more considera- barrel. There would be a similar arrangement tion given to various models of provincial ini- for natural gas. Part of the federal revenues tiatives that might be undertaken-"e.g., tax would have been used to finance energy proj- cuts, expenditures on particular goods and ects, part for conservation, and part for general services, and capital projects . . . in terms of governmental purposes. In addition, the excise their stimulative impacts within the provinces" tax on gasoline would have been increased 18 and beyond their bordem9 cents a gallon, that money too going into the In any case, providing concerted manage- federal coffers. Also the personal income tax ment of the economy probably will form one was to be changed to provide a refundable element of the constitutional debate which energy tax credit for lower and middle income began after the Quebec referendum of May 20, taxpayers. The new Trudeau government is, of 1980, on Sovereignty-Association. course, concerned with these same issues. In addition to any reform in that area, how- A new round of negotiations between the ever, some action to rectify Canada's existing federal government and Alberta on oil pricing * fiscal imbalance probably will be forthcoming. was begun in early summer 1980 against the For it would seem the current financial situa- August 1, 1980 expiration of the agreement tion, with its accompanying prospect of in- between Ottawa and Alberta. Bitter inter- creasing federal deficits, is not a matter to be governmental exchanges have taken place ever 80 tolerated. As presently constituted, Ottawa's since 1974 before other agreements were revenue base is simply too small to support all reached. The years since then have not served of the cost sharing and other programs it has to soften the positions compromised in those undertaken with the provinces. As noted ear- agreements. The discussions in 1980 were lier in this study, the equalization program in marked by the same disagreements that particular would seem to be in jeopardy, or at characterized the earlier ones. As Stephen least in need of some modification, with On- Duncan commented in The Financial Post, a tario under the present formula entitled to price hike necessary to satisfy Ottawa can only compensation. In an analysis of the prospects exacerbate regional rivalries. "There is already of the 1980s in Canda, The Financial Post con- . . . a remarkable difference in perceptions over cluded "federal-provincial wrangles over tax the question of sharing." "Apprehensive On- revenue will inevitably continue." It noted tario sees the price of oil as having risen from Prime Minister Clark had called for a "re- $3 a barrel to [almost] $14 over a brief five-year vamping of federal-provincial revenue shar- period. Alberta sees only that it is selling its ing," perhaps through the vehicle of a royal product at [less than] half the world price" and commission. lo by selling it at that price it has been in effect giving "the rest of the country about $4.2 bil- THE IMPACT OF OIL PRICES ON lion a year" since 1973.11 GOVERNMENTAL REVENUES Nor is the issue confined solely to the oil currently available in Alberta. Much of Al- One issue which led to the downfall of the berta's reserve lies in oil sands, the technology Clark government was its proposed new energy for developing which is still to be perfected. package which would have led to accelerated Rapid exploitation of the oil sands may not be increases in the price of oil to consumers. in Alberta's best interests. Clark's proposal accepted a $4 per barrel increase in the wellhead price of oil in 1980 and $4.50 per barrel for the following three years. The producing provinces would have derived * To date discussions have been pretty much confined to oil pricing. However, natural gas is also a source of rev- normal revenues from these increases enue to Alberta and British Columbia. The federal gov- amounting to about 45% of the total. Industry ernment does not impose an export tax on natural gas, so would have derived a normal share of the first that the entire revenue from selling it abroad flows directly to the producing firms and provinces. The pricing $2 a barrel increase but the federal share of the of gas is wholly different from and more complex than increase, normally very small, would have in- that of oil and is covered under separate agreements. Rapid development-Ottawa would like to cial boundaries are clearly the property of the see one new oil sands plant come into pro- province; the federal government owns only duction each year-would create a series of those resources found in territories, in national boom towns in the affected areas and parks, on Indian reservations, and on other fed- would involve the [province] in heavy ex- eral government properties. penditures for roads, sewers, schools, hos- Nevertheless, it has traditionally been rec- pitals and other facilities. The town plan- ognized that the federal government does ning and manpower planning that would have both a practical interest and a moral be required, and the need to deal with the responsibility in the general field of re- social and environmental aspects of a source development . . . certain resource series of $5 billion oil sands plants, would problems . . . are of such a magnitude as to present a daunty challenge to the Alberta be beyond the financial capacity of indi- Government. vidual provinces, and there are others "From Alberta's point of view . . . the best which spread across more than one prov- strategy would be one of steady development of ince. the oil sands over a long period of time, and of Moreover, the federal government must be integrating the growth with that of the prov- particularly concerned with the preservation ince's emerging industrial base."12 If Alberta for future generations of Canadians of non- accedes to rapid development, it likely will do renewable resources and with the impact of so only if Ottawa accepts a pricing and revenue their exploitation on the balance of gov- 81 sharing arrangement eastern Canadians will ernmental revenues in the nation as a whole.14 think is excessive. The resource-blessed provinces in recent To date, much of the debate has focused nar- years have felt strongly that federal actions and rowly on the issue of which government gets assertions in the oil-pricing dispute and in de- what from oil production royalties. There is, veloping and implementing tax policies as they however, a broader question which must be an- affect natural resources threaten the principle swered: how is the oil industry going to be of provincial jurisdiction. Premier Peter compensated for its part in the