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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
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