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Serge Pelletier

Fiscal Federalism in Canada: Report of the Parliamentary Task Force on Federal-Provincial Fiscal Arrangements, Ottawa, Supply and Services Canada, 1981, 230 pages

On February 5, 1981, in anticipation of renewing the five-year fiscal arrangements that were set to expire in early 1982, the federal government established a parliamentary task force with the mandate to examine the programs authorized by the Federal-Provincial Fiscal Arrangements and Established Programs Financing Act, 1977, focusing, in particular, on fiscal equalization, the tax collection agreements, the Canada Assistance Plan, and Established Programs Financing; and that this examination take place within the context of the government's expenditure plan as set out in the October 28, 1980, budget.

The Task Force released its report on August 31, 1981. To understand the nature and scope of the report's analyses and recommendations, it is worth noting the political-economic context in which the provinces and the federal government were about to renegotiate the fiscal arrangements.

In October 1980, the federal finance minister announced the government's intention to cut tax transfers to the provinces by $1.5 billion. In the government's view, these cuts were made necessary by the past several years' growing deficits. The tax transfers to the provinces accounted for almost 20% of the federal budget, or $19 billion for the 1980-81 fiscal year. Moreover, funding for health insurance, social assistance and post-secondary education programs, calculated on a per capita basis, resulted in hefty tax transfers to the provinces, which, because of oil and gas revenues, were accumulating considerable budget surpluses. The fiscal dualism between the rich and the poor provinces and the threat of a long-term structural fiscal imbalance between the federal government's revenue-raising ability and spending responsibilities prompted the government to overhaul its fiscal arrangements, which meant restructuring tax transfers to the provinces.

On the other hand, the provincial governments, with the exception of Alberta, British Columbia and Saskatchewan, all faced growing deficits, and many began to cut social spending. They hoped that fiscal negotiations would bring increases in federal transfers, which lagged behind the growing federal and provincial budgets and the inflation index. Moreover, some provinces called for a withdrawal of federal government funding from some of the programs that would be offset by tax point transfers.

The report's conclusions were halfway between the federal government's expectations and the provinces'. The Task Force rejected the idea of a structural federal deficit out of hand and contended that the federal government must maintain fiscal transfers at an acceptable level in the interests of the public's well-being, an equitable redistribution of wealth and respect for provincial autonomy. However, the Task Force rejected the provinces' call for the federal government's withdrawal from some provincial programs and recommended that the funding of these programs, in certain cases, be subject to increased federal supervision, so as to ensure the strict respect of national standards, fiscal harmony and economic coordination.

Having set out the basic principles, the Task Force examined the five main areas of fiscal arrangements: the health system; post-secondary education; social assistance; equalization payments; and fiscal harmonization and economic coordination.

The Task Force believed that Canada's health care system could be jeopardized by reductions in the then current aggregate levels of federal support. Some provinces might therefore be tempted to rely on private funding or reduce services. The Task Force found the federal government's funding of health care programs more or less acceptable, but recommended that it set down clear national conditions for programs so as to ensure increased control. In this way, part of the transfers could be held back from provinces not meeting the conditions. The Task Force also called for greater harmonization of health services across the country and condemned the trend toward extra billing and the dwindling number of doctors working in the public health care system. Lastly, the Task Force recommended that health care programs put more emphasis on preventive care as opposed to the modern medicine practice of emphasizing treatment.

The Task Force reaffirmed that post-secondary education was an area of exclusive provincial jurisdiction. However, it hastened to add that, given the federal government's role in promoting national economic development and equal opportunity for all Canadians, Ottawa's intervention was justified. The Task Force also recommended that the federal government renew block-funding agreements for post-secondary education. The provinces, however, would still be responsible for program content and administration.

As to the Canada Assistance Plan, the Task Force maintained that the federal government had a constitutional responsibility for income redistribution programs and monetary benefits (family allowance, employment insurance, disability-related support, etc.). The Task Force did not feel that block funding for social programs should be reduced, but that alternatives to social assistance, such as work incentives, income assistance, tax credits and improved job and training opportunities, should be explored. The Task Force also recommended that the federal government tighten its control over the province's administration of social programs.

The Task Force fully supported the Canadian system of equalization payments and limited its comments to suggesting a few minor improvements, such as including municipal property taxes in the equalization formula and refining the enumeration process. The Task Force also recommended that, in the future, petroleum revenues be included in the equalization formula, with the requirement that only the portion of these revenues used for budgetary purposes be considered and only to the extent that they are used to finance normal provincial services. The Task Force also added that there should continue to be some kind of ceiling or safety net relating to the total equalization that may be paid out on account of natural resource revenues in order to protect the federal treasury against runaway increases in the cost of equalization.

Lastly, as to tax harmonization and economic coordination, the Task Force recommended renewing the 1976-1981 tax collection arrangements with some minor improvements, so as to have a federal-provincial arrangement on a fiscal code of conduct that would prohibit any form of fiscal favouritism or discrimination.

The Task Force's report is a comprehensive study of Canadian fiscal federalism. Although the subject's complexity makes reading the report difficult for the uninitiated, and greater efforts to make the subject matter more accessible to the general public would have given the report a wider audience, credit must be given to the parliamentarians on the Task Force. Despite very tight time constraints, they accomplished an enormous amount of work. The authors should be commended for their independence in interpreting the government's mandate and refusing from the start to place their study within the context of government budget cuts. This type of independence, however, runs the risk of backfiring. Indeed, the federal government gave the report's recommendations a cold reception. Is this to say that unless parliamentary groups repeat general government policy they are not likely to see their recommendations supported? Do these groups have no other role than rubber-stamping the government's approach? While parliamentarians, who not too long ago were complaining about their marginal role in policy development, seem to find these task forces rewarding and stimulating, we must wait a few more years to determine their actual political impact.

Serge Pelletier
Political and Social Affairs Division
Parliamentary Information and Research Service, Library of Parliament


Canadian Parliamentary Review Cover
Vol 4 no 4
1981






Last Updated: 2019-07-15