push toward oil Lougheed of Alberta has taken the lead in de- self-sufficiency for Canada? "Billions will be manding full recognition of that principle by required to meet the exploration and develop- the federal government, and he has been joined ment costs, not only of the oil sands in Alberta, in his demand by Premier Brian Peckford of but of oil reserves off shore, in the other prov- Newfoundland. Premier Lougheed developed inces, and in the Canadian North." Additional the provincial thesis in a speech to the Van- billions will be required for industry operation couver Board of Trade in November 1979: and for pipeline and other transportation development. To meet these costs, the industrial A province owns its resources-it can share of oil revenues will have to be main- determine when and how and how tained or increased. much to produce. If it wants to sell into the interprovincial/international Ottawa, with its growing deficit, wants market place, the federal government more revenue. Alberta, with its soaring has certain jurisdiction and so it is a budgetary surplus, wants to provide now bilateral negotiation with regard to re- for the day when the oil runs out. But these sources. If Ontario Hydro wants to sell goals will become only of academic inter- its power outside the province it is a est if the pricing formula doesn't leave the negotiation between the federal gov- industry with enough money to undertake ernment and Ontario. In natural gas it the enormously costly exploration and de- would be between British Columbia velopment . . . of [oil] sources.13 and Alberta with the federal The oil pricing issue touches upon one of the government-the same with oil. We most controversial aspects of Canadian con- are prepared to discuss oil with the stitutional law-ownership and control of nat- consuming provinces, but frankly not ural resources. Those resources within provin- negotiate with theme's Thus the climate in which the oil-pricing especially important in the field of resource formula, the beginning step toward a possible taxation; a discussion paper prepared for the readjustment toward a better fiscal balance in November 1978 First Ministers' Conference Canada, is being discussed is acrimonious. Ot- demonstrated that in the 1970s there was "a tawa wants additional revenue, and it also considerable increase in the variability of the wants to encourage energy conservation. As the definition of tax bases and tax rates" among the Economic Council of Canada put it, for the lat- provinces affecting resources, mining in par- ter purpose alone "it is essential that Canada's ticular,lg and urged the tax base be restruc- petroleum and natural gas prices soon reach tured. parity with world prices . . . [even though] this A certain amount of variation among the will add inflationary pressures and place a provinces in tax treatment inevitably is present further cost burden on regions and industries "as a reflection of the different beliefs or pref- that are major users of oil and gas." l6 Ottawa's erences of the provincial government^,"^^ just position right along has been that the federal as some variation is to be expected between government's take from an increase in oil federal tax policies, with their broader goals prices must be sizable, and that is just where and purposes, and provincial tax policies. It is the opposition from Alberta comes in. not desirable to attempt common adoption of Trudeau's Energy Minister Marc Lalonde said tax rates and bases all across the board. How- early in May 1980, Ottawa's aim is "not to stint ever, basic agreement among the several gov- Alberta's income, 'it is to develop a pricing ernments of Canada as to the directions tax 82 system that will accommodate Alberta's rev- policies ought to take is desirable in order to enue aspirations without severe and perhaps have "greater neutrality or equity in tax treat- irreparable damage to the rest of Canada or ment between sectors; fewer tax changes; and even to the federation itself.' " l7 greater visibility where programs are explicitly It was announced on August 1, 1980, the designed to achieve regional economic objec- governments of Alberta and Saskatchewan tive~."~~It is particularly important to have unilaterally raised prices of crude oil produced common rules for allocating taxes among in those provinces by $2 a barrel, bringing the provinces where the taxpayer has activities in wellhead price to $16.75 a barrel. The action more than one province. If this is not done, was not opposed by the Canadian government, there can be a serious problem of double taxa- which had been negotiating with the oil- tion. producing provinces for several weeks without The situation is still good in Canada; the in- reaching an agreement. At the same time the tergovernmental consultation process in the Alberta government announced it would raise fiscal arena has, as suggested earlier, worked to the price of natural gas produced in the prov- produce a good deal of harmony in the tax ince by 30 cents a thousand cubic feet, effective structure. There is, however, some concern September 1, 1980. about the future when Alberta withdraws from the Tax Collection Agreement for the Corpora- TAX HARMONIZATION tion Income tax. Table 16 and Figure 1 indicate tax rate differentials among the provinces in Fiscal imbalance is the major problem re- force for five major taxes. sulting from the Canadian tax structure. How- Differential tax treatment also exists within ever, another problem, that of tax harmoniza- Canada to a significant degree as a result of tion, is present to some degree as well. Admit- federal policies. There are differentials ac- tedly it is difficult to keep the federal govern- cording to type of industrial activity: man- ment and the provinces, each conscious of its ufacturing and processing industries are own fiscal authority and responsibility, in step treated differently from small businesses in as far as taxes are concerned and to prevent in- terms of corporate income tax rate and equities from developing among regions and to writeoffs; and corporations involved in man- preclude selecting any one sector of the Cana- ufacturing and processing, petroleum and dian economy for either preferential or dis- mining, logging, farming, fishing and grain criminatory tax treatment? Harmonization is storage, and in the production of industrial Table 16 1980 PROVINCIAL TAX RATES Personal Income Corporation Sales Gasoline Cigarette Tax (percent of federal Income Tax Taxe Tax (1979 Tax (per income tax) (percent of taxable (percent) rates per cigarette) income) gallon) General Small Business Newfoundland 58.0% 15% 12% 11% 274 2.04 Prince