Fiscal imbalance will be Jim Flaherty's theme today

Expect the Liberals to play up their leader's strengths during final days

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The Gazette, Monday, March 19, 2007

When all is said and done on the fiscal imbalance in today's budget, there are only two important questions: How much? And who got it?

As concerns Quebec, the answers are $1.5 billion and Jean Charest. In political terms, it's irrelevant whether a vertical fiscal imbalance exists between Ottawa's capacity to fund programs and the ability of the provinces to deliver them.

It doesn't matter whether Ottawa delivers the money to 10 provinces through increased transfer payments or, as seems certain, through an adjustment in equalization to six recipient provinces, including Quebec.

If you took the metro to work this morning, you wouldn't find anyone talking about equalization, much less anyone who understood it. But you would find a lot of people who believe that, like global warming, it exists.

Finance Minister Jim Flaherty won't claim to be solving the problem today. The provinces won't stop demanding more money from Ottawa tomorrow. But restoring fiscal balance will be a major theme of today's budget, along with the environment and post-secondary education.

And in terms of managing the federation, there's a lot more to it than addressing the fiscal imbalance. Stephen Harper is temperamentally a BNA prime minister, meaning he wants Ottawa to stick to what he has called its core responsibilities according to the constitutional division of powers in the original British North America Act, the one that put federal powers under Peace, Order and Good Government in Section 91, provincial powers under Section 92, and shared responsibilities in such areas as the environment and funding of post-secondary education. Classical federalism.

In this regard, the key irritant in federal-provincial relations between Ottawa and Quebec has, for decades, been the federal spending power in areas of provincial jurisdiction.

This goes back to the Unemployment Insurance Act of 1940, which required a constitutional amendment and might have cost Adelard Godbout his job as premier of Quebec for going along with it.

In the 1960s, the great reforms of the Pearson years that created the social-welfare state required an imaginative opting out for Quebec from the Canada Pension Plan. That enabled the creation of the Caisse de depot et placement du Quebec with assets of $135 billion.

As recently as the Paul Martin period from 2004 to 2006, the entire Liberal domestic program was in provincial jurisdiction, and Paul Martin had to find a way to send money to the provinces on health care, daycare and cities.

Harper has a different view. He says to the provinces: You do what you do, I'll do what I do - which is foreign affairs, defence, international trade, the Canadian economic union, as well as the political and territorial sovereignty of the country.

What a concept.

Restraining federal spending power was actually a key and widely overlooked promise of his open-federalism speech in Quebec City during the last campaign.

Harper said he would never invoke the federal spending power in areas of exclusive provincial jurisdiction without the support of a majority of provinces.

So don't be surprised if, in the context of providing better certainty for fiscal planing, Flaherty today offers up some voluntary restraints on the federal spending power.

Interestingly, in his campaign speeches last week, Premier Jean Charest has been calling for curbs on federal spending power. No one has been reporting it, but he has certainly been saying it.

Today's fiscal-imbalance announcement has been carefully positioned so as not to spark a backlash against Quebec as the main beneficiary of increased equalization. During the two-week parliamentary recess, Harper pointedly stayed out of Quebec because of the provincial campaign, but just as pointedly made significant announcements in other provinces.

There was $1.5 billion for transit and environmental good works in Toronto, $1 billion for farmers in Saskatchewan, carbon-sequestration funding for the oil patch in Alberta and British Columbia's share of the $1.5 billion Eco Trust fund.

And $1.5 billion as Quebec's share of redressing the fiscal imbalance. The Parti Quebecois will say it's nothing, it's our money anyway. Mario Dumont will say Harper did it all by himself. Charest can and should say that he and Harper together are delivering the goods for Quebecers.

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