Minutes of Proceedings and Evidence of the Special Joint Committee of the Senate and of the House of Commons on the Constitution of Canada, 28th Parl, 2nd Sess, No 4 (16 June 1970)


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Date: 1970-06-16
By: Canada (Parliament)
Citation: Canada, Parliament, Minutes of Proceedings and Evidence of the Special Joint Committee of the Senate and of the House of Commons on the Constitution of Canada, 28th Parl, 2nd Sess, No 4 (16 June 1970).
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Second Session
Twenty-eighth Parliament, 1969-70


THE SPECIAL JOINT COMMITTEE
of
THE SENATE
and of
THE HOUSE OF COMMONS
on the

CONSTITUTION OF CANADA

Senator
MAURICE LAMONTAGNE

Joint Chairmen

MARK MacGUIGAN
M.P.


MINUTES OF PROCEEDINGS
AND EVIDENCE

No. 4


TUESDAY, JUNE 16, 1970


WITNESSES

(See Minutes of Proceedings)


SPECIAL JOINT COMMITTEE
ON THE
CONSTITUTION OF CANADA

Senator
MAURICE LAMONTAGNE

Joint Chairmen

MARK MacGUIGAN
M.P.

Representing the Senate

Senators

Connolly (Ottawa West),
Cook,
Flynn,
Giguère,
Grosart,
Lang,
MacDonald,
Phillips (Rigaud),
Yusyk—10.

Representing the House of Commons

Messrs.

Alexander,
Allmand,
Asselin,
Baldwin,
Breau,
Brewin,
Dinsdale,
Fortin,
Gibson,
Hogarth,
Hopkins,
Lachance,
Lewis,
Marceau,
McQuaid,
Osler,
Ouellet,
Roberts,
Wooliams—20.

(Quorum—17)

Michael B. Kirby,

Patrick J. Savoie,

Joint Clerks of the Committee.


[Page 3]

MINUTES OF PROCEEDINGS

TUESDAY, June 16, 1970
(7)

[Text]

The Special Joint Committee of the Senate and of the House of Commons on the Constitution of Canada met this day at 3:45 pm. The Joint Chairman, Senator Lamontagne, presided.

Members present:

Representing the Senate: Senators Lamontagne, McDonald and Yusyk.—(3).

Representing the House of Commons: Messrs. Allmand, Asselin, Breau, Brewin, Dinsdale, Gibson, Lachance, MacGuigan, Marceau, McQuaid and Osler.—(11).

Also present: From the House of Commons: Mr. Rowland, M.P.

Witnesses: Mr. A. W. Johnson, Secretary of the Treasury Board; and Mr. K. Lysyk, Adviser, Constitutional Review Section, Privy Council Office.

The Joint Chairman introduced the witnesses. Mr. Johnson made a statement on “Federal-Provincial Grants and the Spending Power of Parliament” after which he and Mr. Lysyk were questioned.

During questioning, at 4:45 p.m., the Committee recessed.

At 5:15 pm. the Committee resumed. Questioning of the witnesses continued. On motion of Senator Yusyk, it was

Agreed,—That the booklet entitled “Background Papers on Federal-Provincial Grants and the Spending Power of Parliament”, prepared by the Secretariat of the Constitutional Conference, be printed as an appendix to this day’s Minutes of Proceedings and Evidence. (See Appendix “C”)

[Page 4]

Later, the questioning of the witnesses being completed, the Joint Chairman thanked them on behalf of the Committee.

At 6:02 p.m. the Committee adjourned to Thursday, June 18, 1970.

Michael B. Kirby,
Joint Clerk of the Committee.


[Page 5]

EVIDENCE

(Recorded by Electronic Apparatus)

Tuesday, June 16, 1970.

The Joint Chairman (Senator Lamontagne): I will call the meeting to order, gentlemen. On behalf I have the pleasure this afternoon of welcoming Mr. A. W. Johnson, who is now the Secretary of the Treasury Board. He is accompanied by Mr. K. Lysyk of the Privy Council Office.

In case you do not know, in spite of his age Mr. Johnson has already had a very long career as a public servant. I think one of his first assignments after returning from Harvard was as a deputy minister in Saskatchewan, and it was at that time that I had the pleasure of meeting him. We started to work together when I was acting in a different capacity, and then Mr. Johnson moved to Ottawa and became Assistant Deputy Minister of Finance. He then moved to the Privy Council Office, where he did all the work that we will hear about this afternoon. In recent months he has been moved up to a much more complicated assignment. As you know, he is at present Secretary, of the Treasury Board. Without any further introduction I will invite Mr. Johnson to make an opening statement.

Mr. A. W. Johnson (Secretary of the Treasury Board): Thank you, Mr. Chairman. As the Chairman said, I find myself coming back to a field which has been the centre of my personal interest for a long time, first of all in attending federal-provincial conferences representing a provincial government and then attending some of the same conferences on the federal government side.

Through all of this history, as all of you know, the fiscal aspects of federalism have been a bit of a centrepiece. The disputes, divisions and differences of opinion have centered so often on tax rental agreements and then later on tax sharing agreements. Similarly, the discussions have concentrated on shared-cost programs and on the use of the spending power. Therefore I think it was not particularly surprising that the Constitutional Conference moved rather quickly into a discussion of these aspects or elements of the distribution of powers.

[Page 6]

I would like to recall to the members of the Committee, Mr. Chairman, that it was at the first conference in 1968 that the program of work was laid out and at the second conference, while the focus of discussion tended to be on human rights and some of the institutional aspects of government, nonetheless the provincial government in particular swung over to the fiscal aspects of the distribution of powers.

It was at the first working session in June, 1969 that the paper which you are today discussing was presented by the Government of Canada.

Why the spending power of the Parliament of Canada is so central to provincial governments is recalled for you in this federal government working paper. Shared-cost programs have become a very prominent element in provincial budgets. Federal initiatives have been taken in a great many fields of government ranging from income security on the one hand through to highways and particular projects of that kind on the other.

As far as the grants to provinces are concerned, these initiatives by the Government of Canada have tended to establish, to a significant extent, their priorities. Even once started the shared-cost program tends to continue to influence provincial priorities because, of course, the provincial treasuries are spending fifty-cent dollars from their point of view on shared-cost programs where they are spending one-dollar dollars on all other programs.

Consequently, there has been a tendency on the part of many provinces to argue that the Government of Canada should not initiate programs of this kind without discussion with them. One province in particular, namely Quebec, has argued that by and large the Government of Canada ought not to have this power or, indeed, does not have it depending on the person to whom you talk.

However, there has been increasing agreement, I think, among the provincial governments that prior consultation would be desirable. There has been increasing agreement that the provinces which decide not to participate in the shared-cost agreements should not be penalized for failing to do so. The point has been made, again, first by Quebec and then followed by certain of the other provinces, that a shared-cost program which does not operate in a particular province has the effect of imposing what has been called a “fiscal penalty” on the people of that province. The reason is obvious. The taxes are

[Page 7]

drawn from the people of all the provinces of Canada, but the benefits are paid only in respect of the participating provinces.

The argument about the federal spending power extended to include institutions some years ago when, you will recall, the dispute over the propriety of the Government of Canada making grants to universities. This difference of opinion existed really only between the Government of the Province of Quebec and the Government of Canada. I think it is fair to say, Mr. Chairman, you are more familiar with that, I think, than I, this was really the sole dispute with respect to the payments to institutions.

More latterly when Mr. Levesque was the Minister of Social Welfare in Quebec, the issue was raised as to whether the Government of Canada properly ought to make grants to persons, which again is the exercise of the spending power. This argument has been broadened generally to include family allowances, old age security payments and the rest. This is the general milieu into which the Constitutional Conference was plunged at the time the provincial government argued for the advancement of this item to the top of the agenda.

I might just run through briefly, Mr. Chairman, the principal elements of this paper, if you feel that would be useful.

You will see the paper begins by outlining the principal uses of the spending power indicating, as I have done, that payments are made to individuals, to institutions and to provincial governments, that they have been made for the purpose of equalizing opportunity for individuals, for equalizing public services across Canada and for achieving regional, economic and other developments.

Then the paper proceeds to examine the constitutional foundation for the speding power in the next few pages, through to page 16. I will not seek to go into this. I am not a constitutional lawyer there are others here who are, but essentially what it amounts to is that the Parliament of Canada has the power to make payments to persons, individual institutions and to governments provided the exercise of that power does not amount to legislation in fields of exclusive provincial jurisdiction.

The Joint-Chairman (Senator Lamontagne): Would you add another condition to that? Provided also, that this spending power is not financed through a specific direct tax?

[Page 8]

Mr. Johnson: I suppose I would answer it this way, Senator. The question of the specific tax arises in respect of social security schemes which are funded and there are differences of view there, but I think my general view would be that the spending power, when exercised generally can apply to persons, institutions or to governments, and the courts seem not to have argued that the imposition of conditions renders invalid the use of the spending power by Parliament. There are, of course, as the paper notes, differences of opinion about this.

Then for the next few pages the paper examines the criticisms of the use of the spending power, noting as I did in my earlier remarks that the provincial governments have criticized essentially the use of the spending power as applied to provincial governments and as applied to conditional grants to provincial governments. It is in rather more isolated instances that there have been any challenges of the spending power in respect of persons or institutions.

The Government of Canada in this statement has observed with respect to the payments to individuals and institutions that it is difficult to evaluate the spending power without having examined all aspects of the distribution of powers.

I would draw to your attention the paragraph on page 20, wherein—I believe Mr. Turner has already given testimony to this effect—it is observed:

. . .the government of Canada does not believe it would be appropriate to discuss the Quebec propositions concerning federal payments to persons or institutions until all propositions concerning the distribution of powers have been received . . .

It is fair to say, however, that earlier in the paragraph the Government of Canada has reiterated what was said in Federalism for the Future, that the possibility of making payments in the field of economic development, research and technology, and income security was affirmed. I might also recall for you that in the consensus reached in the June, 1969 Conference, it was observed that most delegations agreed that the present power of Parliament to make payments to individuals or to institutions should not be subjected to any constitutional limitation. One province, however, reserved its position until the question of the distribution of powers had been dealt with, and it goes on from there.

[Page 9]

The rest of the working paper on the Constitution then deals with grants to provinces. For some pages the rationale for the spending power being used for this purpose is presented.

I will not seek to reiterate these arguments, Mr. Chairman, simply to observe that the interdependence of the state renders necessary and desirable, in the view of the Government of Canada, some mechanism by which it is possible to equalize the public services and, indeed, to reflect in certain public services a national interest.

It is observed, secondly, that the interests of the provincial and national constituencies tend not always to be identical and where there is a national interest in respect of particular provincial programs it is appropriate that the Parliament of Canada be the mechanism for representing the national interests and seeking to have those national interests inserted into provincial programs provided, of course, that is not in violation with the basic propositions in the Constitution.

A further basis for the argument of the Government of Canada has to do with the interdependence of government policies. The fourth has to do with the so-called spillover argument that in some instances provincial services will tend to affect residents of provinces other than the province in which the services are provided and, similarly, the costs of failing to provide services may spill over provincial borders.

Finally, a sense of community has come to exist in Canada which really forms the foundation for much of the equalization of distribution which is effected through payments to persons.

At page 36 the government proceeds to set forth the principles which it thought ought to apply in respect of the spending power in a revised constitution. I think it might be best, Mr. Chairman, if I were to simply read this:

. . .the Government of Canada has attempted to develop certain principles which it could tentatively advance to the Constitutional Conference as a basis for reviewing this aspect of the Constitution. They are these:

(1) The constitutional power of the Parliament of Canada to contribute toward the public services and programmes of provincial governments should be provided for explicitly in the constitution;

[Page 10]

(2) The power of Parliament to make unconditional grants to provincial governments for the purpose of supporting their programmes and public services should be unrestricted;

(3) The power of Parliament to make general conditional grants in respect of federal-provincial programmes which are acknowledged to be within exclusive provincial jurisdiction should be based upon two requirements: first, a broad national consensus in favour of any proposed programme should be demonstrated to exist before Parliament exercises its power; and secondly the decision of a provincial legislature to exercise its constitutional right not to participate in any programme, even given a national consensus, should not result in a fiscal penalty being imposed upon the people of that province.

You will read further down on the page that this proposal is subject to a distribution of powers which is satisfactory to the Government of Canada and the Parliament of Canada.

There was and is little difficulty with respect to unconditional grants. No province has opposed unconditional grants for the purpose of equalizing publics services. As you know, in recent years these grants have generally taken the form of equalizing provincial revenues. The differences really arise in respect of the conditional grants made to influence provincial governments in areas of exclusive provincial jurisdiction. I must underline the fact, Mr. Chairman, that we are speaking here of exclusive provincial jurisdictions. Spending power per se is really not relevant in areas of federal jurisdiction or shared jurisdiction because Parliament has the power to legislate in those fields in any event.

I think it would be best, Mr. Chairman, if I were to outline in summary form what the Government of Canada proposed on these two principal elements; determining the consensus and the compensation in nonparticipating provinces.

Essentially what is said here, beginning at page 40 and proceeding to page 44, is that because we are speaking of areas of exclusive

[Page 11]

provincial jurisdiction it would indeed be appropriate to have a general national consensus before Parliament exercises its spending power. It is proposed that the Parliament of Canada continue to have the power to take the initiative and to introduce a resolution which would propose a particular federal-provincial program. For example, if one were to talk about the introduction of pensions—and this was introduced many years ago, of course, but taking this as an illustration—the Parliament of Canada would introduce a resolution and upon passage of that resolution it would be transmitted to the governments of the provinces for debate in their legislatures. If the legislatures of three of the four Senate divisions—and I will come back to that in a moment—were to favour the introduction of this program, the Parliament of Canada could then proceed with definitive legislation.

As you know, there are essentially four divisions in the Constitution, plus the attachment to the relevant section of the Constitution of the Province of Newfoundland. For the purposes of this paper the Government of Canada spoke of four divisions. Ontario and Quebec are obviously individual divisions. In order to determine whether the Western division or the Atlantic division had voted in favour of the particular measure we are talking about, one would look to the number of Senate seats that were involved in the Senate division in the provinces concerned. The best thing for me to do would be to give you the numbers. In the West two of the tour legislatures would have to vote in favour of the proposal, and that would carry the Western Senate division. In the Atlantic Region it would be two from Nova Scotia, New Brunswick or Newfoundland. This is expressed in terms of the total number of Senate seats; 16 of the 30 Senate seats of that region.

You will see that essentially this mechanism is designed to introduce into the determination of a national consensus a strong regional representation and the government in making its proposals was saying, in essence I believe, that the regional nature of the country is reflected in the Senate, therefore it would be appropriate to use the same kind of formula for determining whether there was a consensus among provincial governments.

[Page 12]

Once having voted for a shared-costs program, the provinces whose legislatures had favoured the proposition would be required, of course, to enter the arrangement. Other arrangements would be made in respect of the provinces which had voted against it. I am now speaking, of course, as if there had been a consensus with respect to a particular program. This is where you get into the question of compensation in nonparticipating provinces.

The Government of Canada has said in effect it is clearly true, it is a statement of fact, that under present circumstances and in particular in respect of past programs the people of the provinces which decided not to participate in the federal-provincial program within provincial jurisdictions were required to pay taxes to support measures which were applicable in the participating provinces. The suggestion here is that the people of the non-participating provinces should be compensated. As the members know, there was a considerable amount of discussion about what form this compensation ought to take. It is probably not surprising that the provincial governments that favoured this approach to the spending power tended to argue that the provincial governments in the non-participating provinces should receive compensation. That is to say, they would get an unconditional grant roughly equal to what they would have received in conditional form had they decided to participate.

The argument against that, of course, is that the government of the province suffered no fiscal penalty; it was the people of the province who suffered a fiscal penalty and therefore the payment should be made to them.

The other argument was that the Government of Canada ought not to collect taxes in a province which was not participating. The problem there is what taxes ought it not to collect? The programs clearly are financed from a composite of revenues, individual income tax, corporate tax, sales tax, customs duties and the rest, and it is not really possible to trace back the amount that any individual taxpayer or that each individual taxpayer has contributed to a program.

Hence the conclusion that the payments should be to persons, and the amount to be paid in a nonparticipating province would be calculated on the basis of the per capita amount being paid to the participating provinces.

[Page 13]

I would conclude by observing that we clearly are speaking here about general shared cost programs, those which apply across the country. Regional programs, ARDA and FRED being outstanding examples, clearly would continue to be negotiated under the proposals here outlined between the Government of Canada and the government of the provinces concerned. It would be a little ludicrous to compensate the provinces who are not participating in a FRED program. What that would really mean is that you would have no FRED program.