Edward Island 52.5" 10 10 9 21 1 .o Nova Scotia 52.5 13 10 8 21 1 .o New Brunswick 55.5" 12 9 8 20 1.o Quebec b 13 12 8 19 1.2 Ontario 44.0~ 14 12 7 2 1 1.2 Manitoba 54.0~ 15 11 5 18 1.2 Saskatchewan 53.OC 14 11 5 19 1.2 Alberta 38.5" 11 5 nil nil .32 British Columbia 44.0" 15 10 4 17 .96 a Prince Edward lsland and New Brunswick have in effect general reductions in their personal income taxes otherwise payable of 2.5% and 5.5%, respectively. Quebec's personal income tax rates under its own schedule range from 0% to 28% of taxable income. Ontario, Manitoba and British Columbia levy no income tax on low-income taxpayers who are subject to no federal tax because of the general federal tax cut. Saskatchewan does the same but adds a tax cut for taxpayers with children to a maximum of $7,390 taxable income. Alberta provides tax cuts for taxpayers whose taxable incomes are under $9,070. Corporation income tax rates are expressed as percentages of taxable income for federal purposes for eight provinces with tax collection agreements with the federal government. Quebec and Ontario rates are based on their own definitions but are similar to the federal definition. Ontario has two rates for companies other than small businesses. The general rate is 14% but for manufacturing and processing it is 13%. Higher rates of 10% are applied to spirits and wine in Prince Edward Island, Quebec, Ontario, Manitoba, and Saskatchewan; to beer in Saskatchewan; and to higher priced meals in Quebec and Ontario. A higher rate (7%) is applied in British Columbia to spirits and wine except where sold on licensed premises, when the rate is 5%. SOURCE: Federal and Provincial Taxes 1980 (Preliminary), a publication of the Subcommittee on Financial Data of the Federal-Provincial Continuing Committee on Fiscal and Economic Matters. Figure 1 DIFFERENCES IN TREATMENT OF BUSINESSES IN PROVINCIAL TAX POLICY Quebec "Place of Business" Tax Applies to companies in certain lo- cations, $50 per company Quebec Corporation capital tax-tax on See below Ontario paid-up capital of corporations Manitoba (on equity and financing struc- Saskatchewan ture) British Columbia All provinces Retail sales tax on sales of "tangi- Ranges from 5% in Manitoba and (except Alberta) ble personal property" Saskatchewan, to 8% in Quebec and the Maritime Provinces, and to 10% in Newfoundland Paid-up Capital Tax Differentials :

Quebec: 3/10 of 1 %, minimum $100; 113 of 2% for oil refining companies; 6/10 for banks, loan and trust companies. Other rates and/or bases apply to certain classes of corporations, i.e., telegraph, railway, gasoline, liquor, investment, and mining. A special tax in the form of an additional 113 of 2% is levied on the paid-up capital of oil refining corporations. Ontario: 3/10 of 1%; 415 of 1% for banks, loan and trust companies; $50 when paid-up capital does not exceed $100,000; $100 when paid-up capital is greater than $100,000 but less than or equal to $200,000. Manitoba: 115 of 1%. Exemptions include corporations with paid-up capital under $500,000, cooperatives, credit unions, family farms, and charitable corporations. An exemption of $750,000 is allowed for small businesses. Saskatchewan: 3/10 of 1% with $10,000,000 exemption-but 4/10 of lohfor chartered banks and loan and trust companies. British 115 of 1%. Exemptions include corporations with paid-up capital of under Columbia: $1,000,000 (a graduated tax between $1,000,000 and $1,250,000); corporations exempt under the federal income tax act; credit unions, cooperatives and family farms. The tax for banks is 415 of 1% and for loan and trust companies is 315 01 1%. SOURCE: Province of British Columbia, Tax Harmonization, p. 7; Statistics Canada, Principal Taxes and Rates, updated from 1979-80 and 1980-81 provincial budgets. minerals qualify for investment tax credits benefit from a number of special provisions against corporate income tax liability. Certain and extra deducti~ns.~~ kinds of industrial development may receive Some or all of these differences may be dis- investment incentives and investment tax cussed in the next round of federal-provincial credits if they are located in special areas or re- negotiations leading to an updated fiscal ar- gions of the country. The resource industries rangements act in 1982.

2 See W. Irwin Gillespie, "Post-War Canadian Fiscal Pol- FOOTNOTES icy Revisted, 1945-1975," Canadian Tax Journal, 27:265-76, MaylJune 1979. He reviews the major Economic Council of Canada, Sixteenth Annual Review, analyses of others and adds his own judgments. Two Cheers for the Eighties, 1979, p. 47. 3Province of British Columbia, Towords an Economic Strategy for Canada, Background Papers, "Natural Re- lZEditorial, The Financial Post, October 27, 1979, p. 6. source Management and Provincial Economic Develop- 13Ibid. ment," February 1978, p. 9. l4 H.L. Keenleyside, "Problems in the Administration of Although it cannot be developed to any extent in this Canadian Resources," The Canadian Journal of Eco- report, the point should be made that the Canadian nomics and Political Science, 16:330-31, August 1950. economy is particularly dependent upon the world 15 Quoted in The Financial Post, November 24, 1979, p. market, both for the raw materials it exports and the 12. manufactured goods it imports, making government l6 Economic Council of Canada, Fourteenth Annual Re- management difficult in any case. view, p. 83. It should be noted that Prime Minister Clark Safarian's study is reported by Catherine Harris in The signed the Tokyo Declaration pledging thereby that Financial Post, November 10, 1979,p. 6. Canada would raise domestic oil prices to world market 6Peter Gusen, "Economic Stabilization by the Prov- prices as soon as possible. inces," The Canadian Business Review, Winter l7 Quoted in The Calgary Albertan, May 7, 1980, p. 1. 1978-79, p. 29. Province of British Columbia, Towards an Economic Economic Council of Canada, Fourteenth Annual Re- Strategy for Canada, Background Papers, "Canadian In- view, p. 28. dustrial Policy, Part 11, Tax Harmonization," February Economic Council of Canada, Sixteenth Annual Review, 1978. pp. 88-89. 19Federa1-Provincial Resource Taxation Review, a joint 9Province of British Columbia, Towards an Economic report by federal and provincial officials to Finance Strategy for Canada, Background Papers, "The Role of Ministers and Resource Ministers, Document Number the Provinces in Stabilization," February 1978, pp. 9, 800-91018, November 1978,p. 25. 11, 19. 20 Province of British Columbia, "Tax Harmonization," p. The Financial Post, January 5, 1980, p. 15. 3. " Stephen Duncan, The Financial Post, October 6, 1979, Z1lbid.,p. 4. p. 4. ZZ1bid.,pp. 8-10.

