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THE FISCAL IMBALANCE |
"Sounding an alarm for Alberta" interview with Peter Lougheed As premier of Alberta from 1971 to 1985, Peter Lougheed presided over the energy boom of the 1970s and defended Alberta’s interests against the incursions of the National Energy Program in the 1980s. Now a vigorous 78, he recently sat down in his Calgary law office with Policy Options Editor L. Ian MacDonald to discuss the challenges and opportunities for Alberta arising from a world of $75-a-barrel oil. "What does a fiscal imbalance actually look like?" by Andrew Coyne In this excerpt from a speech at the Canada 2020 Conference at Mont-Tremblant in June, Andrew Coyne wonders what a fiscal imbalance actually looks like, given that 9 provinces in 10 are currently in surplus positions, and Ottawa is already transferring $42 billion a year to the provinces. Among federations, he points out, Ottawa keeps the smallest share of revenues of any central government in the world. "9/11: the day the world changed" by Robin V. Sears On the fifth anniversary of the September 11 attacks, contributing writer Robin Sears suggests that for each generation there is a day that changes the world, and that the world long lives with the consequences of that day. In the post-9/11 world, he suggests, democracies are waging an uneven struggle against Islamic terrorism, a ruthless movement that attacks civilians, then hides among them. Canada, slow to respond to the events of September 11, 2001, now finds itself dealing with the possibility of homegrown terror cells amid our own Muslim population, and the challenges that it poses both for securing the safety of our citizens and for ensuring an open and tolerant society. "Fault lines in the federation" by Kathy L. Brock A worst-case scenario for the federation was avoided on January 23, when a Conservative minority government was elected with significant representation from Quebec, and the Bloc Québécois failed, by a significant margin, to hit the winningcondition number of 50 percent of the popular vote. But as the discussion on the fiscal imbalance ramps up, the pressure is now on both Stephen Harper and Jean Charest to deliver the goods. Failure to do so will significantly harm Charest’s prospects for re-election and Harper’s hopes of Quebec being the road to a majority. There are other potential fault lines in the federation, including several Aboriginal issues. Kathy Brock of Queen’s University details these underlying tensions beneath the calm surface of the Canadian federation. "The fiscal imbalance: cutting to the chase" by France St-Hilaire With the arrival of the new Harper government, “it has been quite fascinating to watch the dramatic change in the dynamics of the debate” on the fiscal imbalance between Ottawa and the provinces, writes France St-Hilaire, vice-president for research at IRPP. As she observes, the debate is no longer just about money, and Ottawa is no longer in denial. But as she also notes, in this trenchant analysis of the issue, the prime minister intends “to engage the provinces in a more fundamental discussion of the respective roles and responsibilities of the two orders of government, strengthening the economic union and ensuring a more collaborative management of the federation.” A key to all of this is the federal discussion paper Restoring Fiscal Balance, which indicates the government’s intention to return to classical division-of-powers federalism. St-Hilaire regards this as a welcome development: “As the federal discussion paper indicates, there is already more than enough for Ottawa to do in its own areas of jurisdiction without attempting to run universities, hospitals and daycare centres by remote control, not to mention building local roads and sewage systems.” "The federal discussion paper: road map to a First Ministers' Conference" by Paul Boothe While the federal budget papers may not be compelling reading, Ottawa’s discussion paper Restoring Fiscal Balance in Canada is required reading for the Canadian political class. It provides a clear road map to a First Ministers’ Conference on fiscal federalism and makes it clear that Stephen Harper wants a quid quo pro from the provinces in return for redressing the vertical fiscal imbalance between Ottawa and the provinces. Among other things, the prime minister is signalling he wants a strengthened Canadian economic union by eliminating barriers to interprovincial trade. Paul Boothe goes through this important federal paper and concludes that “it reflects the new government’s ideology — a move away from the current environment of increasingly complex overlapping responsibilities toward classical federalism with more clearly delineated roles and responsibilities.” "Two panels on two balances" by Robin Boadway The current discussion about fiscal federalism is motivated by significant changes on both sides of the fiscal relationship, among the provinces, on the one hand, and between Ottawa and the provinces, on the other. In this article, Robin Boadway critically examines issues involving both, with the reports of the Expert Panel on Equalization and that of the Advisory Panel on Fiscal Imbalance