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Payroll












Insurance




FinancialInstitutions













Health andEducation









Environment











Mineral/Natural Resources







Ж = has the constitutional power to levy asales tax but does not have a sales tax

* This tax is collected by the province, notthe federal government.

Constitutional Allocation of ExpenditureResponsibilities

The constitutional allocation of expenditureresponsibilities can be found in the sections of the constitution that dividesthe legislative powers and responsibilities between the federal and provincialgovernments (Constitution Act, 1867, ss. 91 to 95). The division of powersdivides legislative responsibilities into three categories: 1) powers that areexclusive to the federal government, 2) powers that are exclusive to theprovincial governments and 3) powers that are exercised concurrently by bothorders of government.

In Canada almost all constitutionallyspecified legislative powers are exclusive powers. Dejure, there are only four concurrent powers and theyfall into the following areas: 1) exporting non-renewable natural resources,forestry resources, and electrical energy 7, 2) old age pensions andbenefits8, 3) agriculture and 4) immigration.9 All other legislative powersare categorised as exclusive powers of either the federal or provincialgovernments.10 Although most powers are defined as exclusive powers the use ofintergovernmental transfers has meant that in many policy areas thejurisdiction is a de facto concurrent jurisdiction (section C Systemof Intergovernmental Transfers provides furtherdetails on the system of intergovernmental transfers).

At the time of federation in 1867 the mostimportant priority was to promote the economic development of the new country.The building of railways, roads, canals, harbours and bridges to link theprovinces with each other and with the rest of the world was the prerequisitefor economic development. These duties, along with national defence wereassigned to the federal government. The provinces were given other importantresponsibilities, such as the administration of justice, local institutions,health, education, welfare and other matters of a Уlocal nature.Ф However, in1867 the principle of laissez-faire was the dominant governing philosophy andthese responsibilities were much less costly to the state than today. Theinitial allocation of revenue sources reflected the allocation of expenditureresponsibilities.

The building of a modern industrial welfarestate meant that although the federal responsibilities remain significant, theresponsibilities assigned to the provinces have increased enormously inrelative importance and have become the focus of major government policyinitiatives.

Constitutional Provisions Related toIntergovernmental Transfers

The provinces have constitutionaljurisdiction in areas that have become the most costly expenditureresponsibilities but they also have access to considerable financial resources.The provinces are able to finance a large percentage of their expenditures outof their own revenues (see section B EconomicNumbers for particular details) but there has alwaysbeen a discrepancy between the provinces’ revenue capacity and theirexpenditure responsibilities.11 The discrepancy between theprovinces revenues and their expenditure responsibilities has resulted in adegree of vertical fiscal imbalance (VFI). There are also considerabledifferences in the size, population and economic wealth of the provinces thathave resulted in horizontal fiscal imbalance between the provinces. Thesevertical and horizontal fiscal imbalances have led to the development of twotypes of transfers from the federal government to the provinces.

One set of transfers is intended to addressthe vertical imbalance between the federal government and the provinces. Underthis system of transfers, the federal government transfers funds to theprovinces that are to be spent in policy areas that are in the constitutionaljurisdiction of the provinces (primarily in healthcare, post-secondaryeducation, and welfare). The federal government attaches modest conditions tothese funds and the provinces must satisfy these conditions in order to receivethe transfers.12 The ability of the federalgovernment to attach conditions to these transfers allows the federalgovernment to influence, or in some cases establish policies that are outsideits constitutional jurisdiction. All of the provinces are eligible to receivethese transfers. These transfers are known as conditional transfers and theyare made through the federal government’s spending power. The federalgovernment has also used its spending power to transfer funds directly toindividuals or to organisations and agencies to achieve certain policyobjectives (section 3 Constitutional or OtherSpending Power Provisions provides further details onthe federal government’s spending power).

A second kind of transfers, know asEqualisation, was established to address the horizontal fiscal imbalancebetween the 10 provinces. These are unconditional transfers and only the lesswealthy provinces are eligible to receive them. Currently seven provincesreceive equalization transfers (section C System ofIntergovernmental Transfers provides further detailson equalization transfers).

The Canadian federal system includes anextensive and complex system of intergovernmental transfers (see the sectionSystem of Intergovernmental Transfers for details) but with one exception there are no constitutionalprovisions concerning intergovernmental transfers. The one case where theconstitution does mention intergovernmental transfers is in relation to thesystem of equalization.13 These provisions were addedto the Constitution in 1982 and express the commitment of the federal andprovincial governments to a set of principles that are the basis of theequalization system. One of the provisions commits the federal government toУthe principle of making equalization payments to ensure that provincialgovernments have sufficient revenues to provide reasonably comparable levels ofpublic services at reasonably comparable levels of taxation.Ф14 Theseprovisions on equalization only represent a commitment by the respectivegovernments to the principles behind the equalization system and there are noprovisions that commit governments to contributing or receiving particularlevels of funds. Although these provisions are in the constitution, leadingconstitutional scholars have argued that the provisions are probably too vague,and too political to be justiciable in the courts.15

3. Constitutional or Other Spending PowerProvisions

The use of the federal government’s Уspending powerФ is one of themajor sources of intergovernmental transfers. These transfers are aimed ataddressing the vertical fiscal imbalance between the federal and provincialgovernments. In Canada the meaning of the Уfederal spending powerФ refers tothe ability of the federal government to transfer funds to other governments,agencies or individuals for purposes which the federal government does not havethe explicit constitutional authority, or in matters where the provinces haveexclusive jurisdiction. Although the federal spending power has played acritical role in the establishment and evolution of major social policies inCanada, there is no explicit recognition of the federal spending power in theCanadian Constitution. However, the Constitution as interpreted by the courtsallows the federal government to spend its revenues on any matter, as long asthe legislation authorising the spending of revenues does not constitute aregulatory function that falls within the provinces constitutional powers. Theconstitutional basis of the federal spending power is inferred from the federalgovernment’s powers toraise taxes16 and, to legislate in relation to Уpublic property,Ф17 and fromParliament’s authorityto УappropriateФ federal funds from the ConsolidatedRevenue Fund.18

In 1991 the Supreme Court ofCanada’s latestdecision on the constitutionality of the federal spending power made it clearthat as long as the federal government does not go beyond granting orwithholding money, there is no unconstitutional trespass into provincialjurisdiction.19 The court’s interpretation of the constitution has given the federalgovernment a wide degree of discretion in how it chooses to use its spendingpower. In essence, there are no significant constitutional restrictions on thefederal government’sability to use its spending power in order to transfer funds to individuals,agencies or other governments for policy purposes for which it does not haveexplicit constitutional authority to legislate or regulate. Despite occasionalobjections from the provinces most of them have accepted the court’s interpretation of the spendingpower.20

In recent years, the issue of the federalspending power has attracted renewed attention. After a period that saw thefederal government make drastic reductions in transfers to the provinces, thefederal government appears to be taking an interest in initiating new socialprograms or proposing substantial additions to existing programs (for example,adding a national home-care policy ).

As a result, the use of the spending powerhas been a source of recent political debate that has resulted in the federal,provincial and territorial governments signing the Social Union Framework Agreement inFebruary 1999.21 One of the sections in theagreement recognises the legitimacy of the federal spending power and in returnthe federal government accepts some restrictions on the exercise of itsspending power.22 The Social Union Framework Agreement is onlyan intergovernmental political agreement however. Not only does it not have anyconstitutional status; it is not even legally binding.

4. Political and Legal Dynamics - includingthe Role of Law and Role of Politics in the Decision-MakingProcesses

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