Chapter 8

Renegotiating the Federal Bargain

This re~orthas referred to the Dressure in 87 Canada ti renegotiate the federal bargain. The following quotations pose the problems: . . . the same political problems have occupied [Canada] from [its] beginnings-the fact that we are two cultures . . . the divisions of economic interest between the various regions of the country . . . [and] whether a [Canadian] nation is at all possible when we share the continent with the giant heartland of the American em- pire . . . . These themes of our political life have never been separate from each other. In their intertwining they modify each other . . . . These old themes . . . took new form in the 1970s, largely because of the staggering development of scientific technology. . . . It was this . . . that made many French-speaking technocrats so strongly nationalistic in the seventies. In the face of [the] new technology, how could Quebec culture exist if they did not take their political fate into their own hands? . . . Trudeau's constant concentration on [resisting those moves] meant that his government often seemed almost un- interested in the other two great themes of Canadian politics, regional interests and our independence vis-a- vis the United States. As far as the west was concerned, Trudeau acted as federal policies and market forces if its interests had no place in his which seem to operate to the detriment scheme of things . . . [his] . . . Liberal of their region. They have demanded a . . . party had been the spearhead of greater provincial voice in national continentalism in Canada . . . [so] it policies which affect these goals.2 was not to be expected that in an ad- . . . the federal government brought [its ministration directed by Trudeau there deficit] situation on itself through . . . would be much interest in the ques- tax reductions and generous refinanc- tions of national independence . . . . ing of transfers to provincial govern- The 1970s [were] above all a time ments. Federal revenues are overcom- when the Canadians wanted it both mitted to supporting expenditures that ways . . . . We could make affirmations are statutory, governed by federal- of Canadian unity without coming to provincial agreements, and almost terms with the very serious questions completely indexed upwards. asked by French Canadians. We could greatly increase our national expendi- The federal government is in a poor tures and not calculate that the con- position to continue to play its major sequent deficits would have anything role in economic management, equali- to do with inflation. We in Ontario zation of provincial revenues, and the conduct of major national policies. In 88 could count on western oil to keep us driving and not think that Albertans most areas of economic policy, might be worried about what would achieving national objectives will re- happen when their oil was gone . . . . quire extensive provincial participa- [But] it looks as if the 1980s will be a tion, or these objectives may never be less bland time in Canadian life than met. There is an urgent need for more the 1970s. A decade which opens with cooperation. In the longer run, the fis- declining prosperity, growing inflation cal structure of the federation will and growing unemployment is not have to be re-balanced and better in- likely to be a time of political ease.' stitutional arrangements will have to be developed to cope with the chal- The reality today is that we have two lenge of interdependence between the levels of active, aggressive govern- federal and provincial government^.^ ment, often pursuing competing goals, and seeking greater control over the whole range of contemporary policy PROPOSALS FOR instruments. With this has come a shift CONSTITUTIONAL REFORM in the issues which predominate in federal-provincial debate. The major All the issues raised in these quotations need issues of the postwar period focused not be addressed by this study. They were used mainly on fiscal sharing and on the use to frame the central issue facing Canada in the of the federal spending power in social immediate future-the need for constitutional policy . . . . There was a general con- reform. Indeed, reform of the Canadian Con- sensus both on the thrust of policy- stitution (the BNA Act as amended) has moved Keynesian economics and the welfare to a high place on the Canadian public agenda. state-and on the legitimacy of federal For a good many years, proposals to revamp the leadership. Today the focus is on eco- constitution-and thus the Canadian federal nomic development, using the tools of system and Canadian fiscal federalism as taxation, regulation and public enter- well-have been appearing regularly from prise. Provinces have increasingly governments, political parties, and private used them to promote their own de- sources. The debate opened in earnest in 1967 velopment, to protect provincially- at a provincial conference in Toronto under the based industry, and to counteract both chairmanship of then Premier John Robarts of Ontario. The conference theme was "The Con- Canada from its English statutory base. On federation of Tomorrow," and the debate has May 9, 1980, the Canadian House of Commons been carried on ever since. By 1980, Canadians passed a motion proposing the constitution be had before them a welter of reform proposals to transferred from Britain to Canada. Prime ~onsider.~ Minister Trudeau said he would not be bound Chief among the proposals are the recom- by the motion without getting provincial mendations of the Task Force on Canadian agreement to it. Once repatriated, agreement Unity; Prime Minister Trudeau's program as needs to be reached on how to provide for sub- outlined in the white paper, A Time for Action; sequent amendment. the Parti Quebecois-Levesque proposals, mostly Most other substantive issues addressed in incorporated in the Quebec white paper, the Ryan plan had been raised in First Minis- Quebec-Canada: A New Deal; and proposals of ters' and Premier meetings over the last several the governments of Alberta, British Columbia, years. Thus the provincial premiers at their and Ontario, embodied respectively in Al- October 1976, meetings agreed among the issues berta's Harmony in Diversity: A New FederaI- to be considered must be the distribution of ism for Canada, British Columbia's Constitu- power among the governments of Canada, spe- tional Proposals, and the two reports of On- cifically, power over immigration, fisheries, tario's Advisory Committee on Confederati~n.