So these proposals apply essentially to general schemes.

I think, Mr. Chairman, that this covers in broad outline the proposals which the Government of Canada put to the Conference with some of the comments interspersed—I hope I can be forgiven—that the provinces made at the time of the Conference.

The Chairman: Thank you very much, Mr. Johnson. Mr. Allmand.

Mr. Allmand: Mr. Johnson, in your remarks I thought that you said there was no discussion of whether the provincial spending power should be limited, and you seem to say that delegates did not question this because it may not have any bearing on the constitutional arrangement. What comes to my mind is some of the spending programs that the Province of Quebec—and other provinces might have them too—such as programs that the Province of Quebec had a few years ago when they were making grants to cultural and educational institutions in New Brunswick, I believe Manitoba, Ontario, to newspapers, to colleges, also to institutions overseas, and then there was also their external affairs program. Did anyone raise the potential danger of provinces spending without limit, thereby affecting constitutional relations? I would see instances where large provinces such as Ontario or B.C. might decide to subsidize programs in neighbouring provinces for certain reasons, political and otherwise. Was this discussed?

Mr. Johnson: Two comments, if I may. First of all, I did not mean to leave the impression—and forgive me if I did—that the lack

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of discussion centred on this question. It was really that there was not much discussion about unconditional federal grants to the provinces. That is what I was really commenting about.

On the specific issue you raise, however, Mr. Allmand, I do not recall there having been a discussion of this question. There is certainly no record of it in the consensus that emerged from the first working conference or indeed from the last constitutional conference, and my recollection is, and Mr. Lysyk confirms this, that there was no discussion of it.

Mr. Allmand: Then am I led to believe that thus far the proposals have been advanced, it has been proposed and almost more or less agreed that there should be changes in the federal governments spending power with certain limitations that were not there before, whereas the provincial spending power has not really been discussed and that in fact there is no limit on provincial spending powers?

Mr. Johnson: I could give you a personal View on whether there is a limit on spending power.

Mr. Allmand: You might and I will accept it just as your view, purely personal.

Mr. Johnson: It really arises from what is said here about the nature of the provincial constituency. I suppose it is a nice question as to how much money a provincial government could spend on the welfare of constituents in other provinces or elsewhere before the residents of the province concerned began to complain. In the case of federal grants to the provincial governments, on the other hand, there is an avowed national purpose being served. That is to say, the government which is raising the taxes—the Government of Canada, the Parliament of Canada—is saying they have a responsibility. There may be disagreement as to whether the Parliament of Canada has a responsibility but it is asserting responsibility in respect of its constituents. In the case of the provincial spending power being exercised beyond its borders, it is asserting a responsibility for constituents which are not its.

I am just saying that I would visualize this personally as being some kind of constraint. It is perfectly fair to say, however, that there has been no constitutional restraint inferred as far as I can recall in discussions with the provinces.

[Page 15]

Mr. Allmand: Where I see real difficulties is in the external field; not just in the extraprovincial field but in the external field. And we have had maybe not serious cases with respect to Quebec and places like Gabon and so forth, but I can visualize instances where the Canadian government may have a certain foreign policy with respect to a country and province A or province B, which might be a large province, might decide to give grants to, let us say, Mr. Smith in Rhodesia for a particular education program. That provincial government might decide that they like what Mr. Smith does and give outright grants, with no legislation, merely through spending power.

I have questions in my mind and I am just wondering. It is interesting to note that it was not discussed, No. 1, and that you are under the impression that there is no limit although you feel that perhaps it might not be done. But I do not know if it will be done or not.

Mr. Johnson: No, I said that no limit was inferred in the discussions. I would not want to argue that there is no limit.

Mr. Allmand: I see.

Mr. Johnson: The second thing I would observe is that I am very tempted to get into this kind of discussion because I happen to have views too on this issue. But probably I should defer this, Mr. Chairman, to the time when you would be discussing the whole question of international affairs and the relationship of the spending power to it.

Senator Lamontagne: If I may interject here, I suppose that in the field where the federal government is prepared at the moment to limit its own spending powers, this factor does not apply at the provincial level because we would have to think up schemes where a province would have a joint program with the federal government and that does not apply at the moment, at least.

Mr. Allmand: That is right.

Senator Lamontagne: So that I do not think that the federal government is restricting its spending powers in the fields where the provincial sector’s is unlimited, more or less, at the moment.

Mr. Allmand: I will leave that particular question for the moment. I would like to know what kind of distinction the provinces make between the arguments for unlimited

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spending power or for spending power of the federal government where on the one hand—let us say the federal government decides to grant subsidies to fisheries, It is fairly obvious that this money is all spent on the West Coast or on the East Coast and the taxes to support those programs are raised throughout Canada. If we spend money on a wheat program it goes to people on the Prairies.

That is one type of program. On the other hand we have programs such as the hospitalization program, the Trans-Canada Highway, which are joint programs with provinces; if they undertake the program, we pay 50 per cent. Do the provinces make an objection to the second type of program, the joint programs? What is their real basis for distinction in allowing the first type of program and yet objecting seriously to the second type of program? I do not see that much of a distinction; I think it is a false distinction.

Mr. Johnson: I think they probably would argue, sir, that they draw the distinction on purely jurisdictional grounds. It is a matter of provincial jurisdiction that is involved in the shared-cost programs we are talking about.

Certainly the provincial governments are aware, as you very properly point out, that the Parliament of Canada spends more in some provinces than it taxes. It is not only a question of the kinds of projects which you describe but indeed the whole allocation of funds in the several provinces is by no means equal; that is to say you do not spend the same amount in a province that you take in tax from it. The only way I can answer your question is to say the provincial governments are making a distinction on the grounds of jurisdiction.

Mr. Allmand: Fine. My final question, Mr. Chairman. Have your officials ever attempted to determine how much was raised in one province and how much was spent or the benefits? I take it that during the provincial election there was an awkward attempt to try to determine this. Are there privileged documents, are there documents or any studies on these matters?

Mr. Johnson: There was one study which was—Mr. Baker asked the question, I am trying to remember the year—it was answered in 1965. It is the only comprehen-

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sive study that has been tabled in the House or otherwise made public. It is a very difficult study to make. There are certain payments and certain revenues which you can trace without very much question, the obvious illustration being the individual income tax, you know where it came from; on the other side it is obvious where your family allowances go. That is no problem.

It is when you try to impute the source of certain revenues, the corporation tax being a fairly obvious one, customs duty is even worse, but we think we know where the corporation tax comes from because we are familiar with it and have been accustomed to using a particular formula for its allocation in the Income Tax Act of Canada. Senator Lamontagne will recall the bitter discussions we used to have in respect of that allocation formula when there were still tax rental agreements.

On the expenditure side how do you allocate defence? There are two schools of thought: some economists say you ought to allocate the benefits of defence expenditures on the basis of where they ultimately were spent, which means you have to trace through the prime contractor through to the subcontractor to find out where the equipment was bought and so on, clearly, a quite impossible task. The other is to allocate on the benefit basis. There you say we are going to impute benefits on some basis across the country. Forgive me, that is getting into the difficulties of the study but I just wanted to indicate that this is perhaps one of the reasons there have not been more comprehensive and exhaustive studies of this subject.

Mr. Allmand: Thank you.

The Joint Chairman (Senator Lamontagne): Mr. McQuaid.

Mr. McQuaid: Actually I have no questions, Mr. Chairman, simply because strangely enough I go along pretty well with the submission of the federal government in connection with these spending powers. But I would like a clarification, Mr. Johnson, if I may, of the statement on page 36—I am quoting from the Report:

If Parliament’s powers to legislate in the national interest are reasonably broad, its freedom to spend to this end, where provincial jurisdiction is involved, could be limited. If on the other hand, its powers to legislate were narrow in relation to

[Page 18]

present and potential national needs, the freedom to spend would have to be relatively untrammelled.

Could you explain that?

Mr. Johnson: I will try, sir. Let me take an illustration from one of the other working papers you will be discussing: “Income Security and Social Services”. The Government of Canada has said that social services ought to remain under exclusive provincial jurisdiction; this would include hospitalization as an illustration. I do not mean to start an argument about this paper but simply to observe that this gives you an illustration of what is meant here.

If the Parliament of Canada had the power to legislate in the field of hospital care, then it would become irrelevant as to whether or not it had the spending power. If on the other hand, the Parliament of Canada has no power to legislate then it is a nice question as to whether it ought to have the power to spend, hence, the generalization, the wider the powers of the Parliament of Canada to legislate the less important the spending power and vice versa.

Mr. McQuaid: Yes, I understand. That is all, Mr. Chairman.

The Joint Chairman (Senator Lamontagne): Mr. Rowland.

Mr. Rowland: Mr. Chairman, I want to present a point of view that is a little different from that presented in the federal paper, not for the purpose of scoring debating points but for the purpose of hearing Mr. Johnson’s comments on them. I think it is a position which is relevant to this discussion because the whole approach of a formula for determining national consensus and so forth has been open to challenge in meetings of the Federal-Provincial Conference from various points of view. Expressed as it is in the federal paper your immediate reaction is to accept it as being a valid position until you hear some of the arguments that surround it. I had the privilege of sitting in on meetings of the Continuing Committee of Officials on the Constitution while I was associated with the Government of Manitoba. One of the most contentious areas, and one of the areas which seemed at the end of the discussion to permit the least satisfactory solution to all the participants was that of determining whether a consensus does exist in light of the federal

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government exercising a general spending power.

The counter-position presented by the federal government, and so clearly explained by Mr. Johnson, is that the whole attempt to establish a national consensus through the use of a formula is doomed to failure because you will not be able to derive a formula acceptable to all participants; because in effect the process of establishing whether or not the federal government has a right to spend on the basis of the formula entrenched in the constitution is closely analogous to having two amendment formulas in the constitution; and with the additional provision of principle incorporated in the federal paper, those who do not then participate in such a national program, after consensus has been derived, will be compensated in some fashion.

To some extent there is a bonus for non-participation: if you do not participate in these programs it gives the provincial government greater discretionary spending powers, especially if the formula eventually derived results in an unconditional grant being made to nonparticipating provinces.

The Joint Chairman (Senator Lamontagne): No, but the federal.

Mr. Rowland: I know what the federal paper says: it would be paid back to taxpayers. Then again you encounter the position of the debate on the utility of such a program being conducted not on the grounds of whether or not the program is useful but whether or not the people want to spend more money in taxes. It gives quite a different character to the debate.

To some participants in the Federal-Provincial Conferences and to people like myself it would seem that the constant resort to a formula is really unnecesary because there is such a thing extant as a political process in the country where a government which assumes the existence of a consensus where none exists was heavily penalized subsequently in the voting at election time.

Accordingly, the federal government’s spending power should remain unrestricted, even to the extent of there being a formula which would limit its ability to exercise that spending power, and we should rather concentrate upon “the practical objections to the exercise of the spending power by the federal government which is essentially this: that the

[Page 20]

provinces object to the unrestricted use of the federal spending power because it distorts their priorities. It has that potential. If the federal government says we have a program for medical care and we will participate to the extent of 50 per cent of costs involved, then there is tremendous pressure of provincial governments to participate in that program for obvious reasons.

It has been presented by the Government of Manitoba that one practical way to avoid that kind of a problem is, in effect, to present provinces with a shopping list of federal programs, assuming that, at any given time, there are a number of priorities of roughly equal weight of national concern in the country, and that provinces select from among these, three or four programs which they wish to participate in.

It would not be easy but it is a different approach which leaves the federal spending power unrestricted. It would simply be incumbent upon the federal government, for purely political considerations, to make this sort of option available.

I have gone on much too long. Mr. Johnson is well aware of the arguments and I would like to hear his comments for the edification of the Committee.

The Joint Chairman (Senator Lamontagne): I am entirely in the hands of the Committee now. You are hearing the bell undoubtedly. This is not the Senate bell.

The Joint Chairman (Mr. MacGuigan): W. Joint Chairman, I might suggest we have several alternatives. One would be to adjourn for a period of 20 minutes and return; the second would be to adjourn Mr. Johnson, on this point, until next fall sometime. I doubt if we will be able to get him in now, in the next week, but he may want more time to think over this area anyhow and I am sure we could get him back anytime in the next year, or next week as well if you wanted to arrange it that way.

Or thirdly, perhaps the senators here, if they have enough questions, could just carry on with Mr. Johnson while we were away and we could simply return to the meeting without having noticed the absence of a quorum in the meantime.

An hon. Member: I suggest we do the latter so as to get the benefit of Mr. Johnson’s presence.

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The Joint Chairman (senator Lamontagne): Why do you not pair?

An hon. Member: Has anybody inquired as to how long the bells might ring before we vote?

The Joint Chairman (Mr. MacGuigan): The bells are likely to ring for 10 or 15 minutes. I think that Mr. Johnson could answer Mr. Rowland’s question, at least, before we go, but perhaps we should settle…

The Joint Chairman (Senator Lamontagne): Do pairing arrangements still exist in the House?

An hon. Member: No.

The Joint Chairman (Senator Lamontagne): No?

Mr. McQuaid: Mr. Chairman, may I suggest that the answer to Mr. Rowland’s question be delayed until we come back. In the meantime, perhaps the senators could carry on with other questions to the witness. I would like to hear the answer to Mr. Rowland’s question. I would not like to rise. . .

The Joint Chairman (Senator Lamontagne): We will adjourn then. We will try to entertain Mr. Johnson informally.

The Joint Chairman (Mr. MacGuigan): All right. We will be back in about 20 minutes, I expect.

Mr. Lachance: I do not think we will be back before 45 minutes, Mr. Chairman. The bell is going to ring more than 15 minutes. It is not a set vote. It may take easily 20 to 25 minutes and about 15 minutes for the vote.

The Joint Chairman (Mr. MacGuigan): No. I have timed votes. They take 8 minutes.

Mr. Lachance: So, 40 minutes at the least.

The Joint Chairman (Senator Lamontagne): You could not come back in the next few days?

Mr. Johnson: No. I have Treasury Board meetings, I’m afraid.

An hon. Member: How long have you got before you have to go to the House?

Mr. Johnson: That is what I was wondering.

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The Joint Chairman (Mr. MacGuigan): I would say we would have another 5 minutes easily.

Senator McDonald: Could you answer the question that is before the Committee now, in 5 minutes?

Mr. Johnson: I could do that and perhaps, Mr. Joint-Chairman, somebody might be sent out to find out how soon the vote will be taken.

An hon. Member: We will tell them to keep the bell ringing until you have answered the Question.

Mr. Johnson: Mr. Chairman, I think the nub of Mr. Rowland’s observation and questions was whether or not a consensus of the provincial legislatures was desirable.

Mr. Rowland: Yes. Whether that should be considered the national consensus…

Mr. Johnson: That is right,…

Mr. Rowland: . . .rather than the consensus in the Parliament of Canada.

Mr. Johnson: . . . and the Manitoba Government as I recall and understood their position, Mr. Rowland, was that, as an alternative to requiring a provincial consensus, it would be better to offer a menu of programs so as to make sure that each provincial government got something that it wanted and therefore rendered unnecessary the seeking of a consensus among provincial legislatures, in effect, one program.

The comments which were made in this respect, as you will recall, were essentially these. We are talking about programs within exclusive provincial, jurisdiction. It is a matter as to whether or not the provincial governments are going to embark upon programs within their jurisdiction. This being the case, it seemed to the Government of Canada reasonable to expect to seek a consensus among provincial legislatures.

It would technically be possible, I think it is fair to say, to seek menu of programs which would render unnecessary this kind of choice or render unnecessary the kind of compensation that is proposed in the federal paper. I say theoretically because of the great difficulty of coming up with a menu in respect of major programs. Here we are talking about Medicare, $1 billion, with the federal share being approximately one half of that; and hospitalization which is rising, I forget the figure, but it is way over a billion

[Page 23]

and a half dollars. Even Parliament’s ingenuity might have to be stretched to dream up a sufficient variety of programs so that a particular province or provinces would have another menu.

I remember one provincial official saying to me at coffee when this discussion was taking place—I should not say this, it is on the record, is it not—that this would just encourage the Government of Canada to come up with even more shared-cost programs. But this was the kind of discussion I think, Mr. Chairman, that was taking place.

Mr. Rowland: You see, the point Mr. Chairman, is this, that the essential difference is that of accepting the federal government’s spending power as being unrestricted and that of imposing a severe restriction on it in the constitution. That is the debate really.

