Canadian Fiscal Arrangements: What Works, What Might Work Better

272 Pages·2008·1.06 MB·English

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Harvey Lazar
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Canadian
Fiscal Arrangements:
What Works, What Might Work Better
Canadian
Fiscal Arrangements:
What Works, What Might Work Better
Edited by
Harvey Lazar
Published for the Institute of Intergovernmental Relations
School of Policy Studies, Queen’s University
by McGill-Queen’s University Press
Montreal & Kingston • London • Ithaca
Library and Archives Canada Cataloguing in Publication
Canadian fiscal arrangements:what works,what might work better
edited by Harvey Lazar.
Includes bibliographical references.
ISBN 1-55339-013-X (bound) ISBN 1-55339-012-1 (pbk.)
1.Federal-provincial fiscal relations--Canada.
2.Transfer payments--Canada. 3.Fiscal policy--Canada.
I.Lazar,Harvey II.Queen's University (Kingston,Ont.).
Institute ofIntergovernmental Relations
HJ795.A1C34 2005 336.1'85'0971 C2005-902912-9
©Copyright 2005
The Institute of Intergovernmental Relations
The Institute is the only organization in Canada whose mandate is solely to promote research and
communication on the challenges facing the federal system.
Current research interests include fiscal federalism,the social union,health policy,the reform of
federal political institutions and the machinery offederal-provincial relations,Canadian federalism
and the global economy,and comparative federalism.
The Institute pursues these objectives through research conducted by its own staff and other
scholars,through its publication program,and through seminars and conferences.
The Institute links academics and practitioners of federalism in federal and provincial govern-
ments and the private sector.
The Institute of Intergovernmental Relations receives ongoing financial support from the
J.A. Corry Memorial Endowment Fund, the Royal Bank of Canada Endowment Fund, Power
Corporation,the Government ofCanada,and the Government ofOntario.We are grateful for this
support which enables the Institute to sustain its extensive program of research,publication,and
related activities.
L’Institut des relations intergouvernementales
L’Institut est le seul organisme canadien à se consacrer exclusivement à la recherche et aux échanges
sur les questions du fédéralisme.
Les priorités de recherche de l’Institut portent présentement sur le fédéralisme fiscal, l’union
sociale,la santé,la modification éventuelle des institutions politiques fédérales,les mécanismes de
relations fédérales-provinciales, le fédéralisme canadien au regard de l’économie mondiale et le
fédéralisme comparatif. L’Institut réalise ses objectifs par le biais de recherches effectuées par son
personnel et par des chercheurs de l’Université Queen’s et d’ailleurs,de même que par des congrès
et des colloques.
L’Institut sert comme lien entre les universitaires, les fonctionnaires fédéraux et provinciaux
et le secteur privé.
L’Institut des relations intergouvernementales reçoit l’appui financier du J.A.Corry Memorial
Endowment Fund, de la Fondation de la Banque Royale du Canada, de Power Corporation, du
gouvernement du Canada et du gouvernement de l’Ontario.Nous les remercions de cet appui qui
permet à l’Institut de poursuivre son vaste programme de recherche et de publication ainsi que ses
activités connexes.
CONTENTS
vii Foreword
ix Preface
xi Contributors
I A Framework for Analysis
3 1. Harvey Lazar:Trust in Intergovernmental Fiscal Relations
37 2. Keith Banting:Community,Federalism and Fiscal Arrangements in Canada
51 3. Robin Boadway:The Vertical Fiscal Gap:Conceptions and Misconceptions
II Debating Fiscal Balance and Imbalance
83 4. Joe Ruggeri:The Evolution ofProvincial Responsibility
127 5. Alain Noël:“A Report That Almost No One Has Discussed”,Early Responses
to Quebec’s Commission on Fiscal Imbalance
153 6. Stéphane Dion:Fiscal Balance in Canada
III Some Issues ofEqualization and Fairness
175 7. Paul Boothe:The Stabilization Properties ofCanada’s Equalization Program
185 8. James P.Feehan:Equalization and the Provinces’Natural Resource Revenues:
Partial Equalization Can Work Better
209 9. Ronald H.Neumann:Equalization in Canada:Reform ofthe Representative
Tax System or Move to a Macro Approach? Reflections in Consideration
ofRecent Developments
227 10. Kathy L.Brock:Striving For Fairness:First Nations,Current Reforms and
Provincial Interests
IV Conclusions
251 11. Honourable Greg Selinger and Ronald H.Neumann:Strengthening
Intergovernmental Fiscal Arrangements in Canada
vii
FOREWORD
This volume is being published in the midst of a major revival of political
controversy within Canada about the main elements ofour system offiscal federalism.
The issues under debate include:vertical fiscal balance or imbalance;horizontal fiscal
balance or imbalance and the kind ofEqualization system Canada needs;the funding
of cities; and Aboriginal financing. Although these issues are often debated in the
arcane vocabulary of fiscal federalism, in substance, they are not remote from the
interests of all Canadians, relating as they do to issues like fairness, opportunity,
community and political stability.
This volume is the product of a partnership between Manitoba’s Department of
Finance and the Institute ofIntergovernmental Relations at Queen’s University.I want
to thank the Honourable Greg Selinger, Minister of Finance for the Province of
Manitoba,and Ronald H.Neumann,formerly ofManitoba Finance,for their foresight
in encouraging the publication ofthis timely volume.Manitoba Finance provided the
financial support for the conference that preceded this volume, as well as for the
production ofthe volume itself.
Staffand former staffofManitoba Finance played a considerable role in the produc-
tion of this volume.Beatrice Miller and Jeannette Gelmich proofed and copy-edited
the original documents, while Ruth Madeleine Hodder played a significant role in
overseeing the preparation of the chapters for publication. At Queen’s University,
Valerie Jarus provided advice and valuable feedback at various stages of the pre-
publication process. I thank them all for their role in making this volume possible.
