Reporting Back to Canadians:
Consultations on Restoring Fiscal Balance in Canada
Table of Contents
In Budget 2006, Canada’s New Government committed itself to seek the views of Canadians on restoring fiscal balance in Canada. The Government has since taken action to foster a rich dialogue on how to move ahead and to ensure widespread participation in these discussions.
The Government’s Advantage Canada economic plan, unveiled in November 2006, echoes Canadians’ desire for a "system of fiscal arrangements that funds national priorities and redistributes wealth from the more prosperous regions to the less prosperous ones – but that these arrangements must be founded on principles of fairness and predictability."
Our approach to addressing concerns related to fiscal balance is guided by five principles:
- Accountability through clarity of roles and responsibilities.
- Fiscal responsibility and budget transparency.
- Predictable, long-term fiscal arrangements.
- A competitive and efficient economic union.
- Effective collaborative management of the federation.
Over the past several months, the Government has been consulting Canadians; this document takes stock of what we have heard. In the following pages, we will present the results of consultations led by the Minister of Finance and supported by the Ministers of Intergovernmental Affairs, Human Resources and Social Development, Health, and Transport, Infrastructure and Communities. The views and opinions stated in this document will be taken into consideration as the Government continues to develop its proposals for restoring fiscal balance in Canada.
Canada’s New Government is making real progress on restoring fiscal balance in Canada and will continue its discussions with provinces and territories over the coming months, leading to proposals to restore fiscal balance that will be brought forward by the Government of Canada and implemented in Budget 2007.
Results of consultations
1. Intergovernmental Affairs
Budget 2006 indicated that in keeping with the Social Union Framework Agreement, "the Government of Canada will limit the use of the federal spending power in areas of provincial responsibility to ensure that:
- new cost shared programs in areas of provincial responsibility have the consent of the majority of provinces to proceed; and
- provinces and territories have the right to opt out with compensation if they offer similar programs with comparable accountability structures."
The Minister of Intergovernmental Affairs held face-to-face meetings with Intergovernmental Affairs counterparts between August and November of 2006 to discuss the federal spending power.
Prior to these meetings, the Minister wrote to his provincial/territorial counterparts outlining the objective of consultations, and indicated seeking their perspectives on:
- how federal initiatives in areas of shared priorities can best serve the national interest, building on the economic and social union;
- how efficiency, effectiveness and accountability can be assured to allow for the best use of resources by the appropriate level of government; and
- how federal initiatives can maximize the benefits of our federation, respecting jurisdiction, and acknowledging diverse approaches and local circumstances.
The Minister also sought views on ways to achieve a balance between a principle-based approach to limitation of the federal spending power and the need to ensure flexibility.
The Minister sought perspectives on lessons learned from the past, options for future consideration and potential priority areas for action. Written submissions from provinces and territories were also provided to the Minister in some cases.
What We Heard
These consultations allowed the Government of Canada to demonstrate to provinces and territories its commitment to a new, open federalism.
They also provided an opportunity to obtain provincial and territorial views on ways to achieve enhanced accountability through clarity in roles and responsibilities of orders of government.
The Minister took this opportunity to indicate to his provincial and territorial counterparts that the Government of Canada has already taken action and enunciated clear principles in this area as over 60 percent of new expenditures contained within Budget 2006 were in the areas of core federal responsibility.
Provinces and territories expressed traditionally held positions on the issue of limiting the federal spending power.
Views ranged from an interest in seeing early action on formally limiting the use of the federal spending power, to an interest in addressing higher priorities first, to an interest in ensuring that the federal spending power be used to ensure equitable programs and services for Canadians.
Many jurisdictions felt that the use of the federal spending power can make an important contribution to ensuring that Canadians have equitable access to services, but that it should be only utilized after meaningful consultation and coordination with provincial and territorial governments. For example, some provinces and territories expressed concern that the use of the federal spending power can, at times, distort their own priorities. Others were concerned about the accountability requirements the federal spending power can impose on provinces and territories.