Mr. Johnson: Yes. That is the central issue, whether there should be any constraint whatsoever on the spending powers.

Mr. Rowland: Yes.

The Joint Chairman (Senator Lamontagne): We are told you still have a good five minutes.

Senator McDonald: Could I ask one question, Mr. Chairman, in light of the questions from my colleague from Manitoba. Has any discussion taken place with respect to reassigning responsibilities under the constitution? It seems to me that when responsibility was assigned 100 years ago, no one could have imagined the growth that would take place in some areas and especially in those responsibilities that have been given to the provinces. Is there no possibility of reassigning responsibilities and perhaps the federal government taking over some of the sole responsibilities of provincial governments today?

Mr. Johnson: I will answer quickly, Senator, so as not to effect a change in government.

The distribution of powers is being considered step by step, element by element. The first two elements that were discussed were the taxing powers and the spending powers. The first program element was income security and social services. So it is true that the federal and provincial governments will be discussing, presumably, the whole of the distribution of powers.

[Page 24]

Senator McDonald: Will be, but there have not been any discussions in this area to date?

Mr. Johnson: Not a complete discussion, no sir.

Senator McDonald: I am wondering if that is not a better way of approaching it than having a menu to pick from. I am afraid we will have people moving from one area. to another because they like the menu better in Joe’s restaurant than they did in Pete’s, and I think if you are going to have national programs. . .

The Joint Chairman (Senator Lamontagne): Well, do we agree to come back or do we adjourn? I will ask the question. Are you prepared to come back?

An hon. Member: We cannot decide before 5.15 p.m.

The Joint Chairman (Mr. MacGuigan): Perhaps not, but that might still give us half an hour. How many are prepared to come back? Good. Well, let us do that then.

An hon. Member: We will leave everything here, Mr. Chairman?

The Joint Chairman (Mr. MacGuigan): Yes.

The Joint Chairman (Senator Lamontagne): The Committee is recessed.

(AFTER RECESS)

The Joint Chairman (Senator Lamontagne): We will resume our meeting.

Mr. Rowland, do you have further questions?

Mr. Rowland: With respect to a restriction imposed upon the federal spending power in the Constitution, would you say that this has implications in respect of where residual power in the Constitution lies and how one determines when a problem has reached sufficient proportions to come under that section of the present Constitution having to do with peace, order and good government, and the power of the federal government to act in a national emergency? Would you consider this entrenchment of a formula for determining consensus in the Constitution as having an effect on both residual powers and the power of the federal government to act in the national interest, should it be accomplished?

[Page 25]

Mr. Johnson: I think I would refer to an answer I gave earlier in respect of page 36, where I observed that the importance of the spending power relates to the distribution of powers as such. Since -the residual power has to do with the power to legislate, I think I would give the same sort of answer to your question as I did earlier. Here we are speaking of the power of Parliament to take the initiative in respect of provincial jurisdiction. The larger that jurisdiction is the more likely it is that Parlament will want to have a wide spending power.

Mr. Rowland: I have one final question, Mr. Chairman, which takes us away from the spending power for a moment. However, I think the members of the Senate and the Commons present have heard enough this afternoon to indicate that there are some difficulties associated with the current approach of a piecemeal examination of the Constitution area by area. Perhaps what has been accomplished in the various meetings so far, and it is no small achievement, is to define more precisely those areas where there are problems and what those problems are. I doubt if the accomplishments have gone too much farther beyond that.

I would ask, Mr. Johnson—I realize that what he will say will be his own opinion but it is a valuable one since he has been so closely involved—if he now thinks that perhaps the time has arrived for us to abandon this process for a period of time—we may have to come back to it again later—and have future Constitutional Conferences consider a draft Constitution.

Mr. Johnson: Mr. Chairman, I would be inclined to answer that in this way. When the government of Canada, and obviously each provincial government must make the same judgment, reaches the conclusion that it has examined carefully enough all aspects of the Constitution that is able to present a comprehensive constitutional proposal, that is the point at which the comprehensive approach becomes possible.

Mr. Rowland: Do you think that point has been reached?

Mr. Johnson: I now work in the Treasury Board, Mr. Rowland, where we reach points all the time.

Mr. Rowland: Thank you, Mr. Chairman.

The Joint Chairman (Senator Lamontagne): Mr. Gibson.

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Mr. Gibson: Dealing with Mr. Rowland’s observation with respect to division of powers, Mr. Johnson, I understand the divisional powers are reasonably well defined by Sections 91 and 92. With that background, has there been any radical assault on the division of powers as they exist between Sections 91 and 92?

Also, could you do it in any other way than piecemeal? Surely that is the only way you can discuss these issues. You cannot simply take every item in the two sections and bundle them up and discuss them at once. Is not the only rational way to deal with it to take, say, transportation or some such subject and discuss it and see if it needs change?

Mr. Johnson: This certainly was the approach which was being followed among the advisers when I was associated with the work, obviously giving priority attention to the areas about which there were either differences of opinion or about which the government of Canada felt particularly strongly.

As to your first question, the business of radical assault, I think probably the answer is no, no comprehensive assault. This relates to your second question, obviously. What has arisen has been disputes over particular areas, the spending power, the taxing power. It is public knowledge that there have been meetings as to the regulation of securities issued in trading. This sort of item by item difference of opinion is what one has seen at the federal-provincial meetings. There has been, in short, no real comprehensive analysis of the distribution of powers until the one now under way.

Mr. Gibson: I do not know whether this strictly relates to the subject before us, but I will try this question, Mr. Chairman.

Is it possible by reference to. the Supreme Court of Canada to define the existing peace, order and good government limits, in other words to test out, say, rent controls or something like that? Is there anything to prevent the federal government referring the issue as it exists now to the Supreme Court of Canada for a reference without an actual confrontation?

Mr. K. Lysyk (Adviser. Constitutional Review Section, Privy Council Office): There is no obstacle in law to referring any question at all to the Supreme Court of Canada but how satisfactory an answer the Supreme Court could give in the abstract to such a far-reaching question is quite another matter. I do not know if that meets your question but under the existing legislation certainly the machi-

[Page 27]

nery is there to direct any question that the Governor in Council wants to direct to the Supreme Court of Canada.

Mr. Gibson: May I ask Mr. Johnson or you, sir, if the question of rent controls was posed as an anti-inflation measure do you not think it would be likely to have quite a profound effect on whether rent controls could be brought in federally, if there was a favourable decision from the Supreme Court of Canada?

Mr. Johnson: Are you good at hypothetical questions? I am not.

Mr. Lysyk: Do not take it as a hypothetical legal question. I am not sure I got the full intent.

Mr. Gibson: The implication of the question is that in certain areas we are not sure whether we have authority to do certain things, such as impose rent controls. Do you think it would be a useful operation to refer such questions to the Supreme Court of Canada before testing it out in actual practice and then having the Supreme Court later on upset the whole applecart by saying there is no jurisdiction to impose such legislation? Would it not be better in this area to sometimes probe a bit and get definitive rulings before bringing in legislation rather than after?

The Joint Chairman (Senator Lamontagne): Mr. Gibson, we will devote an afternoon to the Supreme Court of Canada very soon and the whole problem of the judiciary. You might; get perhaps a better answer to that question from these people than from Mr. Johnson.

Mr. Gibson: Thank you very much.

The Joint Chairman (Senator Lamontagne): Mr. MacGuigan.

The Joint Chairman (Mr. MacGuigan): The question I would like to begin with is related to the one Mr. Rowland was raising, although I think perhaps it is different enough to be a different question.

Mr. Johnson, many people believe that if the type of proposals which are here being made by the government of Canada had been in effect 20 years ago we would have no social welfare program in Canada at all—that hospital insurance and most of the things listed on pages 52 and 53 of the government document never could have been brought into effect. Certainly this would seem to be the case at least with respect to Medicare. I have

[Page 28]

not researched the reason for the agreement or disagreement of the provinces to the earlier programs, but at least the people who are worried about this are concerned about the lack of provincial concern.

I suppose we might say that provincial governments are elected on rather different issues and quite often with different philosophical positions from those of the national government and you are likely to get quite a different point of view. Now perhaps this should not be the major or only consideration in deciding whether or not to have such restraints on the spending power, but I would be interested in your reflections as to the question that I posed.

Mr. Johnson: I think there are two sides to the question, Mr. Chairman. One of course is that under this proposal it would be possible for two provinces, Ontario and Quebec, or a combination of three provinces, one of Ontario and Quebec plus two from the Atlantic or two from the West, to block the use of the spending power.

The Joint Chairman (Senator Lamontagne): In that restricted field.

Mr. Johnson: In that field. The other side of the question, however, is implicit in what you said, namely the grounds of opposition to the proposals. Until now, in my observation of federal-provincial discussions of shared-cost programs, there have been two grounds of opposition usually advanced, one was that the program was unwise and the other that it was improper for the government of Canada to embark upon that initiative. Therefore the other side of the question, it seems to me, is whether having legitimized the spending power in the Constitution in the fashion here proposed you would not then have narrowed down the area of dispute or difference between the provincial governments and the government of Canada as to the rights and wrongs of the program. You people are politicians in the House of Commons and you would be able to judge better than I what the dynamics of the political process would be had there been a clear debate in ten legislatures and in Parliament as to the rights and wrongs of Medicare.

The Joint Chairman (Mr. MacGuigan): Perhaps the gains of putting the spending power into the Constitution are more illusory than real because, despite provincial objections, the federal government has largely gone ahead and implemented these programs. Even though this, as you say, has remained a matter of political debate, putting it in the

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Constitution would remove it from being debated politically but conceivably the loss there from the federal viewpoint is greater than the gain. I realize this is a question which has two sides and probably could be argued indefinitely.

The Joint Chairman (Sen. Lamontagne): As a supplementary, it you would allow me,. . .

The Joint Chairman (Mr. MacGuigan): Certainly.

The Joint Chairman (Sen. Lamontagne): …do you not think that with this kind of proposal, that it might be awfully tempting for the federal government, when it sees a real issue, a real problem, to want to solve it efficiently instead of offering a joint program, to use its unlimited spending power to give money to individuals, So that, as a result of that amendment, let us say, we will have greater centralization than we have today. We might have a lot of these joint programs as national programs.

Mr. Johnson: I suppose it is true, sir, that there are programs where governments have options as to whether they will seek to achieve them via provincial administration or via grants to institutions or to individuals. Certainly, I would judge as you do that, if the route of conditional grants to the provinces were really blocked, governments might be a little bit more ingenious in other directions.

I would, if I may though, add another commentary on this business of the consensus and how much of an obstacle this may or may not become in any such revision. I think it is perhaps fair to observe that federal governments have, in any event, preoccupied themselves with the question of provincial consensus.

I remember well the formula proposed in federal legislation under the administration of Mr. St. Laurent which provided that, if I remember correctly, the assent of one half of the provinces representing one half of the population of Canada would be required before proceeding with the hospital insurance legislation. This was the formal form that this particular concern took at that time.

On other occasions, I would imagine that the federal governments have at least been concerned with the whole question of consultation and consent even though there was no specific formula for determining consensus.

Mr. Rowland: If I may, just a supplementary to that. With respect to the hospitalization program, Mr. Johnson, although this was Mr. St-Laurent’s initial position, it is correct,

[Page 30]

with regard to Mr. MacGuigan’s initial question, to say that the program did not become national until that formula was abandoned, is that not true?

The Joint Chairman (Senator Lamontagne): If I recall well, if my memory is right, it was just a matter of weeks before Newfoundland was prepared to come in and do the job, so I think; that the change in the legislation at that time was more of a political tactic than any genuine step to hasten the application of the program.

Senator McDonald: Mr. Chairman, ii I may, this matter of grants to the individuals in provinces who do not participate in the national program. Has the government any idea of how you would pay grants to individuals? Take Medicare as an example. Supposing the Province of Quebec did not come into Medicare. How would you pay grants? How many people are in Quebec, six million?

The Joint Chairman (Senator Lamontagne): About six million.

Senator McDonald: How would you pay six million people then? Individually? And on what basis?

Mr. Johnson: The working paper on the Constitution observes—I cannot just put my finger on the sentence—that it would be for Parliament to determine the motive compensation. I can refer, Senator, only to the two ways in which moneys are now transmitted to individuals. One is by means of direct payments, such as family allowances, and the other is by means of tax allowances or tax credits. These are both, as you know, well known mechanisms for making transfers to individuals.

Senator McDonald: Yes, but what about those people who do not pay taxes? Do they get no credit?

Mr. Johnson: Well, there are lots of people receiving family allowances who do not pay any taxes.

Senator McDonald: Yes, I would agree, but under a tax credit.

Mr. Johnson: No, no. With a straight tax credit, what you have to do—and I am speaking hypothetically here, obviously—would be to follow the procedure which exists in some countries where you file a nil tax return in order to qualify.

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I am, however, not trying to argue for any particular method. I am simply referring to the present-known methods of transferring moneys to individuals.

The Joint Chairman (Mr. MacGuigan): I want to come back to a question that was raised earlier but which you did not feel you might answer because, as you pointed out, we will later be having people speak to us on the question of international relations.

However, we will not be having any government witness on that until the fall some time and I wondered if, in the light of that, and keeping in mind that I am asking this question solely from the viewpoint of the spending power rather than raising the question of the external relations of provinces generally, whether you would care to make any comment on the spending power of provinces with respect to external aid programs or any other form of grant, either to other countries or to institutions or persons in other countries?

Mr. Johnson: I find it difficult, Mr. Chairman, to decide really, what I ought to say, if anything at all. I suppose the logic of the situation is that if the Parliament of Canada is to examine its power to make grants in areas outside its jurisdiction, not its exclusive jurisdiction, you might want to ask the people from provincial governments, if you have them as witnesses, what their views would be with respect to a similar provision affecting provincial grants for purposes outside their jurisdiction.

The Joint Chairman (Senator Lamontagne): But it is not entirely different, though, it seems to me, because the federal government, under this proposal, would still keep its initiative to spend money and give it to institutions and individuals even if, by doing so, it was serving a provincial purpose.

If the federal government were asked now to withdraw from this, then it would be logical to ask the provinces not to spend money for a federal purpose any more, but I do not think that this is the proposal here.

Mr. Johnson: Yes, I think that is a very fair point, that the restriction on the federal spending power, here proposed, has to do with conditional grants to provincial governments.

The Joint Chairman (Mr. MacGuigan): With respect to the other two areas where no restriction is proposed, namely with regard to unconditional grants and with respect to grants to persons at institutions in the prov-

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inces, was there any intergovernmental discussion or any issue at all with regard to these at the conferences?

Mr. Johnson: If I may, I would just refer again, Mr. Chairman, to the consensus of the June working session of the Constitutional Conference where it was observed that:

. . .Most delegations agreed that the present power of Parliament to make payments to individuals or to institutions should not be subjected to any constitutional limitation; one province, however, reserved its position until the question of the distribution of powers had been dealt with, while some other provinces expressed the view that this federal power should in practice be exercised in consultation with the provinces. It was also noted that some differentiation of institutions might be required before this principle could be finally accepted. . .

So, the short answer is, sir, yes, there was a discussion of this and I think that this is as accurate a reflection as one could get of that discussion.

The Joint Chairman (Mr. MacGuigan): Was there any discussion on the desirability of incorporating in the Constitution a spending formula for unconditional grants or are all governments agreed that this should be left to the negotiations that take place very five years?

Mr. Johnson: No, there was general agreement that there should be no constitutional restriction on the power of the Parliament of Canada to make unconditional grants to provincial governments. One province, however, expressed the view that the establishment of a negative income tax plan administered by the Government of Canada would make such payments unnecessary.

There was discussion about consultation in respect of unconditional grants, as you are inferring, Mr. Joint Chairman. Yes, sir, it was the Government of British Columbia that proposed that unconditional grants to the provinces would be unnecessary if there were a minimum income plan, a guaranteed annual income.

The Joint Chairman (Mr. MacGuigan): Was British Columbia the government as well, in the first instance, which was the exceptional province? It was Quebec I should think in the. . .

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Mr. Johnson: Yes, that is right, Mr. Bennett has been quite clear from the beginning that he supported the power of the Parliament of Canada to make conditional grants to the provinces. It is the unconditional grants that he has consistently opposed.

The Joint Chairman (Mr. MacGuigan): Thank you.

The Joint Chairman (Senator Lamontagne): Mr. Osler?

Mr. Osler: Oh, I am just simply learning today.

The Joint Chairman (Senator Lamontagne): Do you have another question?