Harvey Lazar
May 2005
ix
PREFACE
This volume reports on results of the Fiscal Arrangements Conference organized by
the department of Finance of the Government of Manitoba and the Institute of
Intergovernmental Relations at Queen’s University in May 2002.
In the months leading up to the conference, Manitoba officials believed that the
Equalization Program and other aspects of the federal-provincial fiscal relationship
would likely be subject to periods of intense scrutiny and change in the period that
was ahead.The conference itself was held May 16 and 17 in Winnipeg,Manitoba.It
was scheduled to start the day after a meeting ofthe federal-provincial finance officials
who deal with fiscal arrangements.The result was that many federal and provincial
finance officials were able to attend the conference.
The Manitoba government was ofthe view that while much ofthe federal-provin-
cial fiscal partnership works reasonably well, there was also scope for the arrange-
ments to work much better. This theme is reflected in the title to this volume –
Canadian Fiscal Arrangements: What Works,What Might Work Better.
Much has happened in federal-provincial fiscal relations since the conference was
held.Many ofthe chapters have been revised to reflect developments in the interven-
ing period.Even those papers that have not been revised are timely,particularly as a
federally appointed panel is now reviewing aspects ofthe Equalization Program,and
aims to complete its work by the end of2005.
The papers presented in this volume are the views of the authors alone.It should
not be assumed that they reflect the views of the Government of Manitoba or of the
Institute for Intergovernmental Relations.
Canadian fiscal arrangements are a central theme in Canadian federalism. Public
debate and interest in such issues as Equalization,the issue offiscal balance/imbalance
and related issues like the funding of health care, social programs, Aboriginal
programs, and cities is high. It is hoped that conclusions in the chapters here will
contribute to the intergovernmental debates that now face the country,in particular
with respect to the constitutional commitment under Section 36(2).
Honourable Greg Selinger Dr.Harvey Lazar
Minister ofFinance Director
Government ofManitoba Institute ofIntergovernmental Relations
School ofPolicy Studies
Queen’s University
xi
CONTRIBUTORS
Keith Banting is a professor in the School of Policy Studies and the Department of
Political Studies and is the holder ofthe Queen’s Research Chair in Public Policy.
Robin Boadway is Sir Edward Peacock Professor of Economic Theory in the
Department ofEconomics,Queen’s University.
Paul Bootheis a professor of Economics at the University of Alberta.He is currently
seconded to the Government ofCanada as Associate Deputy Minister ofFinance.
Kathy L. Brock is an associate professor in the School of Policy Studies and the
Department ofPolitical Studies,Queen’s University.
Hon.Stéphane Dionis the Minister of the Environment,Government of Canada.He
was formerly Minister ofIntergovernmental Affairs and President ofthe Queen’s Privy
Council for Canada.
James Feehanis a professor ofEconomics at Memorial University where he is also the
Director ofthe J.R.Smallwood Foundation for Newfoundland and Labrador Studies.
Harvey Lazar is Director of the Institute of Intergovernmental Relations at Queen’s
University.
Ron Neumannis an advisor to the Ministry ofFinance and Economic Planning in the
Government of Ghana. He was formerly the Director of Intergovernmental Finance
in the Province ofManitoba.
Alain Noëlis a professor of Political Science at the Université de Montréal and was a
member ofQuebec’s commission on Fiscal Imbalance (2001-2002).
Joe Ruggeriis the Vaughan Chair in Regional Economics and the Director ofthe Policy
Studies Centre at the University ofNew Brunswick.
Hon.Greg Selingeris the Minister ofFinance for the Government ofManitoba.
I
A FRAMEWORK
FOR ANALYSIS
1
TRUST IN INTERGOVERNMENTAL
FISCAL RELATIONS
Harvey Lazar
Writing more than two decades ago,the 1981 Parliamentary Task Force on Federal-
Provincial Fiscal Arrangements provided,among other things,a brief history of fed-
eral-provincial revenue sharing, fiscal equalization, the financing of provincial pro-
grams ofnational interest,and fiscal and economic co-ordination.The Task Force also
assessed the merits ofthe arrangements it had described declaring:“We are agreed that
the programs examined in the course of our work are serving vital social needs and
merit undiminished support”(Parliamentary Task Force on Federal-Provincial Fiscal
Arrangements 1981,193). It then explicitly recommended against reductions in fed-
eral transfers for major social programs.
Ifa similar Parliamentary task force had been appointed at any time in the 1990s or
early 2000s,it would not have found Canadian fiscal federalism in as good shape as
did the 1981 report. Intergovernmental fiscal arrangements had become more ran-
corous and solutions more contentious.And yet the hypothetical new task force would
have also probably found the fiscal arrangements no less important than its 1981
predecessor in terms ofthe programs they support and the values that underlie them.
The title ofthis volume,Canadian Fiscal Arrangements: What Works What Might Work
Better,thus captures this idea.That is,while the history of the fiscal arrangements of
the last two decades is a less positive story than what came before,there is still much
in the financing arrangements that has worked and continues to work well. At the
same time,there is also much room for improvement and this volume is intended to
focus on how things might be made to work better.
In the main,fiscal federalism is about how expenditure and revenue-raising respon-
sibilities are allocated among the different orders ofgovernment in a federal political
system. In so doing, it is both instrumental and quasi-constitutional in its effects.
Fiscal federalism is instrumental in the sense that it enables governments to pursue the
public interest and related policy goals by virtue ofwhat is in its tool kit – tools such
as intergovernmental transfers and tax or revenue-sharing arrangements.