Provinces and territories also stressed that if the Government of Canada were to consider withdrawing from certain areas in an attempt to limit its spending in areas of provincial jurisdiction, this should only be done following consultations and with full compensation.
All provinces and territories agreed that further discussions should be undertaken at the appropriate time and all provinces and territories were appreciative of the Minister undertaking these consultations and expressed a desire to work collaboratively.
2. Human Resources and Social Development
In Budget 2006, the Government of Canada committed to a renewed relationship with provincial and territorial governments based on collaboration in restoring fiscal balance, including "a new approach to long-term and predictable support for post-secondary education (PSE) and training."
HRSDC took a three-pronged approach involving:
2. National online consultations aimed at the public and stakeholder groups; and
3. Meetings with major national stakeholder associations.
Over the summer and early fall, the Minister of Human Resources and Social Development Canada (HRSDC) spoke with provincial counterparts on post-secondary education (PSE) and training. The Minister plans to consult with territorial counterparts in the weeks to come. HRSDC officials also consulted with provinces and territories.
As part of the online process led by Finance Canada from August 8 to September 8, 2006, HRSDC’s web-based consultation on PSE and training yielded 162 submissions from individual Canadians and 33 from stakeholder organizations.
On-line submissions were received from a wide range of age groups, though the most frequent was the 25-34 bracket. Over two thirds of the participants have a post-secondary education. Participants were from all provinces, though Ontario (39%), Alberta (20%) and BC (13%) were the most frequent locations, and one territory (Yukon). Seven percent were from Quebec. There was an even split between men and women.
In September and October 2006, HRSDC also had roundtable discussions with a number of major national associations representing universities, colleges, polytechnics and sector councils, post-secondary education students, post-secondary education faculty, business and labour.
What We Heard
Provinces and territories are seeking long-term stable funding for post-secondary education from the Government of Canada. In particular, they endorse the Council of the Federation’s public report of March 31, 2006, entitled Reconciling the Irreconcilable, which calls for increased federal funding for post-secondary education. All provinces and territories support the objectives for post-secondary education and skills development identified by the Council of the Federation: access, quality, participation in the skilled labour force, development of workplace skills, and research and innovation.
Provinces and territories are not seeking a major shift in federal and provincial roles and responsibilities. All provinces foresaw a continued federal role in student financial assistance, although a number expressed their desire to improve the integration of federal and provincial delivery to provide students with seamless service.
All jurisdictions supported increased accountability for federal investments in post-secondary education, although there were a variety of views regarding what this should entail. Several provinces favoured reporting to their citizens on outcomes of investments in post-secondary education.
Provincial and territorial priorities for post-secondary education vary according to the size of jurisdiction, as well as regional and sectoral issues, with some provinces being concerned with rising tuition and affordability while others are giving more attention to aging infrastructure or poor completion rates.
On labour market training, provinces see a federal role in labour market and employment and seek a new approach to raise participation in the labour market and to address skills shortages.
Discussions on training tended to reflect regional labour market conditions. Western provinces tended to emphasize skilled labour shortages while eastern provinces were also concerned about training and employment for older workers in declining resource-based industries. Provinces and territories with large Aboriginal populations viewed improving their skill and educational levels as a high priority, while several provinces also highlighted the need to continue to invest in literacy and essential skills.
More broadly, provinces supported the need to encourage the participation of workers in the labour market through a focus on improving opportunities for under-represented groups. Complementary to this, provinces expressed the need to improve supports particularly for non-EI clients, especially older workers, persons with disabilities and newcomers to Canada.
Many provinces also identified a federal role in improving labour mobility across Canada. To that end, some expressed interest in the recent Trade, Investment, and Labour Mobility Agreement between British Columbia and Alberta. Most provinces were also supportive of federal investments in pan-Canadian labour market information and a federal agency that would facilitate foreign credential recognition, provided that the agency does not overlap existing provincial and territorial initiatives.