Mr. Rowland: It is not, perhaps, an appropriate question to ask of someone in the public service and I certainly would understand if Mr. Johnson declined to answer on those grounds because it does border on policy. If I may, Mr. Chairman, I will phrase it is a rather blunt way, which probably will make it more difficult for Mr. Johnson to answer.

Mr. Johnson: So it will become too difficult.

Mr. Rowland: I would rather it was not considered to be that, but it would seem to me that to some extent the attempt in this working paper to regularize the means by which the federal spending power was employed or the means by which consensus for its employment was derived is an attempt to avoid a difficult political decision and, I think, a futile attempt.

If that is not clear, I will put it this way. The difficult decision is that the Parliament of Canada, every time it undertakes a program of this nature, must decide will the opprobrium which attaches to us because of provincial opposition to the plan on either of the two grounds that Mr. Johnson has suggested earlier that the program is unwise or beyond our powers, is the risk of that opprobrium outweighed by the national benefits to be derived and, therefore, the political gains to be derived. That is a difficult political decision, and by putting in a formula like this, you are attempting to avoid having to make that decision. I say it is futile because I think whenever you come to a point where real questions of power and the exercise of power are concerned, no matter how you try to remove them from the political arena they will find their way back in.

If I can just suggest as an illustration of this kind of process, the Supreme Court decision that offshore mineral rights belong to the

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federal government. It was a non-political decision, but it did not prevent it from becoming a political decision later when the federal government started talking about sharing and so forth.

I really do not know what I am asking you. I suppose I am making a statement. Is this approach a realistic one, given, what I consider to be, facts or should we try, given those facts, to attempt to contain the federal spending power in any way other than allowing the normal political process to work?

Mr. Johnson: Could I comment in terms of the facts as I see them, a different order of facts? I think it would be improper for me to comment on the facts to which you have made reference.

It seems to me one of the measures of the health of a federation is the degree of disaffection or the degree of harmony. I suppose I should put it that the degree of disharmony is a measure of the lack of health of a federation.

It strikes me if there are protracted continued deep-rooted differences of opinion between the two parties to a federation, a given federation, the national party and the provincial party, it is a nice question of judgment as to whether one ought to get at the roots of that discontent or disaffection. Therefore, it strikes me that central issue here about which governments have got to make a judgment, is how deep-rooted have these differences been over the propriety, over the rights and wrongs of Parliament using the spending power in areas of provincial jurisdiction.

If one judges this to be purely a transitory matter that affects a particular program, one would come to one conclusion.

If, on the other hand, one forms the judgment that this has, indeed, been at the root of federal-provincial disagreement and disharmony for a protracted period of time, then one comes to the opposite conclusion.

I do not feel it improper to express an opinion here. My judgment is that there has been deep-rooted disagreement about this for a great many years. From the time I became involved in federal-provincial relations in early fifties, I remember one of the first people with whom I argued about this was one of the Joint Chairmen, and it has seemed to me from that time that this has been really a quite serious problem.

Mr. Rowland: If I may, I would like to pursue this line of questioning, Mr. Chairman.

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Am I to understand from your remarks, Mr. Johnson—you have had a lot of experience in this field, and so they are quite pertinent to our deliberations—that you consider the basic area of disagreement or potential tension between the federal and provincial governments as being that of the exercise of federal spending power or an inappropriate allocation of powers and resources—revenue resources—in association with the allocation of powers?

In effect, I am saying the federal spending power has been exercised to the extent it has been, in my opinion, because the resources available to provincial governments have been inadequate to the task of fulfilling their obligations under Section 92. With a more appropriate allocation of powers and resources, would not that exercise of the federal spending power become less contentious because it would become less frequently employed?

Mr. Johnson: I have two comments. First, I think it is unquestionably true the two areas that have been most discussed at federal-provincial conferences have been the ones you mentioned. One, the division of fiscal tax resources and, two, conditional grants. Both have been the subject of discussion for a long as I can remember, anyway.

On the second question—I am not sure that the two can quite be equated—even if one were to have the perfect allocation of tax resources, which obviously will never be achieved, but even suppose this ideal state were to have been achieved, there would remain the possibility, in my opinion, Mr. Chairman, that a government of Canada might decide the provinces in the use of their resources had not mounted a program which was desirable in the national interest or, to put it another way, that the several programs one found across Canada, in a particular area, ought, in the interests of Canadians, to be harmonized. Therefore, that government might decide it would be desirable to exercise its spending power in a conditional way for this purpose, even though there was an ideal allocation of fiscal resources.

Mr. Rowland: Would you consider that to be a situation which would be desirable to avoid or do you think the political process is capable of reducing those kinds of situations to an acceptable minimum in terms of the kind of tensions which can be created that you were referring to earlier?

Mr. Johnson: I would cite only the working paper on the Constitution which says that the

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Government of Canada believes some mechanism is desirable for achieving the insertion into provincial programs of the national interest where a genuine national interest exists. Having said that such a mechanism exists, I suppose the government is saying there ought to be a way of employing it.

The other side of the question, of course, is that if you are employing a mechanism, quite consciously and knowingly for the purpose of affecting the priorities and the judgments of provincial governments, then ought you to seek their assent before you undertake such an action? I certainly think it is relevant in the rationale given in this paper to observe that the provincial constituency is different from the national constituency. It is for this very reason that the Parliament of Canada which represents the national constituency may seek to influence this is really what is being talked about here—may seek to influence the provincial governments in the exercise of their jurisdiction by saying, “You should be compensated” and I think I am paraphrasing something in the White Paper here, “you should be compensated for the change in priorities which we are exempting from you, your priorities are as your electorate determined and they are entirely appropriate for your province but there is a national interest here of some defined type which suggests that that particular program serves all Canadians or serves more Canadians than the ones in the province and the compensation to you, the government of that province, for changing your priorities, for changing the priorities of the people of this province are such and so.” This, I think, is the very essence, the very nature of the conditional grants.

Mr. Osler: This is probably very amateurish because, as I say, this sounds fine to me and all the rest of it but probably because I am a federalist by nature. I still am convinced there really are only two provinces that by accident of nature have any real legitimacy and those are probably Ontario and Quebec. There is a Maritimes that has a legitimacy. I do not know that the provinces which constitute the Maritimes do. I think there is a West that has a legitimacy and probably a British Columbia that has a legitimacy but I cannot help thinking that the national intent is really cluttered up by a lot of phoney things that get in the way. If there is any legitimacy in this thinking, a way of defining the national intent—you were talking about the national intent a minute age—I am not convinced that We have found a way of expressing the national intent, and that is what really worries me. I think we have to live with the provinces

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and perhaps we can regroup them, if necessary, or we can rationalize them somehow or other and that will work out. Again I am not talking about Ontario and Quebec.

The thing that strikes me as being at the root of any discontent I feel among my own people at home is that they are not convinced that this edifice here on the Hill legitimately expresses national intent. If this were the case then the rest of this argument is a bit academic and might tend to disappear, if national intent could be more adequately expressed in the national Parliament.

The Joint Chairman (Senator Lamontagne): That might be so, Mr. Osler, but I do not think it is up to our guests today to better define the national intent. It is up to all of us, I suppose, in Parliament.

Mr. Osler: All I mean is that I do not think Parliament is equipped to find a national interest because I think it is loaded, and that is the one real thing that strikes me as being the source of discontent and friction in my part of the world. I do not know whether Doug Rowland who is in the same part of the world would anywhere nearly agree with that, but I do not think anybody in our part of the world seriously thinks that the federal government, except perhaps provincial politicians—I think this is my take-off point. Provincial politicians may make a lot of noise because it changes their priorities but I do not think the people as a whole have ever been the least bit annoyed at being forced into Medicare or forced into hospitalization or forced into all these things that the federal government has forced them into. If I were a provincial politician I might be annoyed because it would stop me from doing some of the things that I had said I wanted to do. I do not know what I am trying to say but. . .

Mr. Johnson: As a former Westerner I understand what you are saying.

Mr. Osler: Yes, I think you do but when you translate this into something that you are trying to nail down and discuss rationally, I do not know. It seems to me that the suggestions in here are perfectly good ones as they exist because if the national interest is properly defined in the first place they would either force the provincial government to go along with something or directly compensate the people.

Mr. Rowland: Then you would have exactly the reverse.

Mr. Osler: Would it?

Mr. Rowland: If I may comment on that, I consider there is a great deal of validity in

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your arguments that the conflict results from the existence, to some extent, of governments whose constituencies are inappropriate to the nation as it exists now and that to some extent the conflict is a result of the kind of vested interests that result, the same kind of problems you find when you try to rationalize municipal boundaries within provinces.

Therefore I think if you present a question to the people of Canada in the manner suggested in this paper where the provincial governments have the ultimate right to decide whether or not the program is in the national interest because that is what, in effect, they will be doing under this formula you will find it will be very seldom resolved in that way. Rather you will find the possibility of the federal government exercising spending power in the national interest as determined by the Parliament of Canada, however inadequately at present, will be severely circumscribed because you give the provinces, as they are now inappropriately defined, a power of veto and very few of them. . .

The Joint Chairman (Senator Lamontagne): In their own field.

Mr. Rowland: . . .seek to do it. Yes, in their own field.

Mr. Osler: Yes, but as I understood it—the trouble is I read this about a year ago and I have just flicked through it again—as I understand it, though, if a province decided to veto or opt out, as long as a majority of the provinces decided to go for the plan those citizens in the province that decided to opt out would still get compensated.

Mr. Rowland: The citizens would be compensated but there would be no national minimum of standards.

Mr. Osler: Then you practically force the local government to come up to those standards?

The Joint Chairman (Senator Lamontagne): We cannot solve all these problems today. Mr. St. Laurent once told me that it would be always completely impossible for the federal government to provide a situation where everybody in Canada would be equally satisfied. Then he went on to say that the best he could hope for as Prime Minister was to keep everybody equally dissatisfied. So probably the proposal contained in this White Paper is intended to keep people equally dissatisfied so it is of the tradition of our Canadian federalism.

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Before ending this meeting I would like to have a mover to insert this red paper here as an appendix to our proceedings of today.

Senator Yuzyk: I move that the Background Papers on Federal-Provincial Grants and the Spending Power of Parliament be appended to our proceedings of today.

Motion agreed to.

The Joint Chairman (Senator Lamontagne): On behalf of the Committee, Mm. Johnson, I want to thank you very much indeed for spending this afternoon with us. I hope that you will be able to come back later on. Thank you.


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APPENDIX “C”

BACKGROUND PAPERS
on
FEDERAL-PROVINCIAL GRANTS
and the
SPENDING POWER OF PARLIAMENT

Prepared by:
The Secretariat of the
Constitutional Conference
for
The Special Joint Committee of the
Senate and of the House of Commons
on
The Constitution of Canada
June 1970

SECRETARIAT OF THE
CONSTITUTIONAL
CONFERENCE

P.O. Box 488
Terminal “A”
Ottawa 2

INTRODUCTION

The material in this booklet was compiled by the Secretariat of the Constitutional Conference to assist the Special Joint Committee on the Constitution of Canada. The material is drawn from the public record of the constitutional review and is related to the specific subjects to which the Parliamentary Committee is directing its attention.

Henry F. Davis,
Secretary of the
Constitutional Conference.

[Page 41]

TABLE OF CONTENTS

A. Source Material

1. Federal Government
2. Newfoundland
3. Prince Edward Island
4. Nova Scotia
5. New Brunswick
6. Quebec
7. Ontario
8. Manitoba
9. Saskatchewan
10. Alberta
11. British Columbia
12. General Sources

RELEVANT EXTRACTS

Section Doc. No.

1 New Brunswick
—”spending powers and the Constitution of Canada” 161
—”Further observations on the Matter of Shared-Cost Programs and a National Consensus
Formula” 185

2 Quebec
—Related Propositions 81(2)

3 Ontario
—Position paper on the Spending Power 134(1)
—Related Propositions 81(2)

4 Saskatchewan
—Related Propositions 81(2)

5 Alberta
—Position of the Government of Alberta on the Constitutional Conference, Third Meeting 209
—Related Propositions 81(2)

6 British Columbia
—proposals to the Constitutional Conference Third Meeting 208
—Related Propositions 81(2)

7 General Sources
—Briefing Paper on Discussions of the Continuing Committee of Officials 75
—Conclusions First Working Session Constitutional Conference 149
—Briefing Paper on Discussions of the Continuing Committee of Officials 174(1)
—Conclusions, Third Meeting Constitutional Conference 212

[Page 42], [Page 43]

THE SPENDING POWER OF PARLIAMENT
GENERAL SOURCES

*See PDF for table

[Page 44]

NEW BRUNSWICK—SECTION 1

Extracted from document 161
Taxing Powers, Spending Powers and the
Constitution of Canada (pp. 1-4, 15-26).

At the direction of the Constitutional Conference of February 1969, the Continuing Committee of Officials has given priority to the study of the distribution of powers, in particular to the taxing and spending powers. A number of governments have stated their basic positions in working papers submitted to the Continuing Committee of Officials. The Government of Canada has presented its general approach on the distribution and use of taxing and spending powers in the form of two working papers: The Taxing Powers and the Constitution of Canada and Federal-Provincial Grants and the spending Power of Parliament. This Working Paper from the Government of New Brunswick has been submitted to the Continuing Committee of Officials to further the examination of the proposals which have been made and to present the general position of the Government of New Brunswick on taxing powers, spending powers and the Constitution of Canada.

INTRODUCTION

The Government of New Brunswick feels that any examination of taxing and spending powers by the Continuing Committee of Officials should be carried on only in the context of or within the general framework of the following three objectives of Confederation:

1. The maintenance of a strong federal government which shall be representative of all the people of Canada and shall act on their behalf to define and to achieve national purposes at home and abroad.

2. The promotion of Canadian social, cultural and economic development, and the general welfare of and equality of opportunity for all Canadians.

3. The promotion of the full development of all regions of Canada.

Considered in this general framework, an analysis of taxing and spending powers takes on a special meaning or sense of direction. First, nothing in a general theory of a right to tax or a right to spend should be done to weaken or to reduce the powers of a central government in fulfilling its essential task: the maintenance of a strong federal state. Thus, the central government must have the right and the capacity to tax and to spend for the purposes of promoting general economic

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development, social and cultural diversity and unity, and the general welfare of all Canadians. More specifically, it should have the powers and the capacity to have proper fiscal and monetary controls, to redistribute income and to maintain minimum levels of services everywhere in Canada,

Second, nothing in a general theory of a right to tax or a right to spend should be done to weaken or to reduce the powers of a central government to carry out programmes and fulfill its proper functions in the national interest. Here, for example, the problem of regional disparities obviously relates to this general objective. Taxing and spending powers of the central government should be more than sufficient to implement a programme in the national interest, in this case the elimination of regional disparities.

Third, because of the complexity and interrelatedness of any analysis of the distribution of powers, taxing powers, spending powers and regional disparities, nothing more than a preliminary and general discussion on the question of taxing and spending powers should be held without (a) keeping explicitly in mind the distribution of powers question and without (b) developing at least general views among the various participants governments on the distribution of powers.

Since both the constitution itself and the constitutional review process must be reviewed as an organic whole, the distribution of powers aspect cannot be ignored or postponed much longer. To discuss taxing and spending powers in any more than general and preliminary terms in isolation from the distribution of powers may not be advisable. The taxing powers of a federal government cannot, for example, be discussed in detail unless there is at least a general theory of the distribution of powers in a federal state. Hence, until the participating governments discuss the subject of distribution of powers, it may be premature to deal too finally with taxing and spending powers.

Fourth, the development of a general theory, or an analysis, of distribution of powers, cannot proceed logically unless all governments consider the various approaches

[Page 46]

to the study of this complex subject.1 Four possible approaches are relevant and possibly all necessary in dealing with distribution of powers:

(a) a functional approach—essentially this would be based on principles of functionalism and efficiency, ie. which functions of government could most effectively be carried out by which level of government in a modern society (even here there are important difficulties to be explored);

(b) a regional approach—unique circumstances in particular parts of the country should have a bearing on the distribution of powers;

(c) an historical approach—taking account of the Canadian historical context: that a network of relationships and expectations has developed over the years (federal-provincial relations, roles of municipal governments, etc.) which could affect the scope of possible changes in the distribution of powers; and

(d) a symbolic and doctrinal approach—taking into account the various theories of a federal state, the basic ideology, the role of government in everyday affairs of its citizens, the symbols of unity in a country, etc.

Even from this broad outline of the various approaches to the distribution of powers question, it is apparent that taxing and spending powers relate to each of these approaches and that discussions on taxing and spending powers cannot be carried out in isolation from almost any approach.

