The Canadian Federation is an institutional arrangement whereby the constituent units are able to both cooperate and compete with jurisdictions that are both separate and coordinate. The debate over the respective roles of the federal and provincial governments has taken various forms over time with views that emphasize the centrality of the federal government along with others that emphasize the federation as a compact amongst equals with the federal government as more of a coordinator. I suppose this could also be termed executive versus classical federalism as Tom Flanagan described it in a recent Globe and Mail piece. Given that political discourse and decision making out of Ottawa has recently been taking a more decentralized tone when it comes to federal-provincial matters, it might be instructive to take a look at the numbers to see what the balance is between the respective tiers of the Canadian federation.
I’ve gone to the Federal Fiscal Reference Tables to collect data for a basic set of centralization (or decentralization) measures for the period 1966 to 2009. The first figure takes the ratio of a tier’s own-source revenue (that is, without intergovernmental transfers) to the total of federal, provincial-territorial and local own-source revenue. The second figure, takes the ratio of a tier’s spending (net of transfers made to the lower tier) to the total of federal, provincial and local spending (with the spending of each tier net of intergovernmental transfers to the next tier). The point of this is to take a look at the relative resource and expenditure shares across the tiers of the federation. The results depict what most of us probably already know but which can now be visually demonstrated. Canada has become more decentralized at the federal-provincial level but the results also suggest it has become more centralized at the provincial local level.
In 1966, the federal government accounted for 43 percent of spending, the provincial-territorial level 32 percent and local governments 25 percent. By 2009, the federal share was down to 31 percent and the local share down to 20 percent while the provincial-territorial share was up to 49 percent. Indeed, given that under the constitution municipalities are “creatures” of the provinces, there are really only two levels of government. The Canadian Federation has decentralized to the point where more than two-thirds of spending is now at the provincial-local level. Own-source revenues have not decentralized as dramatically. In 1966, the federal government accounted for about 50 percent of own-source revenues, the provincial-territorial sector 34 percent and the local sector 16 percent. By 2009, the shift was down to 40 percent for the federal level, up to about 46 percent for the provincial-territorial level and down to approximately 13 percent for local governments (numbers have been rounded).
A more decentralized Canadian federation is not a future possibility - it is already here. Whether this is a return to “classical” federalism is subject to debate. If one goes back to the immediate post-Confederation period, spending and revenues were also concentrated at the federal level and they became more concentrated in the twentieth century as result of the world war years. While the federal government practiced “executive federalism” in the second half of the twentieth century, Canada was nonetheless decentralizing as expenditures in provincial areas of jurisdiction –health, education and social welfare – grew.
The question is whether or not this is exactly the decentralization we want. Even if we accept that the provinces should be a more dominant fiscal tier given their responsibilities for health, education and social welfare, do we now want to simply transfer more tax points to the provinces and eliminate federal-provincial grants all together so that revenue shares better reflect expenditure shares? What about the cities? Cities are increasingly where most Canadians live and their governments and services are the closest to the taxpayer and yet the balance has shifted away from them also. Our focus has been so dominated by Ottawa’s relationship with the provinces that we have ignored the local sector’s relationship with their respective provinces. While Ottawa and the provinces have engaged in a process of give and take over 140 years given a framework and powers set forth in the constitution, municipalities have only what the provinces let them have. Based on these figures, it has been mainly take and little give over the last few decades.
(This post was written by Livio Di Matteo)