Provinces and territories are seeking additional federal funding for training. Several provinces noted that ongoing questions about the status of Labour Market Partnership Agreements, or a successor approach, are central to progress on labour market and employment issues. Some provinces that do not already have devolved Labour Market Development Agreements are interested in negotiating them.
Public and Stakeholder Consultations
Individual Canadians who responded to the online consultations were most concerned with "making PSE and training accessible to all," with many calling for the provision of universal access as a primary objective for Canada’s post-secondary education and training system. Many suggest that efforts to ensure accessibility should target Aboriginal Canadians, visible minority groups and those on lower incomes.
Students expressed concerns about the rising cost of post-secondary education. In addition to calls for frozen and lower tuition rates, they and others pointed out that difficulties affording PSE and training go beyond tuition and include high living and studying costs, prompting suggestions for greater use of scholarships and grants. There were several accounts from participants who are struggling to repay student loans they had used to finance their education. Some suggested that the Government of Canada monitor debt loads closely and take steps to help students who are unable to repay loans.
Beyond financial considerations, others said that Canada’s PSE and training system should strive to be the best in the world. They proposed that the implementation of standards become core objective for Canada’s post-secondary education and training system. Other respondents called for a renewed emphasis on developing skilled tradespersons and commented on the critical labour shortages in many of these occupations.
Some participants emphasized that learners in Canada need advice and information to make good career choices. They called for more effective guidance counselling and a single access point for Canadians to learn about the future demand for a wide range of professional and vocational occupations.
Many respondents focused on the role for the Government of Canada in post-secondary education and training. Some suggested that the Government’s role was limited to providing loans and financial support. Others, however, said that the Government of Canada had a key role to play in determining and enforcing standards, and in taking a leadership role in PSE. There were some calls for the creation of a federal department of education.
Individual participants offered a wide range of indicators to measure the success of PSE and training. Some of the most popular were student debt loads, job placement rates, occupational shortages and the degree to which students were able to secure jobs in their chosen fields after graduation.
Stakeholder organizations stressed the need to invest in people to ensure Canada’s long-term prosperity, including national strategies for workforce development to address skills and labour shortages and encourage labour force participation. Suggestions included the development of national occupational standards, measures to improve learning recognition and mobility, and increased support to skills training, as well as initiatives to promote and support arrangements to learn alternatively at the workplace and in formal study: co-op studies, internships, practicums, apprenticeships to better prepare for the labour market, and mid-career training to maintain skills levels. Many advocated a publicly accountable PSE system, with a Government of Canada commitment to long-term, predictable and stable funding.
Discussions reinforced support for clear accountability frameworks and reporting requirements. Echoing individual Canadians, stakeholder representatives also placed access, affordability, high-quality education and skills development among their top objectives and strongly supported existing federal roles in student financial assistance and research and development. Throughout, they called for federal leadership and urged both orders of government to work together.
University presidents, along with community colleges and institutes, drew attention to their infrastructure challenges. They encouraged the Government of Canada to continue its role in research funding and increase federal R&D investments. New Research and Development funding was also a focus for community colleges and polytechnic institutes, who urged the government to use additional federal research funding to recognize and promote R&D activity at their institutions.
Business and industry leaders conveyed a sense of urgency of addressing people issues in terms of Canada’s global competitiveness, stressing that investment decisions are increasingly based on the availability of talent. While acknowledging provincial and territorial jurisdiction, they expressed a desire for bold leadership and stewardship at the national level, particularly to address provincial licensing and institutional barriers to a coherent and agile PSE and training system, and to ensure access and participation in PSE and training, notably by underrepresented groups.
Colleges and institutes, private career colleges, labour and sector councils shared business concerns about the participation of underrepresented groups, and the need for action on a national level to accelerate mobility and transferability across the PSE and training system. Many pointed to the importance of labour market arrangements between orders of governments as a means to support skills development. They also identified foreign credential recognition to facilitate better integration of skilled immigrants into the workforce as important.
