THE DIVISION OF POWERS AND FISCAL FEDERALISM
Robert B. Asselin
Political and Social Affairs Division
18 January 2001
TABLE OF CONTENTS
BRIEF HISTORY OF THE SOCIAL
OF POWERS IN RELATION TO SOCIAL PROGRAMS
of federal government involvement in social programs
federal spending power
2. The 1982
Charter of Rights and Freedoms
4. Opting out with
THE SOCIAL UNION AND FISCAL
A. Transfer mechanisms
1. The Canada
Health and Social Transfer
issues in Canadian fiscal federalism
SOCIAL UNION: QUESTIONS ABOUT
THE DIVISION OF POWERS AND FISCAL FEDERALISM
In Canada, since the beginning
of the past century, the federal government has exercised considerable
influence over social programs, essentially through the mechanism of fiscal
transfers. At their annual meeting in 1997, the provincial and territorial
first ministers agreed to initiate a process that would lead to renegotiating
the terms of a renewed social union with the federal government.
Talks among the provincial and territorial governments continued, and
numerous interprovincial and territorial meetings were held in an attempt
to reach a common position on a proposal for an agreement with the federal
government on the social union.(1)
In August 1998, at their annual meeting in Saskatoon, all of the provincial
and territorial first ministers agreed on a framework for a draft agreement.
Subsequently, the federal government joined the negotiations and a federal-provincial
agreement was signed on 4 February 1999.
Despite the Government of
Quebecs refusal to sign,(2)
the agreement on the social union between the Government of Canada and
the provincial and territorial governments signed on 4 February
1999 marked an important step in the renewal of intergovernmental
relations. Although it is not constitutional in nature,(3) the agreement between the first ministers
was essentially intended to: clarify the role of the Government
of Canada regarding social programs; circumscribe the federal spending
power; and ensure greater accountability in terms of services to the public.
In 1998, the Government
of Canada summarized its three main objectives in the renewal of the Canadian
social union as follows:
equal opportunities for Canadians, regardless of their place of residence;
cooperation between the two levels of government, to better serve Canadians;
accountability to Canadians in terms of the results obtained.
The provincial and territorial
governments, for their part, reached substantial consensus on the following
1) to establish
rules governing the role of the federal government in relation to social
programs, within a non-constitutional framework;(4)
2) to avoid
duplication and promote harmonization in social policy; and
3) to promote
greater intergovernmental cooperation in relation to social policy.
With the exception of Quebec,
it seems that the federal and provincial/territorial governments have
succeeded, by signing the agreement of 4 February 1999, in meeting the
objectives they had set for themselves, although not without compromises
having been made by both sides.
This paper will deal with
the two main factors that govern the Canadian social union in terms of
intergovernmental relations: the division of powers; and fiscal
federalism. After a brief history of the Canadian social union,
the paper will examine the division of powers in relation to social programs,
emphasizing the foundations of the federal governments involvement
and role. Lastly, the impact of fiscal federalism on the social
union will be briefly examined.
HISTORY OF THE SOCIAL UNION
In 1867, the Fathers of
Confederation were perfectly well aware that when they signed the pact
creating the federation they were taking the route of compromise.
In fact, there is not much more that could be said that is already said
by the words pact and federation. Canadian
federalism, yesterday and today, is based on the concepts of unity and
diversity, shared responsibility and autonomy. Nonetheless, since
Confederation, there have been many instances where the Canadian federal
system called for clarification and improvement. How can national
and regional interests be reconciled in a country as vast and diverse
as Canada? How can the two levels of government cooperate without
infringing on each others spheres of jurisdiction? These are
the questions that have long contributed to both the process and the foundations
of Canadian federalism.
When Canada was created
in 1867, the roles played by governments in relation to social programs
were relatively limited. At that time, Canada had a population of
no more than 3.5 million.(5) When the country went through a phase of industrial
development in the early 20th century, the federal government
did not have the power to respond to the publics social and economic
needs. Following the stock market crash in October 1929, Canada
fell into an unprecedented economic crisis. That crisis, and World
War II several years later, created expectations among the public that
the federal government should be more involved in the economic and social
life of the country. In those situations, the times and the circumstances
were such that federal government involvement became necessary in order
to meet the needs created by the financial crisis and the war effort.
