Equalization paper goes to Conservative core concerns

Discussions will be about a lot more than money

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The Gazette, Thursday, June 8, 2006

The report of the federal task force on equalization, which apparently sank without a trace after its release on Monday, is part of a much larger conversation about rebalancing the fiscal framework of the federation.

However, there is another roadmap on the fiscal imbalance that should be read by all practitioners and students of federal-provincial relations. Hidden away in the 2006 budget papers is a discussion paper titled Restoring Fiscal Balance in Canada: Focusing on Priorities. It doesn't have anyone's name on it, but it has Kevin Lynch's fingerprints all over it.

He is the new clerk of the Privy Council and he was brought back from the International Monetary Fund in Washington to become the country's top public servant partly because he knows more about fiscal frameworks than anyone else in the country. And if Prime Minister Stephen Harper is to deliver on his promise to redress the fiscal imbalance, Lynch will have to find a way to get it done.

This is a much more daunting challenge than anything Lynch faced in previous tenures as deputy minister of industry and, later, finance. And it involves much more than money in fiscal allocations; it goes to Harper's sense of the federation itself, beginning with his pledge to respect the constitutional division of powers in the British North America Act, now known as the Constitution Act of 1867.

In roadmap terms, consider the following from the executive summary: "The federal government, since recording surpluses, has undertaken significant new spending initiatives in areas of provincial responsibility - while it has neglected some of its core areas of responsibility."

There's more: "In parallel to this insufficient focus on priorities in areas of federal responsibility, various initiatives - which have expanded the federal spending power - have been launched in areas of provincial responsibility."

The key words there are: "the federal spending power" being invoked in areas of provincial jurisdiction, which Harper has vowed never to do without the consent of a majority of provinces.

The two framing elements of the discussion are the division of powers and the federal spending power. This is the great and continuous debate of Canadian federalism. Harper falls within the BNA tradition of Conservative prime ministers, from Macdonald to Mulroney, who uphold the division of powers. It is the Liberals who are philosophically inclined, with the support of the NDP, to invade provincial jurisdictions - as Paul Martin did on health care, daycare and cities - simply by using the federal spending power. The great social policy programs of Lester B. Pearson, on pensions and medicare, involved the federal spending power in provincial jurisdiction.

Just in case anyone missed the point, the discussion paper has a checklist of federal, provincial and shared responsibility.

And this comes back to Harper's sense of the federation in an interview in his second week in office: "That's always been my preference, to see Ottawa do what the federal government is supposed to do."

This doesn't mean that Harper is approaching this discussion with a hands-off agenda. Interestingly, in the middle of the paper, there are five pages on federal funding of post-secondary education. This should not be taken as a red flag by the provinces. While post-secondary education and universities are in provincial jurisdiction, the federal government has long played a significant role, especially in research, which has everything to do with Canada's competitiveness in the world.

After federal funding as a share of post-secondary education plunged to 20 per cent in the mid-1990s, it has since recovered to 26 per cent, and as the paper notes, "Canada now ranks first in the G7 and second in the OECD" in university-based R&D.

The other concerns highlighted in the paper are the long-standing barriers to interprovincial trade, known as BITs. There is something in the constitution called the common-market clause, and Ottawa is signalling it wants to discuss it. So, while Harper is happy to talk about the fiscal imbalance, he has "asks" of his own.

Interestingly, there was another paper on federalism, Rebalancing the Federation, released this week by Mike Harris and Preston Manning for the Fraser Institute.

The table is being set for a discussion much more important than money.

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