Student and teacher organizations focused mainly on three national objectives: access, affordability, and quality of teaching and research. Recruitment of the best and brightest scholars, teaching quality, lower faculty-student ratios, and infrastructure development and renewal were priorities. Some advocated the establishment of a Pan-Canadian Accord on Post-Secondary Education, or a Post-Secondary Education Act, while others said these matters are more appropriately addressed at the provincial level.
Aboriginal organizations emphasised that Canada’s objectives for PSE and training should support the recruitment, retention and success of Aboriginal people. Briefs often cited the need to close the gap in PSE enrolment and graduation rates. Given Aboriginal birth rates, and the importance of participation of young workers in a skilled workforce, it was also widely recognised that high school training and vocational (apprenticeship) educational goals were key ways to solve this challenge.
The Minister of Health was asked to consult with his provincial and territorial counterparts on how the significant and increasing federal support for health care can best be used to support implementation of the 10–Year Plan to Strengthen Health Care, including improved reporting and the Patient Wait Times Guarantee. These discussions are ongoing and will continue in the coming months as the Government moves forward on its commitment to restore fiscal balance in Canada.
As part of the 2004 Health Accord, the Government of Canada committed to providing $41 billion to provinces and territories over ten years to further work on health care system reforms, including the better management and reduction of wait times. Budget 2006 reaffirmed the Government’s commitment to provide predictable and growing funding to the provinces and territories. The annual 6% increase in the Canada Health Transfer cash funding means that the provinces and territories will receive an additional $1.1 billion this year and $1.2 billion on top of that next year, and growing thereafter. In Budget 2006, the Minister of Health was tasked to work with the provinces and territories on how this significant and growing federal funding for health care can best be used to support implementation of the 2004 Health Accord.
The Minister has held discussions with his provincial and territorial counterparts on wait times reductions, including the establishment of Patient Wait Times Guarantees (PWTGs). Federal, provincial and territorial ministers of health discussed PWTGs in early July 2006, and the Minister subsequently met with a number of his provincial and territorial colleagues, bilaterally and multilaterally, to continue discussions. The health ministers are expected to continue this dialogue at their meeting in early December.
The Minister has also been communicating with Canadians through speeches in which he has laid out the Government of Canada’s view of PWTGs, and has highlighted the federal government’s commitment to four key areas necessary to reduce wait times: research, technology, health human resources, and improved cooperation between the federal, provincial and territorial governments. In these speeches, the Minister has brought about a better understanding of the Government’s perspective on PWTGs, and has encouraged the provinces and territories to build on wait times reduction efforts already underway, and to take the logical next step towards implementing PWTGs.
In addition, the Minister has consulted with numerous health organizations to gain insight in wait time reductions and management. He has met with colleagues and other delegates from Denmark, Sweden, Mexico, France, and Ireland to learn about their approaches to wait times reduction, including PWTGs, and possible considerations for the Canadian context.
4. Transport, Infrastructure and Communities
In Budget 2006, the Government of Canada committed unprecedented funding to renew existing federal infrastructure programs and announced significant new funding for additional infrastructure initiatives. In total, the Government announced $16.5 billion over the next four years, of which $6.6 billion in new funding is allocated to infrastructure programs while another $1.3 billion is specifically for transit.
Consultations were undertaken in July and August 2006 by the Transport, Infrastructure and Communities Portfolio with provincial and territorial governments, as well as representatives of several municipal associations. These consultations were also designed to see input on the renewal of federal infrastructure programs. Ministerial consultation sessions were also held with representatives of the Federation of Canadian Municipalities (FCM) from municipalities of all sizes and every region in Canada. The Minister of Transport, Infrastructure and Communities also held a meeting with a number of infrastructure and transportation stakeholder organizations.
Written submissions were reviewed, as were reports from the Big City Mayors Caucus, the External Advisory Committee on Cities & Communities, the Council of the Federation, the Expert Panel on Equalization and Territorial Formula Financing, the Federation of Canadian Municipalities, and the C.D. Howe Institute.