In addition, the emergence of Keynesian thinking exerted considerable
influence in the western nations. There is no doubt that the federal
governments financial capacity, which was far superior to that of
the provinces, also contributed to enabling it to follow through on its
plans for greater centralization.
In 1940, the Royal Commission
on Dominion-Provincial Relations (Rowell-Sirois) made recommendations
advocating that powers be centralized in Ottawa, proposing, among other
things, that a national equalization program be instituted. After
the 1939-1945 war, the reconstruction effort and economic prosperity enabled
the Government of Canada to solidify its leadership in the realm of social
programs. In most of the western democracies, that period saw the
beginning of the construction and expansion of the welfare state.
In that context, the federal government used its spending power to fund
social measures, including the family allowance program (1944), unemployment
insurance(6) (1956) and hospital
insurance (1957). Most of the initiatives involved cost-sharing,
that is, they were funded by contributions from both levels of government.
Ottawa also started giving grants to universities, and renewed its commitment
to the old age pension program (1951).(7)
It should be noted that other than the opposition from the Government
of Quebec, the federal government did not encounter any strenuous opposition
from the provinces during that period, despite the fact that it implemented
these measures unilaterally.(8)
The 1960s, which were characterized
by large-scale economic and social development, were also an important
milestone in terms of the development of social programs. In Quebec,
the Quiet Revolution was characterized by major changes in the
development of social policy and in government involvement. A similar
phenomenon was observed in most of the Canadian provinces.
Historically, Quebec is
the province that has most fiercely opposed the involvement of the Government
of Canada in social programs. The primary mandate of the Tremblay
Commission, created in 1953, was to study federal-provincial fiscal relations
and to make recommendations to guarantee Quebecs fiscal autonomy.(9)
Starting with the Duplessis government in the late 1940s, disagreement
between the federal government and the Government of Quebec regarding
the division of powers in relation to social programs has been a subject
of much heated discussion.(10) At that time, Premier Duplessis strenuously opposed
the use of the federal spending power. All of the premiers who have
succeeded him have been steadfast in their refusal to give political legitimacy
to the federal governments involvement in social programs.
This undoubtedly contributed to the rise of competitive federalism in
the early 1980s, which was based on the unilateral federalism of the federal
In other words, since the
early 20th century the federal government has exercised considerable influence
in the development of public policy, primarily because of its superior
financial resources and the size and expertise of the federal bureaucracy.(12)
OF POWERS IN RELATION TO SOCIAL PROGRAMS
In all federal political
systems, the division of legislative authorities is of particular importance
in that it determines the degree of autonomy and interdependence of the
various levels of government. In recent years, and for most of its
history, Canadian federalism has been characterized by definite ambiguity
in terms of the division of powers between the two levels of government.
In 1867, dividing legislative powers was no small task in the writing
of the federal Constitution, as the various interpretations given to sections
91 to 95 of the Constitution Act, 1867 attest. Over time,
the appropriateness of that division was continually being undermined
by new technologies, economic development, urbanization and changing aspirations
regarding the role of the state. The Constitution Act, 1867
provides for a number of concurrent legislative powers, including agriculture,
immigration and old age pensions.
Both levels of government
have attempted to extend their legislative powers de facto,
at the expense of the other level. The courts have regularly been
asked to rule on the scope of the legislative powers assigned to each
level of government. In the first half of the 20th century,
the judgements handed down by the Judicial Committee of the Privy Council
generally favoured the provinces. Constitutional changes relating
to the division of powers occurred only rarely, and were hard-won and
hotly debated, despite the fact that in the first 30 years there
was no shortage of proposals to amend the Constitution. The most
recent effort to achieve large-scale constitutional reform, the Charlottetown
Accord (1992), in fact provided for powers to be decentralized and
the federal spending power to be circumscribed.(13)
of federal government involvement in social programs
The federal governments
involvement in social programs is essentially fiscal in nature.
Nonetheless, some provinces such as Ontario and Quebec have
frequently spoken out against federal government intrusion into their
fields of jurisdiction. This grievance is not a recent development.