What follows is an outline of the basic position of the Government of New Brunswick on taxing and spending powers plus an analysis of the general approach to that topic taken by other participating governments, especially the Government of Canada. Until, however, the whole complex matter of distribution of powers has been considered, many of the following points and comments are necessarily more general than will be the case when the totality of the taxing and spending powers

1 For a more detailed examination of this aspect of the Constitutional Review process, see the New Brunswick Working Paper: Problems of Studying the Distribution of Powers under the British North America. Act—The Search for an Approach, September 29, 1969.

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question is related to the distribution of powers analysis.

SPENDING POWERS

In June of 1969, the federal government submitted to the Constitutional Conference, a paper entitled “Federal-Provincial Grants and the Spending Power of Parliament”.

Before commenting on the federal paper and before outlining the basic views of the Government of New Brunswick, a few general comments must again be made, even though some are similar to those made in the part of this working paper on taxing powers. First, it is premature and illogical to determine, in even general terms perhaps, the scope or limits of the spending powers of the Parliament of Canada, unless at least a general scheme of the distribution of powers has been proposed and discussed. In the extreme, for example, if a new distribution of powers assigns to Parliament many of the present powers of the provinces, a discussion on the spending powers of Parliament may become increasingly academic.

Second, spending powers are very much related to taxing powers. The two together are in turn among the prime determinants of the role and strength of the central government. And these considerations largely determine the extent and magnitude of the attack, if any, on regional disparities. Hence, the following comments and notes must be related to the sections of this and other working papers from the Government of New Brunswick, which deal with these other matters to be considered when discussing spending powers.2

Third, the comments on spending powers will also be made within the general framework of the following three objectives of Confederation, as viewed by New Brunswick.

1. The maintenance of a strong federal government which shall be representative of all the people of Canada and shall act

2 In particular, the New Brunswick Working Papers entitled: Problem of Studying the Distribution of Powers under the British North America Act—The Search for an Approach, and Regional Disparities—Alternatives in a Constitutional Formula.

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on their behalf to define and to achieve national purposes at home and abroad.

2. The promotion of Canadian social, cultural and economic development, and the general welfare of and equality of opportunity for all Canadians.

3. The promotion of the full development of all regions of Canada.

Fourth, no federal-provincial conference or discussion is held in isolation from current developments and problems in all other areas of federal-provincial relations. Discussions on the general theory, scope or limits of the spending powers of the Parliament of Canada are therefore held very much against a background of present-day intergovernmental deliberations on conditional and unconditional grants. What in summary are these current developments and problems?3

Generally, opinions vary widely on the present use of spending powers by the federal government because of the many regional differences. Briefly, the criticisms boil down to criticisms of principles and criticisms of techniques. Some provinces emphasize that in principle they more or less disagree with the right of Parliament to spend in those areas under provincial jurisdiction. In other words, they question the existence of the right to spend. Most of the provinces, however, criticize the techniques of conditional or unconditional grants. In other words, they question the methods of exercising the right to spend, not the right itself.

More specifically, the criticisms cover the following points:

(a) unilateral commencement of programs;

(b) unilateral termination of programs;

(c) unrealistic standards of services;

(d) unrealistic conditions for eligibility;

(e) unnecessary administrative arrangements and delays;

3 The Working Paper of the Government of Ontario, The Ontario Position on the Spending Power (Document No. 134), analyses the same general issues in considerably more detail.

[Page 49]

(f) inadequate federal-provincial consultative and administrative machinery;

(g) the distortion of provincial priorities and the establishment of priorities;

(h) the creation of conflicts between the two levels of government during times of financial restraint;

(i) taxation without benefit for the citizens of those provinces whose provincial governments decline to participate; and

(j) inadequate financial cost-sharing arrangements and insufficient funds.

Because of these many and varied criticisms, a number of possible alternatives to, or changes in, shared-cost programmes have been proposed, but largely rejected, over the past ten or fifteen years of relatively active federal-provincial relations:

(i) constitutional changes in responsibility;

(ii) a greater use of administrative and/or legislative delegation of powers;

(iii) greater inter-provincial cooperation;

(iv) improved machinery for intergovernmental liaison;

(v) more regionally oriented programmes; and

(vi) increased unconditional grants.

It is within the framework of the above comments that the following remarks and suggestions on spending powers are presented by the Government of New Brunswick.

The federal paper indicates that the spending powers of Parliament are being used as a legal basis for federal expenditures in 1968-69 of $3.4 billion or 32 per cent of the federal budget. This covers such diverse programmes as Hospital Insurance, Medicare, Family Allowances, Old Age Pensions, T.C.H., FRED, ARDA, ADB, Equalization Payments Expo etc. (payments to persons, to institutions and to governments) is based on such things as “national interest”, the “national constituency” (which differs in terms of reference, priorities and objectives from the “provincial constituency” mixed jurisdiction and technological change.

[Page 50]

Having indicated the importance of the spending power of Parliament, the federal paper does accept to a large extent the validity of three broad provincial criticisms of federal-provincial grants and federal spending power:

1. That the Government and the Parliament of Canada are deciding, without the formal participation of the provinces in such decisions, as to when federal-provincial programmes ought to be started;

2. The power of Parliament to make unconditional grants to provincial governments for the purpose of supporting their programmes and public services should be unrestricted;

3. The power of Parliament to make general conditional grants in respect of federal-provincial programmes which are acknowledged to be within exclusive provincial jurisdiction should be based upon two requirements: first, a broad national consensus in favour of any proposed programme should be demonstrated to exist before Parliament exercises its power; and secondly the decision of a provincial legislature to exercise its constitutional right not to participate in any programme, even given a national consensus, should not result in a fiscal penalty being imposed upon the people of that province.

This means that there will be two limitations on the use by Parliament of its power to make conditional grants for general federal-provincial programmes:

(a) a “broad national consensus” must be in favour of any programme, which means that 3 of the 4 Senate divisions (West, Ontario, Quebec, Atlantic) through the provincial legislatures must approve the programme before it can go ahead; and

(b) there will be no “fiscal penalty” on citizens of non-participating provinces, which means that those citizens will be refunded the money which would have gone to the province, through a formula and method to be decided by Parliament for each programme.

The federal proposal spells out explicitly two major exceptions to these points:

(a) unconditional grants (i.e. equalization payments) will not be affected by the

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consensus proposal (arrangements will continue as at present); and

(b) regional programmes (federal-provincial programmes for provinces of one or two Senate divisions) will also not come under the consensus rule.

First, the purpose, usefulness and the rationale for the federal spending power has never been in doubt with the Government of New Brunswick. As was stated above, there is no quarrel with the existence of the right to spend, only with the methods of exercising that right.

Second, New Brunswick might wish to consider in principle the idea of limiting the federal spending power through some consensus mechanism. However, any formula, especially one which would empower two provinces to veto a proposal, should be approached with considerable caution. In addition, the political delays possible through the federal consensus formula are other reasons for caution and concern. The formula might cause more problems than it would solve.

Third, the federal governments paper states explicitly that unconditional payments (i.e. equalization payments) would not be affected by this proposal. Until this was guaranteed firmly in a constitution, New Brunswick will again exercise considerable caution in considering any proposal to curtail federal spending powers.

Fourth, the federal paper also excludes regional programmes from the consensus formula. However, their definition of a “regional programme” is one which is designed for the provinces in one or two Senate divisions. There are very few of these programmes for New Brunswick. The more significant and recent ones are the Atlantic Development Board and the Atlantic Provinces Adjustment Grants. The bulk of the “regional programmes” (that is non-national ones) designed for less developed regions or provinces would not come under that definition: ARDA, FRED, A.D.A., new legislation of the Department of Regional Economic Expansion, etc. These are really “regional programmes” in the sense that: (a) they are designed for the less advanced provinces; (b) they are more favouably received by those provinces; (c) they are needed more by them and (d) the less developed provinces are relatively more prepared

[Page 52]

to adopt them. Also while most provinces may be involved in these programmes, the less successful provinces benefit relatively more from or are more concerned about these programmes than the more advanced provinces; witness for example, the development and utilization of ARDA and FRED. And since the more advanced provinces could have provided the total cost of these programmes by themselves, they are again less inclined to approve of or to participate in these programmes.

In other words, a national programme can in a sense be regional and vice versa; a regional programme need therefore not be one for just one or two Senate divisions. For example, the new programmes of the Department of Regional Economic Expansion will cover the Atlantic Provinces, Northern and Eastern Quebec and areas in Ontario, and the Western Provinces. Thus, while these programmes are regional, they are “nationally regional”, i.e. not restricted to one or two Senate divisions. The less advanced provinces are most interested in these programmes, especially the Atlantic Provinces. To submit these programmes to a consensus formula could men the end of them, unless they were modified to apply to only two Senate divisions. But that in turn might raise the objections of the other divisions and through that some political opposition in Parliament, which could in turn mean a dilution or a watered-down version of the original concept and scope of the programme.

Given the federal definition, the exclusion of regional programmes from the consensus formula is not satisfactory. To leave it as the federal proposal suggests, could mean a severe limitation on the power or the desire of the Parliament of Canada to develop programmes designed more specifically for smaller and less successful provinces or parts thereof.

In summary, the Government of New Brunswick feels that the federal consensus formula for future conditional grants has a number of serious limitations. It could be impractical, its consideration of regional programmes is unsatisiactory and it could seriously limit, and even stop altogether, many future federal-provincial shared-cost programmes. However, at the same time, it is

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realized that the present methods of exercising the right to spend is subject to valid criticisms, which should be considered and resolved. The question then is: can the federal and provincial governments meet the criticisms of shared-cost programmes without at the same time curtailing the basic spending powers of Canada?

The Government of New Brunswick suggests the following as a realistic answer to that basic question:

1. In the final analysis, no matter what consensus formula is arrived at, the federal government must be able to reserve for itself the right to spend for great national issues or purposes, to be determined by Parliament, without the veto powers of the provinces;

2. The C.C.O. should consider a number of alternative formulae as the basis for a consensus formula—if it is decided—not only for future shared-cost programmes, but for other consensuses as well. There may be some aspects of the Fulton-Favreau formula which could suggest an approach, although the Fulton-Favreau formula was designed for constitutional amendments, a much more rigid situation than should be the case with shared-cost programmes;

3. Many of the current criticisms of the methods of exercising the federal right to spend can be met through better intergovernmental arrangements and federal-provincial consultation and these problems should be considered under that part of the Constitutional Review Process.

Another weakness of the federal working paper on spending powers is the “no penalty” provision. There are two aspects to this: first, should the federal government refund the citizens of the non-participating provinces or the provincial government itself; second, how will the federal government refund the money to these citizens? The rationale for the

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first point appears consistent with the whole theme of the paper: if the provincial governments should not suffer financially from non- participation as they do at present, why should the citizens of non-participating provinces suffer financially in the future just because their provincial governments decide not to participate?

It appears logical. However, one could get the following combination of events, using a broad example to illustrate the potential difficulties. The federal government proposes a shared-cost programme which is accepted by three Senate divisions with eight provinces joining except Quebec and British Columbia. The federal government then raises its taxes across the country to provide the funds and it pays its share of the programme to the participating provinces. It also arrives at a formula to refund the citizens of Quebec and British Columbia, whose provincial governments in turn increases taxes to raise money for their own particular brand of the programme or for some other programme altogether. In this case, an average Quebec or British Columbia citizen:

1. will have paid taxes for a national programme;

2. will have been refunded by Ottawa because his government decided not to participate;

3. will have paid taxes to the provincial government for another analogous programme; and

4. will have failed to share the benefits of the particular programme acceptable and implemented by the citizens of eight other provinces representing two-thirds of the national population.

If, in addition, both increases in taxes were of a progressive nature and the refunding and benefits of a proportional nature, any of the more affluent citizens of Quebec or British Columbia will have paid twice as much as they would have if their provinces had joined the national programme. Many realize the problems and frustrations of the present system, but is the new proposal by the federal government really an improvement? Is it still an improvement if one considers the administrative procedures and costs Ottawa will have to bear to refund the citizens of a non-participating province?

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The Government of New Brunswick recommends that all governments consider the desirability of having in the future the federal government make payments to the provincial governments themselves, rather than to their citizens, in those provinces which do not participate in shared-cost programmes. Through this means and through more effective federal-provincial consultation, the provincial and national priorities can be more fully harmonized.

REGIONAL DISPARITIES

The subject of regional disparities is closely related to those of taxing powers and spending powers of the Parliament of Canada. Without sufficient taxing powers, Parliament would not have the resources to alleviate the disparities among the various regions of Canada. Without sufficient taxing powers for the provinces, the poor provinces may not have the ability to raise their share, however small, of the federal-provincial shared-cost programmes. Without sufficient spending powers, Parliament may be unable to spend in those areas of prime concern to provinces suffering from regional disparities.

Hence, the questions which must be answered are the following:

1. Will the federal proposals on taxing powers allow Parliament to retain or to achieve a sufficient tax resource field to alleviate regional disparities?

2. Will the federal proposals on taxing powers allow the provinces to retain or to achieve a sufficient tax resource field to raise their share of the cost of federal-provincial shared-cost programmes, particularly those aimed at reducing regional disparities?

3. Will the federal proposals on spending powers permit Parliament to continue to spend on those programmes or grants designed to alleviate regional disparities?

In answering these three questions, one must keep in mind that regional disparities can be solved through three different yet complementary mechanisms. One method is through unconditional grants, i.e., equaliza-

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tion grants. These grants are designed to permit the less wealthy provinces to provide the same essential government services to their citizens as those citizens of the more wealthy provinces. The second mechanism is through conditional grants, i.e. shared-cost programmes. Here the federal government agrees to pay the provinces a certain percentage (all or part) of the cost of a programme if the provinces agree to the conditions of the programme as determined by Parliament. The third mechanism is through conditional grants to individuals or institutions, where the federal government provides directly to the citizens or institutions funds if they meet certain conditions. Concern in this paper is only with the first two mechanisms, conditional and unconditional grants to provinces.

The answer to the first question is yes: the federal proposals on taxing powers will allow Parliament to retain or achieve a sufficient tax resource base to alleviate regional disparities. The principle of access combined with the limitations on that principle will ensure sufficient access and flexibility for a strong central government. The only note of caution relates to the need for proper safeguards on the principle of access within the constitution.

The answer to the second question is no: the federal proposals on taxing powers will not improve significantly the net revenue position of many provinces. First, if the limitations on the principle of access both through constitutional limits and intergovernmental arrangements are not appropriate and adequate, some provinces will be subject to the influences of other provinces. Problems could arise through inter-provincial barriers of trade, double taxation, encroachment of provinces on tax fields formerly largely utilized by the Government of Canada, excessive resort to inadequate inter-governmental arrangements and machinery, etc. Second, given the principle of access plus its limitations, this does not provide the provinces, especially the less advanced ones, with enough new tax fields or tax room to enable them to meet their normal expenditures and especially their share of federal-provincial shared-cost programmes. The concept of a revenue pool may provide a partial solution to that problem.

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The answer to the third question is no, but a qualified one, The federal government will be able to continue to spend without limitations through unconditional grants to provinces (i.e. equalization payments), especially if this is coupled with the statements on a constitutional objective and a constitutional power to contribute to the equalization of public services across Canada, as contained in the federal paper on taxing powers. It is essential to ensure that these two conditions (i.e. an objective to equalize and the power to equalize) are contained in any revised constitution.

The federal government, however, may not be able to continue to spend on conditional grants for the reduction of regional disparities. First, the federal governments consensus proposal is not very acceptable to small provinces because of the veto powers of larger provinces. Secondly, the exemption of regional programmes from this consensus rule is not properly defined to protect the interest of less advanced provinces and the federal government. Hence, the Government of Canada must be able to reserve for itself the right to spend for great national issues or purposes, to be determined by Parliament, without the veto powers of the provinces.

Document 185

CONTINUING COMMITTEE OF OFFICIALS

WORKING PAPER

SUBMITTED BY THE GOVERNMENT OF
NEW BRUNSWICK

ON

“FURTHER OBSERVATIONS ON THE
MATTER OF SHAREDCOST PROGRAMS
AND A NATIONAL CONSENSUS FORMULA”

November 10, 1969

I—General Observations

1. While much respect must be paid to all governments that have conscientiously sought to evolve an arithmetical formula to determine the “national consensus” in the matter of providing a frame work for federal spending on shared-cost programs, it is quite clear that almost any such formula has “arbitrary” characteristics. In the hands of a well-trained statistical theorist such formulas, that have been presented by some governments, would be quite vulnerable to the demonstration that these “numbers games” do not exhaust all the possible variables and factors that might be selected to calculate something called a “na-

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tional consensus.” So far only population, provinces, regions and senate divisions have been employed. Others might be found equally significant and the permutations and combinations with which they are managed are likely to be much more extensive than is now realized without such expertise to guide the perplexed.