~ language rights, resource ownership and taxa- Early in 1980, one more proposal was made tion, culture, and communications. They also which has succeeded in diverting attention agreed the federal declaratory power, its power 89 from all the others. That proposal came from to create new provinces, its spending power, its Claude Ryan (more specifically, from a com- power to reserve or disallow provincial legis- mittee of constitutional experts in Quebec's lation, and its power to implement treaties Liberal Party) and was released under the title, must be reconsidered, as well as the federal re- A New Canadian Federation. Since, as William sidual power in general. Johnson noted in The Globe and Mail, "Claude The First Ministers' Conference of February Ryan's plan became immediately the most im- 1979 was devoted entirely to the subject of portant constitutional document next to the constitutional review. It considered many of British North American Act it~elf,"~. . . the the same topics the premiers had earlier and parts of that plan most relevant to the subject of added others to the list: empowering govern- this report are summarized here. Many of the ments adequately to fight inflation, unem- ideas in one or more of the other proposals ap- ployment, and regional disparities; dealing pear in one form or another in the Ryan pro- with non-tariff barriers to interprovincial and posal. Obviously, in the last analysis, the final international trade and investment; providing resolution of Canada's constitutional question for the regulation of the Canadian securities will be an amalgam of ideas, even if the Ryan market; clarifying jurisdiction over minimum proposal is the base from which that resolution wages; and dealing with the role of commodity takes off. marketing boards.9 Before summarizing the Ryan plan, however, This enumeration of constitutional issues is it should be noted that many of the issues selective and far from complete. One omission which must be addressed in reforming the seems especially obvious: consideration of Canadian constitution have been well expli- municipal governments' place in the Canadian cated in the last decade. The major issue, to federal system. Canada is an urban and met- which the Ryan plan addresses itself in ex- ropolitan nation, yet the power of the provinces tenso, is, of course, how to deal with Quebec's versus that of their urban centers and the fed- demands, although as already suggested in eral government's responsibility for balanced these pages assertions of the Western provinces urban growth and development have not been recently have come to demand as much atten- included in any official considerations for revi- tion as those of Quebeca7 sion. Another issue dealt with in the Ryan pro- It is not the purpose of this study, however, posal is that of patriation and amendment of to discuss constitutional revision generally. It the constitution-how to bring it home to must suffice to suggest the range of issues with which constitutional reform must deal and take time to achieve. Not all of it can be accom- which must be included in any debate about plished at once, nor can we wait until all of it constitutional change as Canada moves toward is done to demonstrate to the people of Canada action in the 1980s. Pandora's Box seems to be that tangible progress is being made. The Gov- open; the likelihood of resolving all the issues ernment of Canada believes, therefore, that in- very easily or quickly seems to be small. tensive work should now begin on a list of items of particular priority to the people of Canada and to governments, with the under- THE REVIEW PROCESS INITIATED standing that some or all of these could well become the subject of early adoption as parts of In any case, overall constitutional change the new Canadian Constitution." seems imminent in Canada in the wake of the The list of priority items, which drew heavily outcome of the Quebec vote on Sovereignty- from the earlier discussions summarized here, Association. The Parti Quebecois government was as follows: of Quebec offered a proposal to negotiate a new agreement with the rest of Canada which a statement of principles; would have enabled Quebec to exercise "the a charter of rights, including language exclusive power to make its laws, levy its taxes rights; and establish relations abroad-in other words, a dedication to sharing andlor to equalization: the reduction of regional dis- 90 sovereignty-and at the same time, to maintain with Canada an economic association includ- parities; ing a common currency."1° In the May 20, 1980 the patriation of the constitution; vote, an astounding 60% of the voters declined resource ownership and interprovincial to authorize the Quebec government to proceed trade; with negotiations with the other governments offshore resources; of Canada. As Maxwell Cohen predicted, the fisheries; "No" vote has been read "as disposing only of powers affecting the economy; the sovereignty-association option . . . ." A communications, including broadcasting; "better deal" for Quebec still remains the goal family law; of many Quebeckers and of other Canadians of a new upper house, involving the prov- all persuasions, and to achieve that, constitu- inces; and tional change within the fabric of confederation the supreme court, for the people and for governments. is still required. l1 Prime Minister Trudeau responded to the A schedule of meetings of first ministers and Quebec vote by reaffirming his determination other ministers on constitutional change was to tackle the overall question of constitutional established, with the expectation an open con- reform during his present mandate. Im- ference of first ministers will be held in Ottawa mediately after the May referendum he ini- in early September 1980, to "finalize agree- tiated steps toward federal-provincial consul- ments arising out of work under way, and to tation. As a basis for discussion, a meeting of put in train a further work program."12 First Ministers (provincial premiers and the Thus Canada has taken Quebec's challenge Prime Minister) prepared a list of priorities for seriously and is embarking on the first general a new Canadian constitution, which was issued constitutional overhaul ever undertaken there. on June 10, 1980. The list was prefaced by the As suggested earlier, the Ryan proposal likely statement "The time has come for the Govern- will provide a central focus in that debate. It is ment of Canada and the Governments of the time to turn to the most relevant parts of that Provinces to join together in the task of drafting proposal as far as this study is concerned. a new Canadian Constitution. As it enters upon that task, the Government of Canada is dedi- A NEW CANADIAN FEDERATION cated