At the time of Confederation, Honoré Mercier and Oliver Mowat the
premiers of Quebec and Ontario respectively had vigorously argued
for the principle of provincial autonomy. What, then, are the foundations
of federal government involvement in social programs?
federal spending power
The majority of federal
systems have a federal spending power.(14)
Although this paper will not give an exhaustive analysis of Canadian constitutional
law as it relates to the division of legislative powers, it would seem
wise to clarify a few points concerning the principal foundations of the
spending power, which has often been denounced by the most autonomist
The federal spending power
is not expressly described or recognized in any legislation, not even
in the Constitution of Canada. In the opinion of some legal experts,
it derives from, and finds its source in, other powers listed in sections
91(1A), 91(3), 102 and 106 of the Constitution Act, 1867(16)
and in section 36 of the Constitution Act, 1982 (regional disparities
and inequality).(17) The
courts and learned opinion have also recognized the Government of Canadas
spending power.(18) In
various decisions, the Supreme Court of Canada has established a distinction
between the three following powers: the power to tax (section 91(3));
the power to spend; and the power to legislate. The three powers
are not connected in the Constitution. In the Courts opinion,
the power to allocate money (spending power) is separate from the power
to legislate.(19) Simply
put, the federal government may spend the money that it collects under
its power of taxation as it pleases. As long as it does not legislate
directly in relation to matters within the provincial jurisdictions defined
by sections 91 to 95 of the Constitution Act, 1867, the federal
government may use its spending power and that power will not be found
to be unconstitutional.
It should be noted that
the provinces also spend in areas that are not under their jurisdiction.
For example, the governments of Quebec and Ontario have spent substantial
sums on international relations over the past 30 years, and in the process
have sent a number of delegations outside Canada. The Constitution
does not expressly give the provinces that authority, but this does not
mean that it is unconstitutional for them to do this. Despite the
fact that these provinces are spending within a field of jurisdiction
that is not assigned to them by the Constitution of Canada, the effect
is not the same as if they were to legislate in relation to a field of
jurisdiction that was not assigned to them. From the constitutional
point of view, then, spending does not mean the same thing as legislating.(20) In reality, both levels of
government have given out a wide variety of grants and payments to individuals
and agencies, and have acted as if their spending power were essentially
In the 1996 Speech from
the Throne, the federal government gave a commitment to work closely with
the provincial and territorial governments on renewing the social union,
and expressed its desire to limit its power to spend on social programs.(21)
That announcement marked an important change in the federal governments
approach to the social union, and suggested that a more cooperative federalism
might be practised.
It is essential to understand
that the nature of the differences of opinion between the provinces and
the federal government lies essentially in the fact that in addition to
providing partial funding for programs that are not within its constitutional
jurisdiction, the federal government has, in most cases, taken a unilateral
approach in establishing new initiatives.(22) The federal government has always contended that
it would be difficult to preserve consistency and national standards in
the area of social programs without using its spending power. When
it is presented in this light, the federal spending power comprises a
national instrument of social development that also enables the federal
government to reduce disparities among provinces within the federation.
When the spending power
is used, it enables the federal government to establish priorities in
the sphere in which it thinks it wise to invest. Political scientist
Daniel Cohn summarizes the current situation as follows:
While they (the provinces)
are responsible for meeting the rules that govern the terms of the federal
gift of funds and for actually providing health care, they have no official
input into the interpretation of the rules they must meet.(23)
Although the provinces and
territories receive a not insignificant amount of funding under the shared-cost
programs, they do not always support the aims that Ottawa adopts.
In the February 1999 agreement on the social union, the signatory governments
agreed to work collaboratively to identify Canada-wide priorities and
objectives. The federal government, for its part, agreed not to
introduce new initiatives without the consent of a majority of provincial
governments. It must also be noted that in the past, the federal
government has often taken advantage of a favourable situation, whether
political or financial, to launch new social program initiatives.
Historically, that was the case when the federal government found itself
with a budget surplus.
Although the provincial
and territorial governments hold the principal constitutional powers regarding
the delivery of social services (including health care and education),
the federal government has always exerted considerable influence on social
policy, whether by using its spending power or by establishing national
standards. According to economist Robin Boadway, the federal spending
power has economic and social virtues, the two main ones being efficiency
and equity.(24) The redistribution
of collective wealth is the main method used by the federal government
for achieving those objectives.