The Transport, Infrastructure and Communities Portfolio also posted an information document on fiscal balance and infrastructure on its website, outlining the purpose of the consultations and providing a link to the Department of Finance’s document seeking input from Canadians on fiscal balance.
What We Heard
The consultations held by the Transport, Infrastructure and Communities Portfolio allowed for a discussion to take place on the federal role in infrastructure with a view to putting federal funding on a predictable, long-term track and ensuring accountability to Canadians for infrastructure investments by all governments.
Four broad themes were addressed during all of the consultations:
- pressures and priorities;
- roles and responsibilities;
- instrument choice; and
Pressures and Priorities
Provinces, territories and the municipal sector agreed and emphasized that long-term planning supported by predictable and stable funding should be the essence of any governmental response to the issue of fiscal balance. Definitions of "long-term" ranged anywhere from 10 to 25 years, with most jurisdictions stating that a longer federal time frame would better support their capacity to manage infrastructure pressures. Given the nature of infrastructure and infrastructure spending – some projects are meant to last for generations and require over 10 years to plan and implement – jurisdictions felt that the current practice of five-year programming was insufficient to meet their long-term pressures.
Most provinces and territories recognized that a key challenge is to achieve an appropriate balance between federal, provincial/territorial and municipal priorities. While most jurisdictions support federal priorities such as international competitiveness, economic growth, quality of life, and environmental sustainability, provinces and territories also stressed that the Government of Canada must provide flexibility and long-term stable funding arrangements within which to accommodate the varying circumstances and conditions they face. One key pressure identified by several jurisdictions was the rehabilitation of existing infrastructure, and the associated operating and maintenance costs.
Roles and Responsibilities
In addition to financial assistance, provinces and territories generally see the federal role as being key to sharing best practices, research and development, and capacity building. Most jurisdictions explicitly expressed support for a federal role in these areas.
Consistent with the request for flexibility in programs, there was a general consensus from the provinces and territories that while the Government of Canada has the lead in designing federal funding programs and has a role in long-term infrastructure planning, provinces and territories should be responsible for identifying immediate priorities. Provinces, territories and the municipal sector would like to have a greater say in project selection and program requirements, including what can be considered as eligible costs. They would also like to have the opportunity to shift their priorities during the lifespan of a program in order to be able to address new or emerging pressures particular to their jurisdiction.
Most provinces, territories and the municipal sector expressed general support for the current suite of programs, but said that more flexibility is needed, as has already been noted. The single most important aspect of flexibility related to eligible project categories and their respective eligibility criteria.
In general, jurisdictions supported the continuation of distinct programs that target different types of priorities and different scales of projects. However, there was a desire to make the programs more flexible and complementary.
All jurisdictions expressed support for the Gas Tax Fund (GTF) and the need to make this a permanent initiative. It was noted that the GTF process is easier to administer because project approval is not required, and therefore administrative requirements do not slow down the process. Jurisdictions also stated that they liked the predictability and planning aspect of the gas tax regime.
Some provinces support flexibility in federal programs to allow for private sector investment in larger projects. Certain jurisdictions see Public-Private Partnerships (P3s) as a good way to leverage public and government funding and provide for or encourage private-sector expertise in delivery of infrastructure. Further, as experience is gained with these instruments - accountability, risk transfer flexibility, and legal language of agreements becomes standardized - there should be greater uptake of these arrangements on their own in the future.
There was no question that accountability has to be imbedded in future infrastructure programming.
Provinces, territories and the municipal sector stated that the Government of Canada should streamline and simplify the reporting and auditing mechanisms, which are currently viewed as cumbersome and complex.
Many provinces and territories thought there should be a greater focus on objectives, performance management and outcomes, rather than on front-end processes and reporting. Some proposed that the up-front costs and work in preparing and submitting a project for consideration be reduced, while increasing funding for project implementation and administration.
Most provinces and territories liked the GTF model of bringing accountability and reporting to local levels. They identified it as a good way of linking dollars received with dollars spent.