to a full review of all constitutional measures now applying to our federation. The At the outset the Ryan plan proposes a con- . . . task constitutes a great enterprise and will federation which emphasizes the sovereignty of both the federal and provincial governments, a Cheshire cat, where nothing would remain but confederation in which no government would the smile."13 Or as Simeon puts it, the Federal be senior or junior to other governments. Council would serve "as a forum for inter- Rather, all 11 governments would be absolutely governmental discussion and cooperation, a equal to each other, each "sovereign and au- place to harmonize policies in the many areas tonomous in their own fields of jurisdiction." in which both sectors of government have an The proposal thus meets Quebec's long- interest and the power to act-to overcome the standing peculiar demands, while at the same inevitable overlapping of responsibilities, time it recognizes the shift of power to the however neat the division of powers." provinces in modern Canada and seeks to ad- This may prove a forum for endless just Canadian federalism to the new facts of life wrangling. But that would be nothing new that shift represents. in Canadian federalism. The massive, com- To ensure that equality, the Ryan Plan pro- plex, cumbersome, secretive, and confus- poses eliminating the present Senate (the upper ing process of federal-provincial negotia- house of the Canadian Parliament) and replac- tion we now have is almost a third level of ing it with a Federal Council, representative of government, but it exists completely out- the provinces in proportion to their population. side the constitution. "The aim of such an institution . . . is to ensure a better cohesion in Canadian policies, by al- It must be made more effective and open. We must build a framework in which gov- lowing the provinces a say in the development 91 of those federal initiatives which are so far ernments defend their actions in public ranging that they affect the whole country and and have an incentive to be sensitive to which therefore have implications for provin- each other's interest. No conceivable new cial jurisdictions." The Council's chief func- division of powers is going to reduce this tion would be to act as a watchdog body to as- need to cooperate. By forcing Ottawa to re- sure the federal government does not encroach spond in advance to provincial interests, arbitrarily on provincial powers. Specifically, and by making provinces aware of the na- the Council would have the power to ratify fed- tional implications of what they do, the eral government expenditures in provincial Council is the most practical model yet jurisdiction areas by a two-thirds vote. "The proposed. l4 central government could no longer develop policies and commit funds in areas under pro- Maxwell Cohen agrees "it is necessary to in- vincial jurisdiction without the approval of the stitutionalize federal-provincial consultative provinces.. . ." The Council would also have machinery. Whether this takes place through an advisory power by the exercise of which the first ministers conferences, through Senate re- provinces could "express their view[s] on pro- form, or through some new body (e.g., Ryan's posals which fall under the central govern- Federal Council) really matters less than does ment's exclusive jurisdiction but which have the notion that consultative mechanisms on all an important impact on the whole federation." present issues must embrace federal and pro- And the Council would participate in the ap- vincial governments in some permanent pointment of federal judges and officials. Thus, "Federalism. . . appears to Mr. Ryan to Powers would indeed be redistributed under be both an intellectual idea and a practical the Ryan plan. In general, the plan accepts the system worth defending. In fact, Mr. Ryan principle that provincial power should be [instead of settling] for only a wholesale trans- strong enough to permit the provinces to take fer of legislative powers to the provinces [has charge, "in their respective territories, of the opted I in favor of giving the provinces a direct tasks related to the development of their physi- voice in the nation's central political institu- cal and human resources. This implies, among tions. This may make the operation of the cen- other things, the management of their natural tral government more cumbersome, but the resources, land use, local and provincial com- other route-massive decentralization- merce, regional economic development, edu- [would risk] leaving Ottawa looking like a cation and culture, social and sanitary services, the administration of justice, and social insur- of fiscal responsibility, and have had the effect ance schemes." On the other hand, the Ryan of placing the provinces in the role of mere proposal insists on "the existence of a central managers of administrative and legislative power strong enough to serve the whole coun- policies conceived at the federal level." "De- try in the face of whatever new challenges the spite the fact that some corrections have been modern world presents, whether internally or made to this situation in recent years [particu- externally. This government's major task will larly in the Fiscal Agreements of 19771, it is be to manage the economic union, to ensure the necessary to ensure that this situation does not smooth operation of national policies in certain recur in the future." That insurance would be aspects of industry and commerce, to ensure a supplied by the two-thirds vote of ratification reasonable distribution of wealth between the by the Federal Council of any exercise of the provinces and between individual citizens, and spending power in fields of provincial juris- to act in the name of the whole country in the diction. pursuit of peace and national security." The plan also proposes that "means be pro- It may well be desirable, Maxwell Cohen be- vided for compensating those provinces which, lieves, to establish a greater number of concur- despite a national consensus of the Federal rent powers in the constitution so as to facili- Council, might not wish to participate in one or tate "the joint decision-making process" which several of these programs." has become characteristic of Canadian govern- With regard to equalization payments, the 92 ment.16 Ryan proposal sees no reason to discontinue After discussion of the need for a constitu- them. In fact, it states that "it is impera- tional charter of rights, of desirable reforms in tive . . . that our country's constitution impose the institutions of federal and provincial gov- upon the