2. The 1982 Charter
of Rights and Freedoms
With the advent of the Canadian
Charter of Rights and Freedoms in 1982, the federal government expanded
its social responsibilities to Canadians. In section 36(2), the
Government of Canada committed itself to making equalization payments
to the provinces to ensure that they have sufficient revenues to
provide reasonably comparable levels of public services at reasonably
comparable levels of taxation.(25)
The purpose of that section is to promote equal opportunities and guarantee
mobility rights. Prof. Hogg argues that this is also a justification
for the federal spending power.(26)
National standards are a
contested aspect of the Canadian social union. They enable the federal
government to establish and maintain uniform Canada-wide standards in
relation to social programs. Other than the five principles set
out in the Canada Health Act,(27) there are relatively few national standards. In
fact, health and social assistance are the only spheres where they exist.(28) Legal author Steven Kennett expresses the issues
involved in national standards in terms of federal-provincial-territorial
relations as follows:
The division of powers
ensures that the federal government can at best hope to bring a national
perspective to social policy decisions; it cannot displace the provinces
from primary responsibility for program design and delivery.(29)
Advocates of national standards
believe that Canadians are justifiably entitled to comparable levels of
service, regardless of where they live, under the principles of mobility
and equity. In their view, section 36 of the Constitution Act,
1982 legitimizes the creation of national standards for social programs.
It seems that national government
social programs are increasingly a reflection of a vision of Canadian
citizenship that is inspired by what might be called social liberalism.
The numerous social programs initiated by the federal government since
World War II have had a significant influence on the construction of a
unique Canadian identity.(30)
Some Canadians take great pride in being part of a country that has promoted
the ideals of social sharing, redistribution of wealth and equity by establishing
On the other hand, those
who advocate abolishing or limiting national standards generally argue
the following reasons for their opposition: failure to respect provincial
and territorial jurisdictions; the importance of transparency; and the
need to innovate. In their view, national standards have the effect
of centralizing powers in the federal governments hands, and tend
to place significant limitations on the latitude available to the provinces
and territories in relation to social programs. Obviously, those
arguments are heard particularly often in the most autonomist provinces.
4. Opting out with compensation
The right to opt out with
compensation is expressed in a provinces or territorys ability
to opt out with full financial compensation of any new Canada-wide
social program in an area under provincial/territorial jurisdiction, as
long as the province or territory offers a program or initiative that
meets the Canada-wide objectives. Under the 1999 social union agreement,
the provinces and territories have an implied right to opt out (which
could be characterized as a partial right to opt out), that applies strictly
to new Canada-wide initiatives funded by transfers to the provinces/territories,
and thus to shared-cost programs:(32)
government which, because of its existing programming, does not require
the total transfer to fulfill the agreed objectives would be able to
reinvest any funds not required for those objectives in the same or
a related priority area.(33)
Because social programs
come within provincial and territorial jurisdiction, the right to opt
out amounts to a political compromise by the federal government that enables
the provinces and territories to exercise the autonomy given to them by
the Constitution for developing and delivering numerous social programs.
Nonetheless, this key provision of the Canadian social union agreement
may help to emphasize the existence of asymmetrical federalism.
THE SOCIAL UNION AND FISCAL
Because of its broad powers
of taxation and its fiscal capacity, the federal government has always
had a considerable advantage over the provinces and territories in this
regard. Consequently, the federal spending power continues to be
an extremely powerful instrument in the hands of the Government of Canada
for involvement in that sphere. It should be noted that the social
union agreement in February 1999 lent considerable legitimacy to the exercise
of the federal spending power.
Transfers from the federal
government to the provinces have been taking place since Confederation.
They have played an important role in funding the public expenditures
of the provinces and territories throughout Canadas history, and
particularly since World War II. As noted earlier, there are economic
arguments that justify federal/provincial/territorial grants, and, by
extension, the use of the federal spending power.
