Premiers' meeting develops some substance

This summer's gathering in St. John's will focus on fiscal imbalance

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The Gazette, Friday, July 28, 2006

Every summer, the premiers get together for a little golf and grill. It's very ritualistic. First, they put out a communique blaming Ottawa for everything in one paragraph, while in the next demanding the feds hand over more money. Then, it's time for golf.

It has been this way since the idea of the premiers' conference was revived by Jean Lesage in 1960. But since the premiers' conference was transformed into the Council of the Federation in 2003, the working part of the agenda has become more substantive and serious. For example, the CoF did serious preparatory work before the 2004 health-care summit, at which interprovincial alliances held to the end and resulted in $41 billion in new health money from the feds over a decade.

This summer's premiers' conference also has a serious note, namely the discussion of the vertical fiscal imbalance between Ottawa and the provinces. Tom Courchene, perhaps the country's leading academic authority on fiscal federalism, has written that such a vertical gap between Ottawa and the provinces exists when the central government collects more than it needs for its own constitutional purposes.

The question is how to redress it. By a new equalization formula that benefits only the recipient provinces, particularly Quebec and the Maritimes? Or by an increase in federal transfer payments that would benefit all provinces, including Ontario?

Naturally, Quebec prefers a new, improved equalization formula. Naturally, Ontario prefers bigger transfer payments.

Equalization has been around since 1957 and was actually entrenched in the Charter of Rights in 1982. The idea is that a basic standard of services should be available across the country. Equalization theoretically enables the poor provinces to provide comparable services with the rich ones. Transfer payments have been a particular feature of the federation since the shared-cost programs of the Pearson years, notably in health care and post-secondary education.

Initially funded on a 50-50 basis in the 1960s, they gave way to block funding in the late 1970s, and were unilaterally slashed in the Chretien-Martin budget cuts of the mid-1990s.

When Ottawa balanced its books and moved to a surplus position in 1997, the provinces were left short of cash to provide such essential services as health care. Federal funding of health care, a 50-50 proposition in the beginning, fell at one point to a low of 16 per cent.

This is what is meant by the fiscal imbalance. Courchene has also written of "hourglass federalism," in which Ottawa occupies areas of provincial jurisdiction, as Paul Martin did on health care, daycare and cities.

This involves a debate about two things, the constitutional division of powers and the use of the federal spending power to occupy provincial prerogatives.

This, not money, is at the heart of the debate on Canadian federalism. Both Lester Pearson and Paul Martin operated minority governments that relied on the support of the NDP. In the 1963-68 period, and again from 2004-06, Liberal governments of the day, with the encouragement of the NDP, were never shy about using the federal spending power in provincial jurisdiction.

Martin's program of creating federally funded daycare spaces delivered by the provinces is a prime example. Of course, the NDP supported it as being in the national interest; in addition to creating provincial daycares, it also created jobs for daycare workers. This is what Courchene means by "spending-power federalism."

Then along came Stephen Harper with "open federalism," which is actually a return to the federalism of the British North America Act, in terms of his promise to respect the division of powers between Ottawa and the provinces in the BNA Act, now the Constitution Act of 1867.

Furthermore, Harper promised in his Quebec City speech last December that he would not use the spending power in areas of provincial jurisdiction without the support of a majority of provinces.

And he acknowledged the existence of the fiscal imbalance.

The premiers' conference is part of the positioning leading up to a full first ministers' conference chaired by the prime minister in the fall. The key to understanding the federal position is in a background budget paper called Restoring Balance, in which Harper signals he expects to get something in return for whatever he offers on the fiscal imbalance.

He wants a stronger Canadian common market to reduce interprovincial trade barriers (think butter, then margarine). And he wants a discussion on post-secondary education, which the feds fund 25 per cent through grants such as Canada Research Chairs.

The dance is just beginning.

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