2. More fundamental is the question of how wise it is to freeze a formula in the Constitution when it is very difficult to forecast the effect of the freezing on the long future—assuming great difficulty with the amendment process which is likely to be the case once an amending formula is found. A premature freezing, therefore, of an unpredictable future must give all governments pause.

3. The desire of the First Ministers for a formula or formulas to be studied by the CCO included obviously not merely arithmetic types but non-mathematical models as well and the CCO is quite within its mandate on this question to discuss arithmetic and non-arithmetic approach to “consensus.”

4. A further difficulty with arithmetic consensus formulas may be that they become in a sense a kind of quasi-delegation, ad hoc, of provincial power to the federal government in the limited sense of being confined to that situation and exercised through the federal spending power. Assuming that something approximating the Fulton-Favreau Formula dominates our thinking about the amending process and becomes a model for future amendment procedures, there will be a multiplicity of amendment formulas which would include the three types of procedure included in the Fulton-Favreau proposals plus this further arithmetic consensus formula which has its semi-delegation aspect—thus resulting in four operating formulas. Is it really necessary, therefore, to bind the hands of governments by such a fourth formula in an area that may not really justify so rigid a process, i.e. the management of federal-provincial relations in the case of shared-cost programs.

5. The arithmetic type proposals so far presented make several assumptions about the nature of the idea of consensus itself, which assumptions may or may not be valid:

(a) It is assumed that consensus can best be achieved, given our recent political history and difficulties, through the obligations to follow a fixed formula rather

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than to engage in political bargaining in each case.

(b) It is assumed that Parliament, the Courts and public opinion between them are unable to achieve a consensus psychology and methodology that does not have to rely upon a fixed arithmetic framework.

(c) Most important it assumes that a constitutionally defined consensus is necessary, as between the federal and provincial governments, in order to limit the abuse of the federal spending power.

6. But in the latter case there is surely no long-term evidence yet, only the recent short-term disputes on the shared-cost programs issue. Time and subject matter may change the whole nature of federal-provincial cooperation, particularly as the federal initiative moves out of areas which seem purely provincial and emphasizes instead programs which require, from the very beginning, consultation and common administration by both levels of government, e.g. the water pollution problem.

7. The central issue in this debate over consensus is how to limit the federal spending power in areas of clear provincial jurisdiction which spending creates new costs for the provinces and-or imposes new priorities on a province not entirely of its own making. (Although even here it should be borne in mind that the Courts have made it clear that the federal spending power cannot be used as an indirect thrust into provincial jurisdiction per se.)

8. This debate, therefore, is not a debate over:

a) the acceptability and correctness of federal unconditional grants (equalization payments); b) regional disparities programs which have always remained outside this present discussion of finding a consensus to limit the federal spending power (in shared-cost programs.)

9. The discussion, therefore, should confine the analysis and the search for formulas to that limitation on the federal spending power which has caused, where there was no limita-

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tion, a new shared-cost burden on a province in matters otherwise within provincial jurisdiction and where there was really no wholehearted agreement on the part of the province concerned. For provinces often found themselves for political, financial and popular opinion reasons, unable to resist participation in federally initiated programs, whatever the government’s own views and priorities really may have been.

10. It is clear that some limitation is required that caused the irritations of recent years. It is equally clear that something better than a too rigid arithmetical type of formula is required for the reasons already put forward above. And, moreover, that “something better” can now envisage some new and constitutionalized machinery of consultation which will, by its very definition, prevent the impression and sometimes the fact that consultation was inadequate and often too late for effectiveness. It is no answer here that the arithmetical method really compels consensus by definition. It is equally true that it restricts consensus by definition because all the formulas leave to a given minority the ability to hold up the effective operation of the scheme, and all the formulas so far presented suffer from this defect.

11. Finally, it is the New Brunswick view that nothing should limit the federal right to spend in the national interest when Parliament, representing all Canadians, deems the matter to be of national concern by applying its own simple but crucial test, namely, does the issue go beyond the interests or the boundaries of a single province or region. This ultimate right to spend, for the peace, order and good government in Canada, is a reserve of power that a truly effective federal government must have. Its abuse is equally of concern and between the balancing forces of public opinion, provincial opposition and the judicial process, there is sufficient countervailing weight to prevent extreme usages of this reserve power.

II—A Possible Non-Arithmetic Approach

1. If the central issue is not only the prevention of intrusions on provincial jurisdiction through the federal spending powers but also to prevent the creation of new provincial costs and new provincial priorities, without the positive will of the province being afforded a chance to express itself adequately, then a sound approach to this central question could well be a package consisting of the following:

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(a) There should be a constitutional duty to consult whatever form its institutionalization may take (a matter yet to be explored fully by all governments and related to the general question of the new inter-governmental institutions for consultation and cooperation).

(b) Shared-cost programs should be based on bilateral agreements arrived at through bargaining politically, in good faith, and after using the constitutional machinery of consultation as described in a).

(c) Possibly some clearer description of the distribution of powers may reduce some of the difficulties that heretofore gave rise to disputes about shared-cost programs intruding upon areas of provincial jurisdiction.

(d) There will be the difficult question about compensating the provinces not arrangement concerned. While the compensation question need not by itself affect a decision on the consensus formula issue, New Brunswick wishes to suggest that if the two questions are related, the following approach might be considered among others: some equitable formula based upon need should be considered, and among the possibilities are payments to governments by the federal government in lieu of amounts they would have received had they entered into the bi-lateral agreement, but only to such governments whose per capita GNP is equal to or less than that of the province or provinces agreeing, to the scheme bi-laterally. Public opinion would support, or conversely would not be opposed to the absence of payments to provinces whose GNP per capita was appreciably higher than the provinces accepting the program. It will be argued, of course, that such provinces not receiving (in lieu) compensation are thus paying double because the residents have contributed to the consolidated revenues of the federal government from which the payments are made, and yet they are not receiving a share from that fund when other provinces are obtaining grants bi-laterally. The answer to this surely is that this already takes place in a variety of forms of which the regional disparities program and equalization payments are established illustrations.

2. The First Ministers must have an opportunity to discuss these options.

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QUEBEC-SECTION 2

Extracted from document 81(2)
—Related Propositions

SUBJECT: V—DISTRIBUTION OF LEGISLATIVE
POWERS SPENDING POWERS OF
THE CENTRAL GOVERNMENT

4.20.36 The constitution should restrict the central government’s spending powers to matters under its jurisdiction. These would none the less include the right to make unconditional grants to state governments, on the basis of a general equalization formula or in order to stabilize their revenue.

Provided definite limits can be set on the action of the government of the Union, it should also be authorized to take, alone or jointly with the states, certain measures designed to ensure economic equality between the states through development of disadvantaged regions.

COMMENTS

1. Use made by the federal government of its alleged general right to spend in order to launch a variety of joint programmes in areas falling under the exclusive jurisdiction of provincial governments has been one of the main reasons for the deterioration of federal-provincial relations.

2. Besides their centralizing tendency, shared-cost programmes do not jibe with provincial priorities and often lead to ill-advised use of public funds; they make it harder to plan provincial programmes and introduce an element of inflexibility which thwarts progress.

3. Unlimited spending power at the central level encourages governments to outbid one another.

4. Except in areas under common jurisdiction, joint programmes would therefore be abolished.

5. On the other hand, the evolution of fiscal relations in Canada has made it possible to devise general equalization and stabilization formulas which fulfil a legitimate, worthwhile role and which should be maintained, even improved.

6. The central government must assume prime responsibility for the balanced economic growth of the country as a whole, achieving a certain economic parity between the states and ensuring general distribution of wealth between them through equalization. The states should assume prime responsibility for the balanced economic growth of their various component regions, achieving, to the larg-

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est extent possible, economic equality between these regions and distributing collective wealth and services among citizens in these areas, particularly through social security education accessible to all and decentralization of culture.

4.21.36 COMMENTS

7. Special circumstances may require the central government to take special measures. As in the case of equalization, it would then be necessary to fix specific criteria so that all states in like situations could derive equal benefit from such measures.

ONTARIO-SECTION 3

Document 134(1)

THE ONTARIO GOVERNMENT POSITION
ON THE SPENDING POWER

June 3, 1969.

Many of the recent strains on Canada’s federal system can be traced to the extent and application of the federal governments spending power. The free-ranging use of this spending power has been a major factor in federal government activity in Canada since the time of the Second World War, most noticeably in the development of new shared-cost programs on subjects in fields of provincial jurisdiction. These programmes have had serious consequences for federal-provincial harmony, in spite of the tangible benefits they have provided. In the course of the present constitutional review, we have the opportunity to reconsider the scope and manner of application of the general federal spending power, wi h a view to ensuring such harmony, and with a view to ensuring respect for and adherence to the basic principles of a federalism most suitable for Canada.

The BNA Act gives the federal government the power to spend its revenues for any purpose as long as the statute authorizing the expenditure does not in substane invade provincial jurisdiction. It may therefore spend money most obviously on its own constitutional responsibilities, or in areas where its jurisdiction is concurrent with the provinces. The federal spending power has also been used on special projects such as Expo, the Winnipeg flood-control system and the Saint Lawrence Seaway. Further, it has been used since Confederation to combat regional economic disparities by providing unconditional grants to the poorer provinces. In recent years, these grants have evolved into a fairly

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sophisticated system of equalization payments. Such uses of the federal spending power have in principle been acceptable, and are a necessary element in a flexible, workable federal system.

Use of the spending power in areas of concurrent jurisdiction, or in “grey areas” of the constitution, depends very much on the achievement of one of the basic objectives of the present constitutional review, namely a clear agreement between the two levels of government as to what each other’s responsibilities are. This applies in equal measure to the use of the federal spending power to make direct payments to individuals or institutions. In 1966, for example, the federal government was able to assert a jurisdiction unilaterally over manpower training in industry by granting training allowances directly to employees and training subsidies directly to employers, This had the effect in Ontario of sharply curtailing the operations of two of the provinces departments and effectively upsetting budget and programme planning, Ontario, therefore, strongly opposes any direct use of the spending power by the federal government in such a way as to effectively enforce a federal government interpretation of the constitutional distribution of powers and to avoid the necessity of negotiations with the provinces to clarify constitutional responsibilities or to establish the mechanisms of shared-cost programs.

Another use of the federal spending power—namely conditional grants to provinces in areas of provincial jurisdiction—has led to most of the controversy over the spending power. While not invading provincial jurisdiction directly, such devices as shared-cost programs are an effective means of indirectly accomplishing the same result. This is not to say that shared-cost programs have not been beneficial. In the absence of a developed system of interprovincial coordination, they facilitated a common provincial approach to common problems. In cases where the extraprovincial effects of one province’s action or inaction are particularly great, shared-cost programs ensure that the burden of providing the benefits is more equitably shared among the people of Canada.

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Shared-cost programs have also been justified by the argument that they allow the poorer provinces to provide a higher standard of public services than would otherwise be possible. Aside from fiscal considerations, another justification, though not explicitly stated, is that shared-cost agreements encourage provinces to provide programs they might otherwise have rejected. In our opinion, this does not justify the erosion which would thereby take place of the provincial ability to establish its own expenditure priorities.

There are other strong arguments against the use of conditional grants in areas of provincial jurisdiction. To start with, in the most general terms, a federal system assigns certain responsibilities to the central and to the regional governments. Each level of government is then responsible for establishing its own expenditure priorities. There should be a division of revenues between the two levels of government such that each can carry out its assigned responsibilities without requiring financial transfers (with the attendant opportunities for influence) from the other level. Each level of government should be able to operate without interference from another level. For instance, there should be no assumption that the judgement of the central government should take precedence over that of the provincial governments, when the central government believes a matter within an area of provincial jurisdiction is of national priority. Experience has shown only too clearly that shared-cost programs have often compelled a provincial government to divert resources to the centrally-set priority in order to take advantage of the money being offered—money obtained in the first place by taxation of the province’s residents. Therefore, whether or not a province joins a particular shared-cost programme, its capacity to raise revenue is reduced, and its priorities are distorted.

Further, as has been obvious at recent federal-provincial meetings, regional diversities are a fundamental characteristic of Canada. Different patterns of settlement and different degrees of urbanization have produced considerable regional variations, including great differences in administrative, economic and other capabilities. To date, shared-cost programs have taken little account of these regional differences and preferences, tending

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to enforce a common pattern which is often too rigid and too detailed.

Ontario therefore proposes:

1. As a basic ground-rule, the sharing of tax fields between the two levels of government in such a way that each can meet its own expenditure responsibilities in a manner of its own choosing:

2. the use of conditional-grants only when there is a clear federal-provincial consensus that the proposed program is the best way of handling a particular problem. (The means of determining whether or not a consensus exists is discussed on pages 6 and 7).

In addition, Ontario suggests that all alternatives should be carefully considered before the adoption of a shared-cost program is decided upon. Some alternatives are as follows:

1. Problems requiring national solutions:

a) In the event that most or all provinces find themselves facing a problem so complex and with so many extra-provincial ramifications that it is beyond their capacity to handle, consideration should be given to formal constitutional amendment to change the locus of responsibility.

b) Problems common to many provinces might also be dealt with by an expanded degree of interprovincial cooperation, in order to achieve coordination and compatibility of programs within provincial jurisdiction. The example of the Council of Ministers of Education, which now has a permanent secretariat, could well be followed in other fields, including overall interprovincial relations.

c) Another alternative to shared-cost programs would be through block or unconditional grants. While these approaches violate the basic Ontario position regarding the sharing of revenues, they do not involve the same degree of interference with provincial priority-setting.

d) The development of a much more sophisticated system of federal-provincial coordinating machinery is a further alter-

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native. Such machinery would facilitate the flow of technical information and communication among the provinces.

e) A more extensive use of administrative and/or legislative delegation.

2. Problems requiring regional solutions:

Where the main purpose of a shared-cost program is to benefit particular regions of the country, consideration should be given to these alternatives:

(a) a more extensive use of administrative and/or legislative delegation;

(b) an increase in equalization payments; and

(c) a greater channelling of funds to regional agencies. Alternatively, the federal government and the provincial governments comprising a region might participate in regionally- oriented shared-cost programs, which would not require approval by the national interest formula.

Failing these alternatives, a nation-wide shared-cost program, such as we are familiar with today, could prove to be an appropriate means of meeting the problem, provided that the program’s time-limits and conditions were very cleanly spelled out. However, difficulties arise when one or more provinces are not in favour of the establishment of a shared-cost necessary to devise a formula to determine whether a consensus exists among the federal and provincial governments on the need for a particular proposed shared-cost program. The process of arriving at this consensus should mitigate many of the problems experienced with past shared-cost programs, such as the lack of consultation, the effective compulsion on provinces to enter, and the serious distortion of provincial priorities.

Briefly, we would suggest as a formula the following: a proposed shared-cost program may only be initiated with the approval of seven of the ten provinces, containing at least 60 per cent of the country’s population. The manner of determining a province’s position is a matter for the province’s government to decide.

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Where a proposed program has received the required approval, financial loss should not be suffered by the province or provinces which have declined to participate. This can be arranged in the following alternative ways:

(a) the federal government should raise the funds for shared-cost programs only in the provinces which decide to participate. This could be done by some form of premium or an income-tax surcharge in order to avoid differential bases and differential general rates across the country; or

(b) the fiscal equivalent (or at least 90 per cent of it) of what the province would have received had it decided to participate in the shared-cost program should be paid directly to the government of the province. (Less than full fiscal equivalence is suggested because an unconditional grant or equivalent tax room has the added advantage of greater provincial flexibility in allocation of such funds within the provincial budget than grants tied to a specific program.)

Either of these we believe to be an improvement on the federal proposal to make payments directly to individuals in the non-participating provinces. Such a scheme could lead into an administrative morass, and would contain elements of equalization and income-redistribution, objectives better attained through the general tax system and through equalization payments. Direct payments could not precisely return the tax money to the individuals who paid it; thus the province would not have the option of increasing its tax take to the full extent of the federal repayment.