Since the earliest days
of Confederation, but mainly since the 1950s, Ottawa has implemented a
variety of fiscal transfer mechanisms. Two main types may be identified:
transfers to the provinces, which are paid in cash and in tax points;
and transfers to individuals. The main types of fiscal transfers
that are currently paid to the provinces and territories are:
1) the Canada Health
and Social Transfer (CHST);
2) the equalization
3) territorial formula
The CHST includes a cash
transfer component and a tax points transfer component. In the case
of tax points transfers, the federal government surrenders some of its
tax room by reducing its taxes to enable the provinces to raise theirs
by the same amount. The result is an increase in provincial revenues,
with no increase in the total tax burden borne by Canadians.
The CHST is paid to all
of the provinces and all of the territories, to fund health care programs,
post-secondary education and social assistance. Certainly the less
affluent provinces are more dependent on transfers, in terms of their
tax revenues. For example, in 2000-2001, transfers paid to Nova
Scotia, Newfoundland and Prince Edward Island accounted for more than
40% of their total revenues.(35)
The following table shows the transfers for each of the provinces and
territories for fiscal 2000-2001.
Federal transfers to the
provinces and territories, fiscal 2000-2001
(in billions of dollars)
provincial/territorial revenues represented by transfers
of Finance of Canada
In addition to fiscal transfers
to the provinces and territories, the federal government also allocates
money directly to individuals and agencies. For example, this is
true for the Canada Pension Plan,(37) Employment Insurance (formerly
Unemployment Insurance) and, more recently, the Canadian Foundation for
Innovation and the Millennium Scholarships.
Often, introducing this
type of initiative has resulted in overlap with already-established programs
in the provinces. Some measures that were introduced recently have
been severely criticized by the Government of Quebec which has accused
the federal government of acting unilaterally and failing to take into
account the unique characteristics of its programs. One example
is the Millennium Scholarships, which were announced in 1997. The
current federal government, on the other hand, has contended that by virtue
of its constitutional obligations, it had a duty to improve Canadians
welfare and to redistribute the collective wealth to individuals in need.
On the question of federal-provincial-territorial
transfers designed to finance shared-cost programs, the provinces and
territories have complete autonomy in managing the programs and spending
the money allocated. This does not apply to transfers made directly
to individuals, where the federal government handles the administration
and delivery of the programs.
1. The Canada Health
and Social Transfer
Since the 1960s, the Canadian
federation has adopted numerous mechanisms for intergovernmental cooperation.
The proliferation of roles played by government has resulted in a significant
increase in the number of responsibilities borne by governments, and has
consequently increased cooperation between the two levels of government.
It must be noted that this has often happened as a result of the federal
government wanting to establish its own priorities, without being overly
concerned about the provinces demands. In 1996, the federal
government instituted a new funding formula for transfers to the provinces.
The Canada Health and Social Transfer (CHST) signified a major change
in federal-provincial relations. As Harvey Lazar put it:
The Canada Health and
Social Transfer was perhaps the most important decision taken by the
federal government affecting relations with the provinces.(38)
The CHST replaces the two
former schemes for transfers to the provinces and territories: Established
Programs Financing (EPF), which covered health care and post-secondary
education; and the Canada Assistance Plan (CAP), which dealt with social
services and social assistance.
Unlike EPF and CAP, the
CHST is a single block funding method that brings together all transfers
to the provinces and territories for social programs. In 2000-2001,
the federal government will pay out $18.3 billion to the provinces and
territories under the CHST.(39)
There is also federal legislation that sets out the funding framework,
which includes cash and tax point transfers to the provinces.
When the CHST was established,
it received a somewhat chilly reception from most of the provinces.
The federal government claimed that it had established this new funding
formula to respond to pressure from the provinces for more autonomy in
social programs. Under the old EPF and CAP formula, the federal
government gave out conditional and unconditional funding. The fact
that EPF and CAP funding was subject to conditions was a source of annoyance
for the provinces and territories (in 1977, the federal government had
introduced conditional block funding, half of which was paid by cash transfers,
and the other half by tax point transfers).