The consultations led by the Transport, Infrastructure and Communities Portfolio over the course of the summer clearly show that provinces, territories and municipalities would support a long-term framework for infrastructure funding. Jurisdictions generally agreed on an approach based on long-term planning supported by predictable and stable funding. While there is general support for the current suite of programs with some changes to funding categories, they requested more flexible program design that could be adapted to their own priorities and help them respond to new and emerging pressures. And jurisdictions want to see simplified and streamlined reporting and auditing mechanisms that would focus more on outcomes rather than on project selection processes.
All jurisdictions and the infrastructure community stakeholders remain appreciative of the federal role in funding the renewal of Canada's public infrastructure stock, and while specific changes were requested with the goal of making this funding more flexible and responsive in nature, a sustained ongoing role of the Government of Canada in this area is seen as critical by provinces, territories, and communities.
As committed to in Budget 2006,the Minister of Finance is responsible for the core consultations on restoring fiscal balance. Specifically, the Minister was tasked with meeting with his provincial/territorial counterparts to initiate discussions on fiscal arrangements and proposals for the allocation of year-end surpluses and on ways to strengthen the economic and social union and improve competitiveness, including:
- Examining the benefits of directing a portion of unplanned federal surpluses to the Canada Pension Plan/Quebec Pension Plan;
- Considering how best to put Equalization and Territorial Formula Financing on a formula-based footing again;
- Determining the most appropriate arrangements for long-term funding commitments for post-secondary education and training; and
- Moving forward to strengthen the economic union, including exploring ways to enhance tax harmonization and establish a common securities regulator.
In addition, the Minister was tasked with consulting with the Federation of Canadian Municipalities before the development of the federal budget to ensure that the perspectives and priorities of cities and towns are understood and reflected. The Minister also undertook to seek the views of academics and experts on the approach set out in Budget 2006.
In late June, the Minister held a Finance Ministers’ Meeting at Niagara-on-the-Lake. At the meeting, the Minister initiated the consultation process with his federal-provincial counterparts on fiscal balance issues and sought provincial-territorial views on Equalization and Territorial Formula Financing, funding pressures related to post-secondary education and training and infrastructure, and the allocation of unplanned surpluses. The Minister reiterated the Government’s commitments on restoring fiscal balance.
Finance Ministers met again in mid-December to discuss fiscal balance proposals before implementation of a fiscal balance package in Budget 2007.
The Minister also chaired a meeting of Finance Ministers and Ministers responsible for Securities Regulation, held in Niagara-on-the-Lake. The meeting allowed the Minister to initiate discussion with provinces and territories on improving Canada’s securities regulatory system, as part of the comprehensive solution to the challenge of strengthening Canada’s economic union and restoring fiscal balance.
The Minister continued his discussions with provincial and territorial counterparts over the summer and fall to clarify positions on fiscal balance issues and provide an opportunity to discuss progress on economic union issues.
The Minister has committed to include municipal leaders in formal pre-Budget consultations. While a date has not yet been set for this consultation, it will likely take place closer to Budget 2007.
Academics and Experts Consultations
The Department of Finance participated in a series of consultations with academics and experts on fiscal balance issues.
In June, the Department attended consultations organized by the Expert Panel on Equalization and Territorial Formula Financing following the release of their reports on those transfer programs.
The Department also participated in an event hosted by the C.D. Howe Institute in Toronto focusing on federal-provincial fiscal arrangements, entitled Fiscal Priorities – Budget 2006 and the Future of the Economic Union.
In September, officials met with 18 academic experts on federalism and federal-provincial fiscal relations in Halifax to review the principles and commitments outlined in Budget 2006.
Later that month, the Department also attended a conference organized by the Institute of Intergovernmental Relations of Queens University entitled Fiscal Federalism and the Future of Canada. Minister Flaherty was the guest speaker at the dinner and provided an overview of Canada’s economic and fiscal situation and the Government’s plans on restoring fiscal balance.
National Online Consultations
The Minister also established a website in August to encourage comments on fiscal balance from all interested stakeholders and to encourage Canadians to contribute and to become better informed of progress on the Government’s actions.