federal authorities the obligation to ernments, and of the power and role of the redistribute wealth, so as to reduce disparities judiciary, the proposal takes up matters of fis- and encourage the equality of opportunity be- cal federalism. At the outset, it recognizes the tween the regions of Canada." To that end, the critical importance of the federal spending federal government must have "an adequate power. In the past, it notes, the spending power fiscal mass, together with sufficient room to "has allowed the federal government to set up maneuver," to maintain "a viable policy of a great number of programs for funding indi- economic stabilization." Moreover, since the viduals, institutions, or provincial govern- use of the central government's taxing powers ments in fields of provincial jurisdiction. Gen- itself "constitutes one of the most important erally accompanied by specific conditions, instruments for the redistribution of wealth these programs have become a means of reg- among the regions of the country," it is essen- ulating entire areas of provincial responsibil- tial for the equilibrium and the proper func- ity. Unconditional equalization payments also tioning of the federation that those powers be have their legal basis in the spending power. ample. However, these are more acceptable to the The report goes on to note that equalization provinces and must be maintained." payments, by themselves, are not sufficient to With regard to conditional subsidies, the "ensure reasonable economic equality between proposal notes those programs were "originally the various regions of the country. Economic intended to rectify fiscal inequalities and allow development also must be distributed fairly all provincial governments to provide, in sev- across the country. This means the federal gov- eral essential fields, a comparable level of ernment must be in a position to stimulate eco- services across Canada, without causing their nomic activity in disadvantaged regions, not populations a disproportionate financial strain. only in an indirect way, by the transfer of funds However, such programs have, at the same to provincial authorities, but also through time, given the federal government a dominant clearly defined schemes for regional develop- influence in strictly provincial fields, such as ment." It would be another part of the Federal education, health, welfare and housing. Fur- Council's role to advise the federal government thermore, they are departures from a well es- on regional development policies. tablished tradition of Canadian federalism, that The proposal devotes an entire chapter to taxation and equalization. It postulates at the John Trent of the University of Ottawa, one outset that the "autonomy of the provinces in author of the Ryan proposal, subsequently their spheres of jurisdiction is illusory if they noted some criticism of the proposal has been do not have access to adequate financial re- directed to the "massive shift" of power that sources to meet their responsibilities." The re- implementing the proposals would involve. He port embraces the concept of fiscal responsi- dismisses the criticism on grounds the pro- bility, under which the government spending posal primarily either formalizes "a situation public money should be responsible for raising already in practice," accepts the central gov- the funds, and it recognizes the need for both ernment's indication "it wishes to get out of the provincial and federal governments to have [certain] areas," or recognizes local govern- adequate tax resources to meet needs in their ments are so involved in some areas "it makes respective areas of jurisdiction. Specifically, sense to allocate them to the provinces." In any the report recommends: case, Trent concludes, "the central government has the mandate to handle interprovincial and 1. Abolition of the constitutional distinc- international affairs, the Canadian economy, tion between direct and indirect taxes and develop the Canadian identity. It will re- and the extension in the constitution to tain the power. . . to spend money on programs both levels of government of power to in provincial jurisdictions when the provinces levy taxes for their own purposes by any agree to it. It continues to have an emergency means of taxation. power. The unity of the Canadian economy is 93 2. Formulation of rules "to harmonize the strengthened by proposals to reinforce our laws of the different fiscal regimes . . . to common market. Furthermore, Ottawa will prevent. . . double taxation, and to en- have access to all fields of taxation. . . .[It will sure a comparable tax pool throughout be responsible] for equalization . . . and [will the country." be required] to help with regional economic 3. Retention by the provinces of the right to development. It retains sole responsibility for collect duties and royalties from the defense and security. This is hardly an emas- exploitation of natural resources. culated central government."17 If adopted, the proposal would create a more 4. Retention by the federal government of "workable federalism" first, based on a clearer power to "impose export taxes as well as division of jurisdictions between the central taxes on profits derived from all com- and provincial governments and, second, bal- mercial activities in Canada." anced by a series of institutions that will en- 5. Retention by the provinces of the power force cooperation between the governments. to levy real estate taxes, "which are Specifically, utilized almost exclusively. . . for municipal and local needs." . . . the proposed Federal Council will force the provincial and federal governments to 6. Retention by the federal government of work together-if they do not wish to be the exclusive power to levy tariffs and thrown out of office by a public which will, customs duties. for the first time, have full access to inter- 7. Recognizing the impossibility of governmental debates and a visible means guaranteeing, through constitutional of assessing responsibility for disruption provisions, tax levels sufficient for each and conflict. While the Council will not government to perform its necessary re- intervene in purely central legislation, it sponsibilities, the report recommends will, through continuing intergovernmen- joint government examination of the tal committees and permanent provincial "basic structure of the division of the delegations in Ottawa, assure that legisla- taxing powers" on a regular basis, every tion affecting both Ottawa and the prov- five or ten years. "The Federal Council inces will be carefully coordinated. should become the forum for the