With the creation of the
CHST, the provinces gained greater freedom to use the funds for their
own health, education and social services priorities. This meant
that Ottawa waived its right to impose conditions on the funding it gave
the provinces and territories for social programs, with the exception
of the national standards set out in the Canada Health Act and
the right of access to social assistance without a minimum residency requirement.(40)
In addition, when the CHST
was introduced in 1996, the Liberal governments fiscal agenda was
clearly one of its priorities. Major budget cuts had been made,
and transfers to the provinces had not been spared. In fact, if
the total combined amount of EPF and CAP transfers in 1995-1996 is compared
to the amount of the CHST in 1996-1997, it shows the provinces had to
face up to lost earnings of about $1.5 billion for the 1996-1997
fiscal year and $4.5 billion for the 1997-1998 fiscal year.(41)
Compared to the rights established under EPF and CAP, which amounted to
$29.7 billion in 1995-1996, the amounts associated with the CHST were
about $25.8 billion in 1997-1998.
The desire of the provinces
and territories to lay down the rules of the game with the federal government
concerning social program funding heightened considerably after the substantial
cuts that took place in 1996. Although the establishment of the
CHST had demonstrated the federal governments intention of giving
the provinces more flexibility and autonomy in relation to social programs,
the massive cuts in transfer payments rapidly became a source of tension
in federal-provincial relations.(42)
Under the agreement that
was signed by the first ministers of Canada and of the provinces and territories
on 11 September 2000, concerning health services funding, the federal
government will pay out an additional $21.1 billion dollars over the next
five years under the CHST. The following table shows the rising
value of the funds allocated under the CHST from 1997 to 2003.
Increases in transfers
relative to CHST
of Finance of Canada
It should be noted that
over the next few years, the proportion of transfers in the form of tax
points will rise considerably in relation to cash transfers under the
CHST. This suggests that the federal government will have less latitude
for playing its role as an agent of wealth redistribution within the federation.
The equalization program
makes it possible for the less prosperous provinces to provide their inhabitants
with high-quality public services that are substantially similar, at substantially
similar taxation levels. Equalization payments are not subject to
conditions. Accordingly, the provinces may spend them according
to their own priorities for public services. The program was renewed
in 1999 for five years. In 2000-2001, the provinces will receive
$9.8 billion in equalization payments from the federal government.
At present, seven provinces are eligible for equalization payments: Newfoundland,
Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba
Equalization payments are
calculated using a formula laid down by federal statute and regulations.
The provinces with a capacity to generate revenue below the average established
are entitled to equalization payments from the federal government, to
bring their fiscal capacity per inhabitant up to the average. Each
provinces fiscal capacity is calculated using more than 30 sources
of revenue (tax bases), including personal income tax, corporate tax,
sales tax, property tax and numerous other sources, assuming that the
province has used average tax rates for each source.
issues in Canadian fiscal federalism
In its current form, Canadian
fiscal federalism involves two major unresolved issues:
fiscal imbalance between the federal government and the provincial/territorial
fiscal imbalance among the provinces and territories.
It seems clear that the
1867 constitutional division of taxing powers does not reflect the modern-day
responsibilities of the provinces and territories in terms of spending.
In 1867, the Fathers of Confederation opted for a quasi-federal system,
assigning broad responsibilities to the central government. At that
time, as well, they could not have foreseen the substantial expansion
in the sphere of provincial government activity. That has doubtless
resulted in the opening up of numerous fields of public policy.
At the same time, starting in the 1960s, the provinces and territories
acquired a skilled public service that expanded to cover the larger role
being played by government in peoples lives.
Had it not been for the
less fortunate provinces dependence on federal transfers, it would
have been difficult for the federal government to pursue its involvement
in social programs quite so doggedly over the past 20 years. But
because of the tax base and the broad taxing powers assigned to the federal
government, the provinces and territories were never able to become totally
autonomous in financial terms.
In addition to the problem
of the division of taxation powers between the two levels of government,
there are also significant differences among the provinces and territories
in terms of their own tax bases, and consequently their financial capacity.
This consideration becomes particularly significant when it comes
to fiscal federalism. For example, even if the Atlantic provinces
were to secure greater autonomy in the area of social program funding,
they would not have the financial capacity to support those programs at
the same cost levels as the more well-off provinces. Equalization
payments would not be sufficient to enable them to overcome the difficulty
they have in increasing their revenues. Ontario and Alberta, on
the other hand, are much more independent in fiscal terms, because they
have a much more impressive tax base. It is therefore easy to understand
why the provinces and territories which have diminished fiscal capacity
are more receptive to the exercise of the federal spending power.