The website provided background information on fiscal balance and the consultation process. Respondents were provided with two questions to focus the discussion how the key principles outlined in Budget 2006 should be implemented in order to help restore fiscal balance and reinforce a strong economic union. The website also asked participants what they perceived were areas for priority action.
In addition to the consultations outlined here, Finance Canada regularly consults stakeholders and interested Canadians, and meets with provincial and territorial counterparts on a range of issues supporting a strengthened economic union, including exploring ways to enhance tax harmonization and establish a common securities regulator. More information can be found at www.fin.gc.ca.
What We Heard
Finance Ministers’ Meeting
All governments agreed on the importance of making progress on strengthening the economic union.
With respect to fiscal balance, all provinces expressed their support for the Equalization program, recognizing that it supports important national objectives and is an essential part of Canada’s intergovernmental fiscal arrangements.
There was considerable diversity of opinion among provinces on Equalization and the recommendations of the Expert Panel and other aspects of a fiscal balance package. Provinces were in agreement in favouring a return to a principle-based formula and the move to a 10-province standard. However, the inclusion of resource revenues remained a contentious issue.
There was general support for the Expert Panel report on Territorial Formula Financing’s (TFF) recommendations.
Provinces continued to support long-term, predictable funding and increases in transfers in support of post-secondary education and social assistance and social services, drawing heavily on statements made by the Council of the Federation.
In general, provinces are in favour of increased support for infrastructure and for putting infrastructure on a long-term, predictable track.
Overall, there was relatively little support for the proposal to allocate unplanned federal surpluses to the CPP/QPP. While considered an interesting proposal, other priorities were identified as taking precedence, such as infrastructure funding and debt reduction.
Finance and Securities Ministers’ Meeting
Overall, all participants agreed that there is a need for ongoing dialogue and that all jurisdictions share the same fundamental objective –the development of a world-class system of securities regulation.
As a follow-up to the Niagara-on-the-Lake meeting, meetings were held with various provinces with a view to identifying, within the broader context of the fiscal balance discussions, how best to collaborate to move forward on securities regulation.
Academic and Expert Consultations
Academic and experts’ views varied across a wide range of issues. There was considerable concern expressed about the strains in federal-provincial fiscal relations and concerns that the structure of fiscal arrangements needed to be addressed. Fiscal balance or imbalance was seen at least in part as a reflection of the dissatisfaction of provinces with federal spending decisions.
Many expressed views that the reform of transfers would require new formal rules and structures to allow a restoration of trust and cooperation and an improvement in relations among governments.
Long-term Funding Arrangements
While discussions focused on the wide range of federal post-secondary education and training initiatives, participants generally supported block transfers for higher education.
There was general agreement that the Expert Panel on Equalization and TFF had delivered a good report, one that provided a solid platform for future discussions on Equalization reform. There was support for some recommendations, such as a return to a principle-based formula and, in some cases, the move to a 10-province standard, but there was no consensus on the more contentious issues, such as the treatment of natural resources and the fiscal capacity cap.
Strengthening the Economic Union
Participants saw the economic union as working reasonably well. The lack of GST harmonization, particularly in Ontario, was identified as a major deterrent to economic growth. Some viewed this as having a negative effect on capital investment.
On the issue of a common securities regulator, academics were of mixed views. Some noted that Canadian markets worked well and questioned the need for a common regulator, while others saw the need for common standards but felt that provincial agreement on a common regulator would be difficult to achieve.
The general impression of participants was that interprovincial barriers, while weighing on economic performance, were "a second tier issue" and perhaps best resolved by interprovincial agreements.
Collaborative Management of the Federation
Concern was expressed that the Government of Canada had abandoned a rules-based system in favour of province-by-province deal making. Virtually all participants urged re-establishment of rules-based funding arrangements and a new structure to guide federal-provincial relations as the way to restore an element of trust between levels of government.
