My contribution to Maclean’s 2018 Chartapalooza was a plot of the federal government’s share of total government expenditure in Canada since 1870. The chart showed that until World War I, with the exception of period marked by the building of the federally subsidized CPR, the federal share of total government spending in Canada was approximately 40 percent. After the peak of over 70 percent reached during World War I, the federal share came down quickly but went up again during the Depression era and soared during World War II reaching over 90 percent. The federal share of spending came down more gradually after World War II—leveling off at almost 50 percent during the 1970s and 1980s before falling once again to about 40 percent during the 1990s.
However, this chart can be improved upon in two ways. First, it would be useful to include not only the federal government but also provincial and local government expenditure shares over the period 1870 to the present. As well, if one is going to include federal, provincial and local governments, it would be useful to take transfers to lower tiers into account and look at spending shares net of those transfers. So, this is what I attempt to do in the accompanying chart where I present federal, provincial and local expenditure shares net of transfers – at least for the period since 1933.
The period from 1945 to 1969 is again consecutive annual data and from Historical Statistics of Canada (as per the series listed above) and net of transfers to lower tier government. For the period since 1970, the years 1970 to 1990 are from the 1995 Federal Fiscal Reference Tables while 1991 to 2016 is taken from the 2017 Federal Fiscal Reference Tables. Again, federal transfers to other governments are accorded to the provinces and provincial transfers to other governments are accorded to local government spending.
So, what are the results? Well, very often we hear public discourse that municipalities in Canada need more powers or more fiscal tools. I suppose that this need not be an argument for an alternate reality so much as a return to the past when local government spending was actually more important. The period until WWI shows that federal and local governments were actually quite similar in terms of the shares of total expenditure both fluctuating in and around 40 percent with the provinces coming in at about 20 percent. The period from 1914 to 1945 sees the spikes in the federal shares as a result of the war with a return to the prewar balance during the 1920s and early 1930s.
The period since 1945 sees a steady decline in the federal share from a peak of about 90 percent in 1943 to reach 27 percent by 2016. Provincial and local shares in 1943 were at about 5 percent each and grew with the local share leveling off at about 20 percent and reaching 22 percent by 2016 while the provinces grew steadily with their share in 2016 at about 50 percent. There are some periods of abrupt changes – the late 1960s and the late 1980s – which I think mark major changes to the transfer regimes (eg. Medicare in the late 1960s) or they may be artifacts of changes in the manner the data was recorded. After all, government accounting approaches have changed over time and there are a number of different data sources here.
Still, I think an overall story does emerge. The balance between Ottawa and the provincial-local sector in the early years of Confederation was a 40/60 split whereas today it is a 30/70 split. The larger federal role of the mid twentieth century was really an aberration brought about by the demands of global war. However, the more interesting change is the reversal of provincial and local government expenditure shares over time. While local governments were more important in terms of their spending shares before WWI, their role diminished significantly after WWII. Much of this change was of course the expansion of health, education and social welfare functions at the provincial levels.
It is unlikely that new revenue or expenditure tools for municipalities will return them to the dominant role they had in the nineteenth century. In the end, our constitution makes local governments not a separate fiscal tier but creatures of the provinces and provincial Leviathans having garnered a larger fiscal role relative to the federal government are unlikely to yield much to their municipalities anytime soon.
Interesting - if we look at the US then employment is primarily local, secondarily state with Federal at a minority. https://fred.stlouisfed.org/graph/fredgraph.png?g=iCXz
Posted by: Mike Smitka | February 23, 2018 at 11:20 AM