Without the support of the federal government, the Canadian provinces
might find it hard to offer comparable services, at similar costs, in
the social program sphere.
The legal vacuum that is
created by the Constitution Act, 1867 means that the roles of the
two levels of government in relation to social programs cannot be easily
delineated. Despite the fact that the courts have spoken repeatedly
in this area, there are still many grey areas. By exercising its
spending power, which has been expressly recognized by the courts, the
federal government plays a significant role in relation to social policy.
Because the central governments role focuses on funding social programs,
obviously the fiscal directions it takes will have a major impact on the
Canadian social union. In this respect, the Canadian government
has access to fiscal capacity that, to date, has made it possible for
it to fulfill its function of redistributing wealth among the provinces
and territories. However, that fiscal capacity is being increasingly
affected by the growing transfer of tax points to the provinces and territories.
The effect of the Charter
of Rights and Freedoms, and more specifically section 36, has been
to foster a more direct relationship between the federal government and
Canadian citizens. That relationship is expressed in an increase
in direct transfers to individuals, such as in the recent federal initiatives
for children (National Child Benefit), for post-secondary students (Millennium
Scholarships), and for researchers (Canadian Foundation for Innovation).
Moreover, while the national standards imposed by the Government of Canada
are still hotly debated, they are relatively restrained.
Although it suggests that
an increasingly collaborative federalism might be practised, the federal-provincial-territorial
agreement of 4 February 1999 has not managed to solve the vertical
and horizontal fiscal imbalance problems. In political terms, the
agreement has contributed to widening the gulf between the federal government
and the Government of Quebec, and in large measure to legitimizing the
practice of an increasingly asymmetrical federalism.(44)
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for Canada, 1985.
McRoberts, K. and P. Monahan.
The Charlottetown Accord, The Referendum and The Future of Canada.
Toronto: University of Toronto Press, 1993.
Ministère du Conseil exécutif
du Québec. Québecs Historical Position on the Federal Spending
Power 1944-1998. Quebec : 1998.
Noël, A. Without
Quebec: Collaborative Federalism with a Footnote? Policy
Matters, Montreal: Institute for Research on Public Policy,
Rémillard, G. Le
fédéralisme canadien, Vols. I and II, éd. Montréal: Québec-Amérique,
Richards, J. The
Case Against National Standards. Policy Options, Ottawa,
Royal Commission on Dominion-Provincial
Relations. Report of the Royal Commission on Dominion-Provincial
Relations. Volume 1. Ottawa: 1940.
Royal Commission on the
Economic Union and Development Prospects for Canada. The State,
the Evolution of Federalism and Canadian Society. Ottawa: 1985.
St-Hilaire, F. Le
Transfert social canadien : fédéralisme renouvelé ou faire dune
pierre trois coups, Policy Options, Ottawa, 1997.
Stevenson, G. The
Division of Powers. Ottawa: Royal Commission on the Economic
Union and Development Prospects for Canada, 1985.
Stilborn, J. National
Standards and Social Programs: What the Federal Government Can Do. Background
Paper BP-379E. Ottawa: Parliamentary Research Branch, Library
of Parliament, September 1997.
Watts, R. The Spending
Power in Federal Systems: A Comparative Study. Kingston:
Institute of Intergovernmental Relations, Queens University, 1999.
In this study, the expression social union does not refer
to the agreement signed by the federal, provincial and territorial governments
on 4 February 1999; rather, it refers to the concept of federal-provincial-territorial
cooperation on social programs. Consequently, this paper is not
an analysis of the 1999 agreement.
Legitimization of the federal spending power in social programs, and the
federal governments use of direct transfers to individuals and agencies
in order to launch new Canada-wide social initiatives, are the primary
reasons behind the Government of Quebecs refusal to sign the agreement.
After the successive failures of the Meech Lake Agreement (1990)
and the Charlottetown Agreement (1992), proposals for constitutional
reform became much less popular and attractive, in political terms.
One of those rules is the foreseeability and stability of social program
funding, as well as assurance of funding that is adequate and appropriate
to the needs of the provinces and territories.
Report of the Royal Commission on Dominion-Provincial Relations, Volume
1, 1940, p. 23.
A constitutional amendment made in 1940 gave the federal government responsibility
for unemployment insurance.