Despite criticism of specific programs, participants were supportive of national programs and associated federal transfers. It was noted that governments should work together to improve program efficiency and that transfer arrangements should recognize the rights of provinces to opt out.
National Online Consultations
The Department received over 120 submissions. About two thirds of the submissions were from individual Canadians and almost one third were from associations and organizations, such as municipalities, chambers of commerce, unions, and professional associations. The submissions covered a wide range of topics, from Equalization and health and social transfers, to federal-provincial roles and responsibilities, strengthening the economic union, accountability, tax reductions and debt reduction, and other broad issues related to federalism and fiscal balance.
Accountability through Clarity of Roles and Responsibilities
Submissions supported a more efficient division of tax collection between the Government of Canada and the provinces, as well as additional tax harmonization to improve the efficiency and competitiveness of Canada’s tax system.
There was a general acknowledgement that the Government has a role to play in programs delivered by provinces and that all governments need to work together to re-align roles and responsibilities with the appropriate financial resources.
Fiscal Responsibility and Budget Transparency
Submissions supported greater transparency and accountability in budget planning, suggesting that the Government of Canada should develop a fiscally responsible approach to budgeting, including ongoing debt reduction.
Predictable, Long-Term Fiscal Arrangements
Respondents recommended that federal transfers should be put on a predictable long-term track, based on principles and accountability. A few submissions voiced support for accountability mechanisms enshrined in federal legislation.
Respondents were mostly in favour of Equalization reform, including general consensus that the Government of Canada should return to an objective and principle-based formula, simplification of the Equalization formula and a 10-province standard.
There were wide views on the treatment of natural resources. Some suggested that all non-renewable resource revenues should be excluded from the Equalization formula, a view shared by the substantial number of submissions from Saskatchewan. There were also submissions that supported the full inclusion of resource revenues in the Equalization formula.
There were submissions suggesting that Equalization should be adjusted to reflect the costs of service delivery in provinces. There was support for the view that Equalization-receiving provinces should not have a higher fiscal capacity than non-receiving provinces and should not have higher per-capita program spending than the average of contributing provinces.
There was some support for the creation of a dedicated cash transfer for post-secondary education, as well as separate transfers for social services and child care. Submissions suggested that each of these transfers should have its own legislative framework and accountability mechanisms.
There were recommendations that federal transfers for post-secondary education, health and social programs should be increased, as well as some recommendations that health and social transfers should be allocated on an equal per-capita cash basis.
There was a general consensus among respondents that the Government of Canada needs to commit to long-term, sustainable funding support for infrastructure. There was also support for continuing current infrastructure funding mechanisms, as well as recommendations that the federal gas tax transfer should be made permanent, in addition to calls for new funding.
A Competitive and Efficient Canadian Economic Union
Respondents recommended eliminating barriers to interprovincial trade and labour mobility, reducing regulatory complexity, creating a common securities regulator and eliminating capital taxes at all levels of government.
Canada’s New Government is committed to a renewed relationship with provincial and territorial governments, based on collaboration in restoring fiscal balance and supporting the provision of high-quality services to Canadians. Our plan is to build a stronger economy by ensuring that governments have adequate resources to deliver the services Canadians want and are held accountable for their actions.
In addition to its consultations, the Government is also taking into consideration other significant contributions made to the dialogue on restoring fiscal balance, including the O’Brien Report on Equalization, the Council of the Federation report on fiscal imbalance, the Federation of Canadian Municipalities’ report on fiscal imbalance, as well as other stakeholders’ reports.
As committed to in Advantage Canada, the Government’s fiscal balance strategy will follow a principle-based approach and also ensure that no Equalization-receiving province ends up with a fiscal capacity higher than that of a non-Equalization-receiving province.
In the coming weeks, discussions among First Ministers will be ongoing, while Parliamentarians will also be engaged in this conversation through pre-Budget consultations leading to Budget 2007.
All of these consultations will help shape final proposals on restoring fiscal balance to be brought forward by the Government of Canada. Budget 2007 will ensure funding and legislation required to implement these proposals.