discus- Similarly, the Supreme Court and various sion and study of this matter." federal agencies, whose judges and officers will have been approved by the provinces can educate the public as well as its in the Federal Council, will be perceived to representatives. In particular, Maxwell Cohen operate for the benefit of the provinces as argues, "new approaches to joint fact-sharing well as Ottawa, thus bringing a new and fact-finding are [necessary] if the provinces legitimacy to our federal institutions.18 and the federal government are to perceive issues in the same way. . . . Difficult differences Richard Simeon earlier had advocated are rendered almost impossible of resolution if creating a House of Provinces which would be the facts . . . are perceived so differently by the much the same as Ryan's proposed Council. adversaries as to make discussion essentially Simeon liked the idea of such a body as an unproductive. It is urgent to institutionalize a "umbrella under which the various existing continuing, common fact-finding process ministerial committees and secretariats would among all eleven governments and to use it as a operate." He recommended responsibility for unifying tool whenever necessary."19 organizing and managing the Council be "un- Finally, despite the importance of embody- dertaken by a permanent committee of federal ing the federal-provincial consultative process and provincial ministers responsible for inter- in federal government institutions as a part of governmental relations. It would be served by a reconstructing the Canadian constitution, and small secretariat such as the existing Canadian Canadian federalism, Simeon argues sole re- Intergovernmental Conference Secretar- liance cannot be placed on that process. "To iat. . . . Together, the ministerial committee and rely almost entirely on the intergovernmental 94 secretariat would be responsible for preparing mechanism to reconcile center and periphery, agendas and . providing a follow-up to . . French and English, is to place an intolerable agreements." As he sees it, "All federal- burden on a fragile structure." More than any- provincial agreements would be tabled in the thing else, political parties must be council and it would be the setting in which at strengthened, not only by "making the federal least annual First Ministers' meetings would parties more regionally representative, but also take place." The requirement of going through [by] strengthening the ties between federal and the Council would "discipline Ottawa to provincial party systems, increasing mobility explore fully its own arsenal of policy tools and between federal and provincial governments consult fully with the provinces." and so on."20 Elsewhere, Simeon reminds pro- ponents of constitutional change it is difficult Other Requirements for Change to predict what the effects of change will be. "The answer cannot be found in the [new] But creation of the Council as part of the fed- document itself; it depends. . . on the will of eral government would not be enough for Si- the politicians who operate it."21 meon. He argues the necessity of making the Americans will be watching the constitu- intergovernmental consultation process subject tional revision process now under way in as well to provincial legislative scrutiny. Each Canada with intense interest. It is a process we legislature, he believes, "should establish a never have felt it necessary to initiate. However permanent standing committee on inter- the broad issues of government are resolved as governmental relations, to focus debate on the that process moves along. Resolving issues of government's actions." Moreover, that debate fiscal federalism may contain a good many les- should occur in the open, so the committees sons applicable south of the Canadian border.

In 1978, the Canadian Intergovernmental Conference FOOTNOTES Secretariat collected most of the proposals as of that time in its publication Proposals on the Constitution 'Adapted, with apologies, from an article by George 1971-1978, Ottawa, The Secretariat, 1978. Grant, "Inconsistencies Fed the 1970s," The Globe and Among the "unofficial" discussions of Canadian con- Mail, December 31, 1979, p. 7. stitutional reform Albert A. Abel's Towards a Constitu- Simeon, Intergovernmental Relations . . ., p. 8. tional Charter for Canada, Toronto, University of To- Economic Council of Canada, Sixteenth Annual Review, ronto Press, 1979, stands preeminent. But see also Dun- pp. 54, 57. can Edmonds, "A Treaty of North America," reproduced in U.S. Congressional Record, Vol. 126, No. 15: S877- tion." S880, February 4, 1980. The 1976 Premiers' Conferece is summarized in Canada 6The Globe and Mail, January 11, 1980, p. 8. See also Weekly, Vol. 6,No. 35, August 30, 1978, pp. 1-2. Ramsay Cook, "Claude Ryan and the Quest for Equality. 9Canada Weekly, Vol. 7, No. 11, March 14, 1979,p. 6. His Ideas Deserve a Clear, Serious Response," Saturday l0The wording of the ballot presented to the voters of Night, April 1980, pp. 40-42. Quebec, May 20, 1980. 'See the article about the Canada West Foundation in l1 Maxwell Cohen, "Federalism Needs Fresh, New Look," The Financial Post, March 15, 1980, pp. 1-2. The The Calgary Albertan, May 8, 1980,p. 19. Cohen is dean Canada West Foundation, formed in 1970 and supported emeritus of the McGill University School of Law. by the four Western provinces, the Yukon and North- 12 The First Ministers statement in mimeographed form west Territories, and prominent westerners, companies, was made available as a press release on June 10, 1980. and groups, is "a research-tool-cum-think-tank to serve The quotations are from that press release. as liaison on Western issues." It is currently working l3 Jeffrey Smith, The Globe and Mail, January 17, 1980, "for changes in the federal system . . . better division of p. 7. federal and provincial powers, proportional representa- l4 Richard Simeon, "And Now the Crunch," p. 25. tion, an elected Senate and regional vs. national eco- '5 Cohen. nomic development policies." It is not at present a l6Ibi d. separatist movement-to quote Stan Roberts, its presi- l7John Trent, "Federal Power is Too Dominant,"' The Fi- dent, "Western Canadians don't want out-we just nancial Post, March 29, 1980, p. 9. don't like the status quo." Roberts is quoted also in the l8 Ibid. article as saying he had been assured by Prime Minister l9 Cohen. Trudeau that his (Trudeau's) "top priority will be to Simeon, Intergovernmental Relations . . ., pp. 21-24. negotiate a stronger place for the West in Confedera- 21 Simeon, "And Now the Crunch."

a U.S. GOVERNMENT PRINTING OFFICE: 1981- 341-857:1002