To sum up: while our views, as expressed in this paper and in our propositions, are still subject to modification, the Ontario Government believes that shared-cost programs in areas of provincial jurisdiction should be kept to a minimum, and should be employed only when a federal-provincial consensus exists as outlined in this paper. Further, the details and conditions of such programs should be spelled out in formal agreements. Such agreements should help to eliminate many of the differences that have arisen in recent years as a result of changes in interpretation in the course of an agreement, or because of a freezing or stretching-out of payments. Our basic position is that an equitable sharing of tax

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fields between the two levels of government in line with expenditure responsibilities would eliminate one of the basic reasons why, since the war, shared-cost programs have been so frequently initiated in spheres of provincial jurisdiction.

Extracted from document 81(2)—Related Propositions

5.21.49. The federal government must retain responsibility for the general direction of the national economy and have powers adequate to meet this responsibility.

EXPLANATION:

1. Full employment, price stability and economic growth are the principle objectives in the management of a country’s economy. Since no provincial government alone can achieve these objectives for the whole country, the federal government must be able to exercise fiscal and monetary powers sufficient for the purpose.

2. As far as economic growth is concerned, the federal government must have power to combat regional economic disparities. As the provinces are responsible for economic growth within their own boundaries, they will also have a vital role to play in this endeavour.

5.22.50. The Federal Parliament and provincial legislatures should have the power to raise revenues for the purpose of carrying out their own constitutional responsibilities. In addition, the federal Parliament should have the power to raise revenues for the purpose of making unconditional transfers to the provinces and conditional transfers which meet rules agreed upon by the federal and provincial governments.

EXPLANATION:

1. The federal government is best able to undertake the responsibility of attempting to equalize conditions and opportunities across the country. It must have the constitutional responsibility to make equalization payments to those provinces qualifying under an equalization formula, or to institute special unconditional payments to provinces, for example, the Atlantic Provinces’ adjustment grants. It must also have the power to raise revenues for this purpose.

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2. The federal government should also have the right to make unconditional grants to the provinces, for example, in lieu of the transfer of additional tax room at any particular time. The payment of these grants would have to be preceded by full consultation with the provinces.

5.22.51. The use of shared-cost programs in fields of provincial jurisdiction should be minimized.

EXPLANATION:

1. The history of federal-provincial relations demonstrates how shared-cost programs allow the national government to determine the priorities of provincial governments. This result runs counter to the principles of responsible government and of federalism. It also adds vastly to the complexity in the budgetary process of all governments.

5.23.51 2. The different needs and capabilities of the various regions of Canada would be better served by a greater use of unconditional grants, interprovincial arrangements, administrative and/or legislative delegation, and more sophisticated intergovernmental machinery permitting a freer flow of technical assistance.

5.23.52 Federal-provincial shared-cost programs should be instituted only with the prior consultation and agreement of the provincial governments concerned, and those provincial governments not wishing to participate should not, as a result, incur substantial financial penalties.

EXPLANATION:

1. Experience in Canada has shown that the capabilities, desires and needs of the various provinces differ significantly. Hitherto, these regional differences and preferences were often ignored in an attempt to obtain national uniformity in certain programs.

2. Although a degree of uniformity and portability of programs among the provinces is desirable, the public interest is better served in most areas oi provincial jurisdiction if each provincial government establishes programs which, in its opinion, clearly meet the needs and priorities of its people. Portability and a certain degree of uniformity of programs can be achieved by appropriate intergovernmental machinery.

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3. Uniformity should not be imposed from above, particularly when the responsibility for action lies with the provinces. For this reason, shared-cost programs in provincial fields should be reduced to a minimum. Other and better means of achieving the same ends are available.

4. For some provinces, of course, there may be instances where a shared-cost program is most suitable. In these instances, those provinces not wishing to participate should be given, after negotiation on details, a high percentage of the amount in unconditional payments or additional tax room that would otherwise be available if they participated in the program, “or preferably no taxes to finance the federal share should be collected in such provinces”.

SUBJECT: THE MACHINERY FOR INTERGOVERNMENTAL RELATIONS

5.23.53 Provision should be made for regular reviews of the spending responsibilities and revenue-raising capabilities of the two orders of government in order that each government has sufficient funds to discharge effectively its constitutional obligations.

EXPLANATION:

5.24.53 1. Revenues and responsibilities should as far as possible be in balance. One order of government should not be expected to raise revenues considerably in excess of its spending requirements in order to transfer this surplus to the other order of government. Rather, political responsibility demands that each government raise its own revenues as far as possible.

2. Canadian fiscal machinery should require the federal government and the provinces to review jointly their expenditure responsibilities and revenue-raising capabilities. This might be carried out by an independent body of experts, or by the Tax Structure Committee. If it is of the opinion that a revenue-responsibility imbalance exists, it could recommend either a revision of the then-existing tax sharing arrangements or consideration of an appropriate constitutional amendment.

SASKATCHEWAN—SECTION 4

Extracted from document 81(2)-Related Propositions

7.1.7. The central government must have adequate economic and fiscal powers to

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ensure stable economic growth, cope with unemployment, combat inflation and deflation and to promote equalization of opportunity in the various provinces and areas of the nation.

7.1.9 The Parliament of Canada shall not have the power to make special arrangements with any province in respect of federal programs which are by their nature applicable across the nation.

ALBERTA—SECTION 5

Extracted from document 209 Federal Provincial Constitutional Conference, December 1969

The Honourable Harry E. Strom—(pp. 25-33).

7. SPENDING POWER OF PARLIAMENT

Before becoming specific about the subjects and questions involved in the spending power, we want to outline briefly the background for our position on the question.

Federalism may be seen as a form of government designed to get the best of two worlds: the advantages which accrue from a unified state, and the benefits of the diversity which is inherent in the people and regions which make up the federal union.

Federalism is a dual form of government calculated to reconcile unity with diversity. Both levels of government have jurisdiction over the same people. The vital core of the federal constitution is the division of legislative powers between the central authority and the component parts of the union.

Division of Powers

The division of powers in Canada represented the greatest common measure of agreement which could be formulated among conflicting interests, No constitutional settlement can be correct for all lime. The obsolescence factor in the division of powers is further aggravated by the lack of a formal amending procedure.

The increase of government activity and the subsequent increase in the cost of government and demands for service mean that the authority to deal with many of the new areas of important activity are within the jurisdiction of the Provinces. At the same time the Provinces cannot find in the limited resources open to them the power to raise the revenues they need to meet the increased demand for social services.

The Federal Parliament has turned with increasing frequency to the use of conditional grants for access to fields of jurisdiction

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which are unquestionably within the powers of the Province. What sort of basic philosophy should the provinces hold and bring to a discussion on the division of powers?

Strong Provincial Governments

Our view is that a viable federal union is only possible in the context of strong provincial governments. Translated into meaningful terms, this means provincial autonomy. A province has genuine independence only if it has the revenues at its disposal to carry out those functions for which it is responsible and free from federal control.

It is necessary that the provinces have sufficient money to discharge adequately those responsibilities with which they are charged under the Constitution.

The Federal Government’s June 1969 working paper, “Federal-Provincial Grants and the Spending Power of Parliament”, indicates that the Federal Government is prepared to guarantee an illusory autonomy, since it is quite clear that central authority does not intend to alter radically its use oi’ the spending powers.

Restricted Use of Spending Power

The evidence is that the spending power has come in many ways to rival in importance the division of powers in determining the role of the Federal Government. Although the Federal Government’s assumed spending power has never been challenged directly, it is our view that this ought to be carefully examined. The Federal Government’s position, it seems to us, is that it is not legislating in the provincial fields since it has the constitutional authority to spend, providing the legislation does not itself purport to regulate a provincial field.

But what kind of an argument is this? Can it be said that when Parliament appropriates money in aid of housing or medicare or vocational schools and stipulates in some detail the conditions under which the provinces can obtain the money, Parliament is not in fact legislating in these fields?

If the word “federal” is to have any meaning at all, we must not ignore the concept of provincial autonomy and the actions which will be necessary to allow the provinces jurisdiction in their own fields.

The Rowell-Sirois Commission explicitly rejected the position that the Federal Govern-

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ment has a direct responsibility for the standards of which particular provincial services were rendered. This in the final analysis is the duty of the provinces and finally, of provincial electorates.

The Federal Government, in its most recent proposal, moved one step in the direction of acknowledging the grievances of the provinces over the use of the spending power by suggesting meaningful consultation in the introduction of shared-cost programs involving the provinces. But when the Federal Government goes on to propose that although provinces who do not wish to participate don’t have to, these provinces will not receive a fiscal equivalent.

According to the paper, the central government would make compensatory payments to non-participating provinces directly to the citizen.

This is a totally unacceptable proposal, contrary to the spirit of federalism, disruptive of the federal bargain, and can only be looked upon as designed to entrench the current position of the federal spending power.

It is our view that the Federal Parliament must recognize the principle of provincial autonomy and the undoubted right of the provinces to decline entry into shared-cost programs with no consequent financial loss. The use of the federal spending power involves the whole question of provincial autonomy and responsibility.

The proposal concerning the spending power has come to rival in importance the division of powers in determining the effective role of the provinces and the Federal Government. It appears to us highly unnecessary at this time to consider any further the complicated formula which the Federal Government has proposed for study as to the future consensus relating to shared-cost agreements.

Just as the Federal Government is ensuring that it retains authority and undoubted right to legislate in fields which are in its jurisdiction, so we feel that the provinces must take the same view toward those areas which are in their jurisdiction and which are their responsibility. This, we believe, is consistent with our View as stated earlier in this paper, that we ought to encourage greater intergovernmental liaison and establish more formal machinery to ensure that there is adequate consultation and understanding of what both the Federal and Provincial Governments are attempting to do in the various fields.

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New Areas of Responsibility

We must continually be aware of the important question as to whether the provincial and municipal governments will be in a position to cope with the new and increasing problems of industrialization and urbanization and further, whether the Constitution itself is sufficiently adaptable to accommodate the types of intergovernmental arrangements which we have argued will become necessary in the decades ahead.

The migration to urban areas which we are experiencing across Canada will undoubtedly tax the full capacities of both levels of government to create solutions for urban problems and could place severe strains on Federal-Provincial relations.

The gap between responsibilities and revenues which has been a continuing source of friction could widen as increasingly large amounts of revenue are required to finance costly urban development.

The delicate equilibrium which characterizes the division of powers could be challenged under the pressure of these new problems and the pressure of urban problems in the next decade.

Problem Areas Requiring Expenditure

We must consider the additional questions such as those raised by The Economic Council of Canada. They include the need for long-range comprehensive planning of urban space, modernization of local government structures, power and administration, strengthening of the educational and training base for local government, technical, professional administrative personnel, development of supports for local revenue systems, greatly increased research into problems associated with local government and the updating of attitudes and approaches to overall urban development. Then there are the social factors related to this whole question, and a large part of these considerations will involve increased government expenditure on behalf of the services which both industrialization and urbanization will continue to make necessary.

Extracted from document 81(2) —Related Propositions

8.3.11 To minimize regional dissatisfactions in the economic sphere, there is need to develop a more equitable distribution of the financial means to meet clearly-defined federal and provincial responsibilities and a formula that will ensure the basic social requirements of

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all Canadians without widespread disparity in the standards of service or cost to the individual citizen.

At the same time, care must be taken to avoid retarding further growth by unjustly penalizing those regions of Canada whose economic development contributes most to national revenues and to the gross national product on which the prosperity of the nation depends.

BRITISH COLUMBIA—SECTION 6

Extracted from document 208 Propositions to the 3rd Constitutional Conference (p. 3).

The Spending Power of the Parliament of Canada

Until such time as the direct tax fields are returned to the provinces as I have suggested, British Columbia recognizes that it is desirable for the Government of Canada to have constitutional power to make conditional grants to provinces in aid of shared-cost programs in matters of national interest which, strictly speaking, come under exclusive provincial jurisdiction. In matters of national significance to all Canadians such as medicare and hospitalization, British Columbia is agreeable to the Federal Government implementing shared-cost programs subject to the following conditions: —

1. There must be a “national consensus” in favour of a new shared-cost program as reflected by the Parliament of Canada and a sufficient number of the provincial legislatures before a new shared-cost program is entered upon.

2. There must be adequate safeguards to ensure that once a program is embarked upon, the Federal Government will not withdraw its financial support or so alter the terms of the program as to shift all or a portion of the financial burden for its continuance upon the province.

3. The provinces which decide not to enter upon a new shared-cost program should not be paid the fiscal equivalent. British Columbia considers that “opting out” with the fiscal equivalent is contrary to the concept of co-operative federalism,

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and if carried to the limit, would ultimately destroy our whole federal system.

Extracted from document 81(2) —Related Propositions

SUBJECT: THE DISTRIBUTION OF LEGISLATIVE POWERS

(a) Taxing Powers

9.6.14 The capacity of each government to tax must be sufficient for each government to effectively discharge its constitutional obligations. Accordingly, the Federal government should leave exclusively to the provinces the direct tax fields of personal and corporate income taxes and succession or estate taxes. Having done that, the Constitution should restrict the spending power of the Federal government to those matters under its jurisdiction.

(The following proposition 9.7.20 was presented by the Province of British, Colombia on June 12, 1969)

9.7.20 The Constitution should impose a duty on the Government of Canada to lessen economic disparities among citizens of Canada wherever they be found, and to the extent that the duty can be discharged through the use or a negative income tax, such expenditures should have priority on the revenue derived from corporate and personal income tax.

GENERAL SOURCES—SECTION 7

Extracted from document 75

A. Briefing paper on discussions within the Continuing Committee of Officials—(pp. 48-49).

3. Fiscal and Economic Considerations—

(a) It was observed that certain important government activities involve the legislative powers of both the federal and provincial governments; these include economic growth, redistribution of income and social security, taxation and spending powers.

(b) One view expressed was that if certain fundamental economic objectives were accepted, they might have quite

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important implications for the distribution of powers. For example, it a recognized objective were to maximize economic growth, it was suggested that this might influence the distribution of responsibilities and powers in such fields as transportation and communications, industry, financial institutions, commodity standards, and others. The objective of reducing regional economic disparities, it was suggested, could imply that the Federal Government should have powers to promote integrated action across a wide range of fields.

(c) Another view was that national economic policies do not always have the appropriate effects for alleviating economic problems of a localized nature, and some economists have been placing great emphasis on regional solutions. A fundamental question would be whether regional needs could be better handled on a regional or a national basis.

(d) A further observation was made agreeing that fiscal and economic considerations would have to be taken into account when distribution of powers was being examined. It was suggested that these considerations could lead in three possible directions:

(i) toward greater centralization of power with the Federal Government;

(ii) toward careful definition of exclusive responsibilities for both levels of government and development of appropriate machinery for cooperative action;

(iii) towards provision of concurrency of powers in a number of areas.

In this connection, one view was expressed that the best solution might be found in a combination of (ii) and (iii).

Extracted from document 149
Conclusions of June 1969
Working Session—(pp. 3).
Agenda Item 1 b)—

The second major item of discussion concerned the exercise of the spending power of the Parliament of Canada. Most delegations agreed that the present power of Parliament to make payments to individuals or to institutions should not be subjected to any constitutional limitation; one province, however,

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reserved its position until the question of the distribution of powers had been dealt with, while some other provinces expressed the view that this federal power should in practice be exercised in consultation with the provinces. It was also noted that some differentiation of institutions might be required before this principle could be finally accepted.

There was general agreement that there should be no constitutional restriction on the power of the Parliament of Canada to make unconditional grants to provincial governments; one province, however, expressed the view that the establishment of a negative income tax plan, administered by the Government of Canada, would make such payments unnecessary.

Extracted from document 174(1)

A. Briefing paper on discussions within the Continuing Committee of Officials—(pp. 4-19).

THE SPENDING POWER

Introduction

1. When the Constitutional Conference discussed the subject of “The Spending Power”, at the Working Session held in June 1969, it recorded the following conclusions with respect to the power of the Parliament of Canada to make conditional grants to provincial governments:

“It was generally agreed that the Parliament of Canada should continue to have the power to make conditional grants to provincial governments, provided there is a satisfactory formula for determining a national consensus in favour of particular programmes, and provided there is a satisfactory formula for compensation in non-participating provinces.

With respect to the formula for determining the consensus, there was agreement that the Parliament of Canada and the provincial legislatures would be the appropriate bodies to determine whether a consensus exists, and there was general agreement that the formula should reflect the regional character of the country. However, one province stated that while it agreed with the principle of establishing a consensus, it considered that the formula for amending the Constitution might well provide the basis for reaching consensus. It was further agreed that the

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Continuing Committee of Officials should look again at alternative formulae.