The Constitution Act, 1867 (section 94A) gives that power to Ottawa.
However, it is a jurisdiction that is shared with the provinces.
R. Watts, The Spending Power in Federal Systems: A Comparative
Study, Kingston: Institute of Intergovernmental Relations, Queens
University, 1999, p. 2.
D. Kwavnick, The Tremblay Report, Ottawa: Carleton University Library,
1973, p. 2.
Ibid., p. 2.
Royal Commission on the Economic Union and Development Prospects for Canada,
The State, the Evolution of Federalism and Canadian Society,
1985, p. 308.
J. Stilborn, National Standards and Social Programs: What the Federal
Government Can Do, Background Paper BP-379E, Ottawa: Parliamentary
Research Branch, Library of Parliament, September 1997.
K. McRoberts and P. Monahan, The Charlottetown Accord, The Referendum
and the Future of Canada, Toronto: University of Toronto Press,
1993, p. 85.
On this point, see Watts, 1999.
Quebec is, in fact, the province that has most vigorously opposed the
federal spending power. On this point, see the document produced
by the ministère du Conseil exécutif of the Government of Quebec entitled
Québecs Historical Position on the Federal Spending Power 1944-1998,
Section 91(1A): legislative authority in relation to the public debt and
property; 91(3): the raising of money by any mode or system of taxation;
102: creation of a consolidated revenue fund; 106: use of the consolidated
G. Beaudoin, La Constitution du Canada, Ed. Wilson-Lafleur, Lennoxville:
1991, p. 503.
There are a significant number of decisions by the Supreme Court recognizing
the existence and constitutionality of the federal spending power, the
most well-known being Reference Re Canada Assistance Plan, 
2 S.C.R. 525.
See Reference Re Canada Assistance Plan, ibid.
P. Hogg, Constitutional Law of Canada, 3rd edition, Toronto:
University of Toronto Press, 1985, p. 152.
Speech from the Throne of the Thirty-Sixth Parliament of Canada, 1996.
The classic example is the program for direct federal grants to universities
D. Cohn, in P.C. Fafard and D.M. Brown (Eds.), Canada: The State of
the Federation 1996, p. 168.
R. Boadway, The State of the Federation 1999-2000: Recent Developments
in the Economics of Federalism, Kingston, Ontario: Institute
of Intergovernmental Relations, Queens University, p. 54.
Constitution Act, 1982, section 36 (2).
Hogg, Constitutional Law of Canada, op cit., 1985, p. 151.
The five principles are universality, comprehensiveness, accessibility,
portability and public administration.
Stilborn, op cit.
S. Kennett, Securing the Social Union: A Commentary on the Decentralized
Approach, Kingston: Institute of Intergovernmental Relations,
1997, p. 39.
On this point, see the study by Jane Jenson entitled Mapping Social
Cohesion: The State of Canadian Research, Ottawa: Canadian Policy
Research Networks, 1998.
H. Lazar, Canada: The State of the Federation 1999-2000: Toward
a New Mission Statement for Canadian Fiscal Federalism, Chapter entitled
In Search of a New Mission Statement for Canadian Fiscal Federalism,
Kingston, Ontario: Institute of Intergovernmental Relations, Queens
University, 1999, p. 22.
It is important to point out that the right to opt out does not apply
to direct transfers to individuals and/or agencies.
Canadian Social Union Agreement, February 1999.
Equalization payments and Territorial Formula Financing are paid to the
provinces and territories in cash.
Source: Department of Finance of Canada.
The transfers shown include the CHST, equalization and Territorial Formula
Pursuant to an agreement with the federal government, Quebec has its own
pension plan. However, that plan is funded in part by federal transfers.
H. Lazar, Canada: The State of the Federation 1997: Non-constitutional
renewal, Kingston: Institute of Intergovernmental Relations,
1997, p. 9.
Source: Department of Finance of Canada.
Lazar, 1997, p. 175.
Ibid., p. 21.
The amounts shown include cash and tax point transfers.
On this point, see the article by political scientist Alain Nöel entitled
Without Quebec: Collaborative Federalism With a Footnote?
Policy Matters, Institute for Research on Public Policy, March
2000, p. 15.