as the backdrop. He specifically addresses the issue of including natural resources in the equalization formula and the question of whether the federal government should turn over further tax room to the provinces. He concludes by arguing strongly that natural resources should be included, and that Ottawa should not only keep its taxroom but consolidate it, because the federal government is exclusively responsible for national objectives, whether they be equity, solidarity or efficiency. "Variations on the federalism theme" by Thomas J. Courchene Intergovernmental fiscal arrangements have played a pivotal role in creating Canada’s welfare state, and the current debate about fiscal federalism may well end up playing a similar role in dealing with the challenges arising out of the knowledge-information revolution. Indeed, says Tom Courchene, the federal government “faces the Pearson dilemma anew , since one of the ongoing challenges for Canadian political and fiscal federalism is to reconcile the reality that these key policy areas are at the same time in the national interest and largely or wholly within provincial jurisdiction.” Against this backdrop, Courchene traces a decade of federal-provincial fiscal and jurisdictional developments, from “hourglass” federalism to “deux nations” federalism and “market-preserving” federalism. "Réinventer notre architecture institutionnelle" by Ruth Hubbard and Gilles Paquet In spite of what we might be led to believe on the basis of the last 10 years of federal-provincial relations, a conflictual situation can produce a strong capacity to cooperate. But for this to happen, write Ruth Hubbard and Gilles Paquet, there has to be accurate information for the discussions, there must be forums in which to debate, and there need to be real opportunities to innovate. Currently say Hubbard and Paquet, the necessary infrastructure does not exist in Canada. They examine how these lacunae are affecting the functioning of fiscal federalism and suggest a way to remedy this by establishing three new institutions: a monitoring agency that would produce reliable information, a council where governments, the private sector and the nonprofit sector could debate important national issues, and a Council of Institutions, that would authorize and stimulate promising innovations. "Reforming the framework for intergovernmental fiscal relations" by Harvey Lazar Since the late 1970, fiscal relations in Canada have been driven first and foremost by Ottawa’s decisions and handled on a program-by-program basis. Though pragmatic and flexible, this approach, writes Harvey Lazar, “fails to provide a sense of direction to the federation and makes it hard for provinces and territories to anticipate federal behaviour and plan for their fiscal future.” In this article, he argues for a revised intergovernmental framework to achieve greater fairness and predictability. To that end, he discusses three necessary changes and proposes ways to achieve them: limit Ottawa’s freedom to act on its own by adopting some form of “protected agreement,” increase Ottawa’s share of the fiscal risk currently shouldered by provinces by returning to a form of cost-sharing on a 75-25 basis, and establish a better balance between the provinces’ longer-term program commitments and Ottawa’s shorter-term commitments by removing time limits on federal transfers. "Quand le déséquilibre fiscal devient un problème fédéral" by Alain Noël Between March 2002 when the Séguin Commission, established by the Quebec government, tabled its report, and today, the idea that there is a fiscal imbalance between Ottawa and the provinces has seen an astonishing evolution, to the point where it is “an acknowledged problem that is being debated by all the governments in the federation,” writes Alain Noël. He traces the five broad stages that have marked this evolution, analyzes the principal conclusions of the various bodies that have weighed in on the question, and concludes that the convergence among these different actors is remarkable, even if there are still some differences. In this sense, he writes, “the political debate initiated in 2001 by the Government of Quebec has been fruitful.” "What a tangled web we weave" by Don Drummond The debate around the fiscal imbalance and Ontario’s $23 billion campaign may have muddied the issue of fiscal federalism, writes the senior vice-president and chief economist of TD Bank Financial Group, Don Drummond, but it did “raise some legitimate points that must be considered in any changes to fiscal federalism.” Notably, the situation in Ontario reminds us that redistribution in a federation cannot be considered solely from the perspective of the beneficiaries. In fact, he says, fairness and the new global and ultra-competitive economic context calls for a limit on the amount that can be redistributed. In this article, he reviews the arguments and takes a stab at predicting how negotiations will unfold in the fall. In short, he says, there will be no “big bang” agreement, but there will be — Canadian style — incremental progress that leaves many unsatisfied. "Reforming Equalization: a simple solution" by Todd Hirsch [summary not available] |