There was general agreement that there should be no fiscal penalty upon the people of the non-participating provinces and that the ways of achieving this would be discussed at future meetings.”

2. In accordance with the specific instruction from the Conference, the Continuing Committee has given additional study to alternative approaches for determining when a national consensus exists favouring proposed shared-cost programmes. It has also given further attention to the question of compensation in non-participating provinces. The paragraphs which follow present in summary form the main points which arose during the Committee’s discussions.

The Method for Determining a National
Consensus—General Considerations

3. In general terms, two main points of View were reflected in the Committee’s discussions. Some delegations favoured the approach of writing into the Constitution a specific formula for determining a national consensus on new shared-cost programmes in areas of exclusive provincial jurisdiction. Other delegations expressed concern about any constitutional limitation on the spending power of the Parliament of Canada, and suggested instead that appropriate consultative or administrative arrangements could be devised to ensure that provincial views were taken into account before new shared-cost programmes were initiated in areas of provincial jurisdiction. There was some question as to whether the Constitutional Conference’s instruction left the Committee with the latitude to examine the latter point of view. It was thought, however, that the Committee should not assume that the “alternative formulae” referred to in the Conference’s conclusion meant only mathematical type formulae which would be written into the Constitution.

4. Those favouring a constitutional formula made the following points:

(a) It is the essence of federalism that some power must be reserved from the rule of the majority. Dissatisfaction caused by the use of the federal spending power in the past was one of the main reasons for launching the constitutional review. The formula approach would provide for action in the national interest in

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areas of provincial jurisdiction, while giving some assurance to those who were concerned about the potential erosion of provincial power through the exercise of the federal spending power.

(b) There would be certain practical difficulties in implementing other approaches. For example, it would be very difficult to define the term “consultation” in a way which would ensure a common understanding of what was involved or a general agreement as to when satisfactory consultation had been carried out.

(c) The use of a formula would ensure that consultation would take place, because it could not be expected that Parliament would debate a new shared-cost programme proposal unless consultations had shown that the proposal was likely to be accepted by most provinces.

(d) The use of a formula could help to ensure adequate recognition of regional interests.

5. Those not favouring a constitutional formula made the following points:

(a) It was necessary, to ensure the well-being of the country as a whole, that the federal government should retain a general, unrestricted spending power which it could exercise in the national interest. The interest of the provinces could be sufficiently protected if a constitutional obligation were placed on the federal government to consult the provincial governments concerning matters coming within their jurisdiction.

(b) Any formula would be cumbersome in nature and would prevent the country from reacting quickly to meet new national needs.

(c) The formula approach could mean that there would be no new shared-cost programmes of national scope.

(d) A formula which was entrenched at this time could prove to be inappropriate for conditions in the future, and it might then take a long time to make any adjustments, due to the usual difficulties in amending constitutions.

(e) There would be a problem in knowing when the formula should be applied. It would not always be clear, for example, when a proposed programme was primarily “national” or “regional” in nature.

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6. The general observation was made that the discussion on a consensus formula was complicated by the fact that there are two main categories of cost programmes:

(a) programmes which are national in scope, to be applied uniformly across the country (e.g.-medicare),

(b) programmes of regional impact (e.g. ARDA or FRED)

It was suggested that perhaps the day of major new “national” shared-cost programmes was largely past, and that the emphasis in future would be on the regional type of programme. If this were the case, perhaps a formula for consensus would be largely redundant in future.

Alternative Formulae for Determining a National Consensus

7. The Committee examined a number of specific suggestions for constitutional formulae for determining a national consensus. The following paragraphs give a summary of these Suggestions and the discussions related to them.

8. Senate Region Formula

One proposal was that the determination of national interest should be based on the approval of the Parliament of Canada and a specified number of provincial legislatures in at least 3 of the Senate divisions.* This formula was put forward by the Government of Canada in “Federal-Provincial Grants and the Spending Power of Parliament”. The following points arose in the discussion of this formula:

(a) Some delegations expressed reservations regarding the use of the Senate divisions as a framework for measuring the national interest, particularly since some provinces took the position that the existing divisions were not appropriate for present-day Canada and because the form and role of the Senate were under

*Support in each Senate division would be defined as follows (3 out of 4 required):

(1) approval by the Ontario Legislature (2) approval by the Quebec Legislature (3) approval by at least two legislatures in the four Western Provinces (4) approval by legislatures in at least two of the four Atlantic Provinces having at least 16 of the 30. Senate seats of that region.

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review. In response to this reservation, it was noted that the proposal envisaged a modification of the formula, should the definition of the Senate regions be changed.

(b) Some delegations suggested that this formula was unnecessarily complex, and that a simpler formula would be preferable because, it would be more readily understood by the people. Another view was that some complexity had to be accepted, if one objective was to ensure that the formula reflected the regional character of the country.

(c) Doubt was expressed about the appropriateness of the suggestion that, in two of the existing senate divisions, the affirmative vote of two out of four provinces could be taken to represent a consensus in a region. In response to this, it was noted that the formula was meant to provide a measure of whether or not there was sufficient support for a proposal to warrant initiating a shared-cost programme; a requirement for unanimity of 10 provinces would be too stringent for this purpose. It was pointed out that individual provinces would still have the option of not participating, after a favourable consensus had led to the establishment of a new programme.

(d) It was pointed out that it was possible under this formula, with a certain combination of votes, to gain a consensus with the support of provinces representing less than half of the population of Canada. At the same time, it was observed that this was not necessarily inappropriate, depending on how much emphasis it was desired to place on the regional factor.

9. Population plus Provinces Formula

Another proposal was that a shared-cost programme should only be initiated with the approval of seven out of ten provinces, containing at least 60 per cent of the population. This formula was put forward by the Government of Ontario in “The Ontario Position on the Spending Power”. In the discussion of this formula, the following points were made:

(a) In support of this formula, it was observed that it had the virtue of simplicity and it avoided bringing the Senate or any other institution into the computation.

(b) It was also suggested that the combination of a number of provinces plus a percentage of population did, to some extent, recognize the regional factor. Another view was that the formula would not adequately meet the objective

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of reflecting the regional character of the country.

(c) A number of delegations were concerned that under this formula the Province of Ontario could in future, with the support of only one of a number of the other provinces, veto a shared-cost programme proposal.

(d) It was observed that the voting power of the smaller provinces (in determining a consensus) would, in effect, be less under this formula than under the one previously considered.

10. Population plus Regions Formula

A further suggestion was that a consensus could be achieved if six provinces, including at least one from each of Western Canada, Central Canada and the Atlantic Provinces, representing at least 51 per cent of the population, approve of the proposal. It was observed that this formula could meet some of the criticism of the preceding formula, in that it gave greater recognition to the regional factor and cut down on the potential veto power of some provinces.

11. Regional Formula

Another possibility put forward in the Committee was that the consensus could be based on the approval of Parliament and the legislatures (or a majority of legislatures) in 3 of 5 regions—the Atlantic Provinces, Quebec, Ontario, the Prairie Provinces, and British Columbia. It was suggested that this approach would give a better reflection of the current regional character of Canada, while avoiding the complication of tieing the formula to Senate divisions.

12. Provinces Formula

Another suggestion was that the approval of Parliament and of a majority of the provincial legislatures should constitute a consensus. The view was expressed that all provinces are, equal partners, as far as matters under provincial jurisdiction are concerned, and therefore a simple majority of the provincial legislatures would be appropriate.

13. The point was also made that it might be desirable for any formula for measuring consensus to be similar to whatever formula is devised for amending the Constitution.

Other Approaches to Determining a National
Consensus

14. Some delegations expressed the view that it would not be wise to entrench in the Constitution a specific arithmetical formula (see the arguments described in paragraph 5, above). They suggested other approaches for taking provincial interests into account, while

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leaving the federal government with the power to make conditional grants in areas of provincial jurisdiction, after certain conditions had been met.

15. The view was expressed that improved arrangements for federal-provincial consultation could be enough to resolve the dissatisfactions which had led to the proposal of a constitutional formula. One suggestion was that a constitutional provision which required the federal government to consult with the provinces prior to introducing a new shared-cost programme might help to ensure improved consultation in future. Another view envisaged a three part approach to shared-cost programmes, involving:

(a) formal federal-provincial consultations, (b) bilateral agreements between the federal government and individual provinces, (c) compensation to non-participating provinces.

16. Some delegations expressed doubt that it would be sufficient to rely on consultative arrangements. For one thing, it would be difficult to define what consultation is, or to agree on when it had taken palce, or to determine with sufficient precision the extent of provincial approval or disapproval. It was observed that consultation with different ministers within a single government often elicits divergent views within that government, which prevents the determination of a consensus.

17. The thought was expressed that it might be possible to find some approach which would provide a happy medium between the rigidity of a formula and a complete reliance on good faith under consultative arrangements. One suggestion was that a fromula for measuring consensus could be established by some form of administrative agreement, while a rigid constitutional provision could be avoided.

18. In the course of the discussions, certain other ideas appeared which are noted below:

(a) The suggestion was made that if the Senate were changed, so that some or all of its members were appointed by provincial governments, then perhaps a vote in the Senate might be use to determine whether a provincial consensus exists favouring a shaped-cost programme proposal.

(b) A suggestion was also made that perhaps the Judiciary could be relied upon

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more in the determination of the national interest. The view was expressed that current problems might be due in part to the fact that there had been too much reliance on ad hoc political arrangements in the past, and that the courts could be used more than they have for the development of appropriate principles.

Compensation in Non-Participating Provinces

19. Several delegations expressed the view that, the concept of compensation in non-participating provinces must form an integral part of any approach to shared-cost programmes in future.

20. One of the primary methods for compensation which have been considered would involve payments to individuals. Under this approach, the federal government would pay part of any approach to shared-cost programs equivalent in the aggregate to the average amount paid to governments of participating provinces. In the discussion, the following points were made to clarify this idea:

(a) It was observed that it would not be possible to compute the exact amount of tax paid by each individual taxpayer toward a particular programme. Payments would have to go to individuals on some demographic basis. It was suggested that payments might be made to heads of families by way of family allowance mailings. Alternatively, the grants might be made in connection with income tax returns. In this case, there would be no relationship between the amount of a refund and the amount of income tax paid; it would just be a matter of using the occasion of the income tax transaction to get the rebate to the individual.

(b) It was suggested that if this approach were followed, there should be some escalation factor provided in the payments to individuals within provinces, so that non-participating provinces would not be penalized by the method of computation, as the costs of a programme increased.

(c) There was some discussion on the idea that compensation should not be paid to individuals in provinces where the legislatures had not considered a particular shared-cost proposal. The purpose of this would be to ensure that the federal and provincial governments would not be left in the position that some provinces might simply refuse to act, when a proposal for a shared-cost programme had been

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advanced. One view was that individuals should not be penalized for the lack of action by a government, and that perhaps a constitutional obligation for legislatures to consider shared-cost proposals would be a satisfactory substitute for a financial penalty. Another view was that a constitutional obligation of this sort would be of doubtful value, since it was difficult to envisage any other form of penalty than the financial one, if the obligation were not met.

21. The main alternative approach which was discussed involved the federal government paying directly to a provincial government, which had rejected a programme, the fiscal equivalent of the taxes collected in that province to finance that programme. One variation of this idea was that at least 90 per cent of what a province would have received, had it decided to participate in the programme, should be paid directly to the provincial government.

22. The arguments which were expressed in favour of compensation to individuals were as follows:

(a) The federal government has a direct responsibility to those who pay taxes to it. If certain of its taxpayers are denied the benefit from a general, Canada-wide programme, it is these taxpayers who should, be compensated, not a provincial government.

(b) It would be illogical not to make the payments to individuals, since the proposal for compensation had been developed to meet the criticism made in past years that the residents of a province were penalized when their provincial government decided not to participate in a shared-cost programme.

(c) A shared-cost arrangement is designed to compensate particular provincial governments for adapting their priorities and/or programmes to an agreed national interest. It would be illogical to compensate governments of non-participating provinces for not adapting their priorities and/or programmes to the agreed national interest; this could undermine the possibility of achieving a national consensus.

23. The arguments which were expressed in favour of compensation to governments were as follows:

(a) It would be simpler and less costly to make one large payment to the provincial

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government rather than a multitude of small payments to individuals. Provincial governments could return the money indirectly to the people through increased services, or decreased taxes or special grants to municipal governments.

(b) The federal government could not in any event, return the specific payments made by each individual taxpayer. Because of this, the federal action would cause some alteration of the tax base within a province which could make it more difficult for a provincial government to use certain tax fields for its own priorities.

(c) Furthermore, the approach of making payments to individuals would involve a redistribution of money. Some individuals who has paid no tax would receive a grant, while other taxpayers would receive much less than they had contributed in respect of a particular programme.

24. Another idea which was discussed was that the federal government should levy personal taxes for particular shared-cost programmes and that such taxes should be levied only in those provinces which were participating in those programmes. The following points were made on this subject:

(a) According to one point of view, it was bad in principle for the government of a country to impose different rates of personal taxation in different parts of the country. It was observed that in the United States the constitution expressly forbids differential taxation.

(b) Another point of view was that differential taxation need not be dangerous, in practice. In effect, it was argued, the federal government is collecting different levels of income taxes now, because of provincial surcharges (or because of special abatements in one province); it might not seem that significant, therefore, if a few less income tax points were collected in some provinces because of non-participation in certain programmes. It was observed also that differential fiscal policy was considered to be appropriate in some circumstances.

(c) It was pointed out that, under a system of differential taxation, the tax burden on a participating province could be much higher if the wealthier prov-

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inces were not participating. In other words, the income redistribution element of shared-cost programmes from high income to low income provinces could be eliminated if the high income provinces were te ones to refrain from participating. In response to this, the view was expressed that income redistribution should not, in any event, take the form of “implicit equalization” which was hidden in shared-cost programmes; instead equalization should take the form of one specific payment which could be readily identified. A further observation was that the general equalization formula would have to provide for substantially higher payments, if this view were adopted.

25. A further proposal was related to the idea that there should not be any formula for identifying consensus, but that new shared-cost programmes should be entered into on the basis of bilateral agreements between the federal government and individual provinces, after formal federal-provincial consultations had been carried out. The proposal was that the federal, government should make compensatory payments only to those provinces not entering bilateral agreements whose per capita income is equal to or less than the per capita income of the province or provinces agreeing to the scheme bilaterally. It was argued that public opinion would support the absence of compensatory payments to provinces having a per capita income substantially higher than the provinces entering an agreement. A contrasting argument was that this approach would mean, in effect; that the richer provinces would be left in the position that they could not afford to be non-participating in respect of any shared-cost programme.

26. Another suggestion was that a system of “block grants” might be devised which could be related to a list of programmes deemed to be in the national interest; then, if a provincial government did not wish to enter into an agreement with respect to one programme, it might nevertheless be given a grant provided this were spent on other programmes having a national interest. A view

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was expressed that it would be difficult to devise such a list of programmes with any kind of balance in the amounts of money involved, since various programmes differ widely in size. It was also argued that this approach would not really meet the objective for leaving room for a particular action to be taken in the national interest.

27. A further point was that the federal government should at least consult the non-participating provinces concerning the manner in which the compensation would be paid.

28. A suggestion was also made that if the federal government adopted a more flexible attitude with respect to shared-cost programmes in future, than perhaps the approach of establishing a consensus and paying compensation would not be required, and all the attendant complications could be avoided. Extracted from document 212 Conclusions of Third Meeting.

3. The Spending Power: Federal Grants to Provincial Governments

(Agenda Item 1(b))

The Conference considered two questions raised in the federal proposals: the determination as to when there was a sufficient consensus favouring the introduction of new shared-cost programmes in fields of exclusive provincial jurisdiction, and the method which might be adopted for avoiding a fiscal penalty on the people of the provinces which decided not to participate in the programmes.

(i) Consensus—Most First Ministers agreed that the Constitution ought to require the determination of a consensus, on a regional basis, before the Parliament of Canada could enact new and general shared-cost programmes in areas of provincial jurisdiction. The principal suggestions were that the legislatures of three out of four, or three out of five regions of Canada having a majority of the population, ought to be required to agree to any proposal from Parliament for a new federal-provincial programme before it could become effective. (Where a region contained three or four provinces the approval of two legislatures would be required.)

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The governments of Manitoba and New Brunswick were of the view that no formal requirement should exist as to how many provinces must agree before Parliament could undertake a new general shared-cost programme. Rather the Constitution should impose an obligation upon the federal government to consult all provinces before initiating Such programmes.

Queen’s Printer for Canada, Ottawa, 1970


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