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Federal Spending Power: The Makings of a Phoney Debate

There have been suggestions that the Conservative government’s forthcoming Throne Speech will surrender the federal spending power. Through an op-ed in today’s Globe and Mail, Bob Rae tries to position himself, and presumably the Liberal Party, as defenders of the power. This posturing will help the Conservatives woo Quebec nationalists and help the Liberals appeal to Canadians who believe in a strong central government.

However, in one sense, the federal spending power has fallen into disuse for more than a decade. Paul Martin rolled the Canada Assistance Plan, a cost-shared transfer that induced provincial governments to spend more on social assistance, into the Canada Health and Social Transfer (CHST), a block grant that allows provincial governments to spend as they see fit. The CHST was later divided into the Canada Health Transfer and the Canada Social Transfer. While these block grants are supposedly “conditional”, neither Liberal nor Conservative governments have done much of anything to enforce the Canada Health Act or other conditions.

Are the Conservatives going to formally repeal the Canada Health Act? Are the Liberals proposing to reinstate cost-sharing or rigorously enforce existing conditionality? If the answer to both questions is “No”, then I am not sure what all the fuss is about.  Indeed, the main thing that Rae says the Liberals would do differently is to “knock down” unnamed “barriers between provinces.”

The whole point of the “spending power” is that it is not a constitutional power at all, but rather the federal government’s capacity to spend money. I do not see how the Government of Canada can relinquish this capacity in any permanent sense. More likely, the Harper government will make some symbolic statement of intent not to intervene in areas of provincial jurisdiction.

However, the Harper government’s stated priorities – post-secondary education, wait times, infrastructure, the environment, etc. – largely lie in areas of provincial jurisdiction. Budget 2007 used the federal spending power quite aggressively to pay provincial governments to eliminate their Corporate Capital Taxes. A similar use of the power will be needed if the Conservatives are serious about harmonizing provincial sales taxes with the GST.

The question is not whether there should be a federal spending power in some theoretical sense. As long as the federal government has money to spend, there will be a federal spending power. The question is to what ends this power will be used. For more than a decade, neither Liberals nor Conservatives have deployed the federal spending power to significantly expand and improve public services and standards across Canada.


Comment from Andrew Jackson
Time: October 2, 2007, 1:30 pm

I think it will be key in the coming debate not to address the issue in the abstract, but to tie the need for a federal spending power to specific issues. As Erin notes, Medicare is at risk to the extent that financial conditions on federal transfers serve, in principle, to block private payment for physician and hospital services. But we should also note that lack of coherent federal-provincial cost-shared programs has given us no coherent pharmacare program, eleder care programs or child care programs across the country. Left to their own devices and resources some provinces do a half reasonable job, and others lag well behind. Euthanasia of the federal spending power does not mean no social programs, but it does mean much less coherent and much more variable ones.

I also think it will be important for progressives to take the position (now formal CLC policy) that Quebec should have the right to opt our of national social programs in areas of provincial jurisdiction. We should also note that federally funded programs can and should be structured quite flexibly to meet different provincial needs.

Comment from Matthew Bergbusch
Time: October 2, 2007, 2:02 pm

Quebec should only be allowed to opt out of national social programs where it has existing programs already in place.

Comment from Matt Bergbusch
Time: October 2, 2007, 7:22 pm

Ok, I confess, my preceding comment was too simplistic. However, I have trouble understanding exactly why we must always default to the principle that a province has the option to opt out of a program. Clearly, it can make good sense at times for an organization or a government to support such a position just for a bit of administrative or constitutional peace. But, how exactly do Canadians benefit from such a principle? Living in Montreal, as I do, I gain nothing, for instance, from having to deal with both Revenue Canada and Revenue Quebec. They are equally remote from me (and I receive my return somewhat more quickly from Revenue Canada). Where is the benefit to me of having a separate Quebec-based administration for a program?

Shouldn’t we, instead of defaulting to such a stance, consider what additional benefit citizens derive from it? I propose the following model: where a province already has an existing program, it should have the right to opt out of a national program. It should also have the right to opt out of a national program if it proposes, with additional provincial funding, to establish a program which is substantially more generous or evidently superior to the national program. But the key for being allowed to opt out should be the additionality the provincial program offers. If tax competition really is a problem, shouldn’t provinces be encouraged to be innovative and to demonstrate leadership in their social investments? If the provincial option is superior, it makes no sense to force a national option on citizens; by the same token, it makes no sense to require a provincial option for merely nationalist reasons.

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