Transcript: Contemporary Issues in Canadian Federalism Series: The Fundamentals of Fiscal Federalism
[The CSPS logo appears onscreen alongside text that reads "Webcast".]
[The screen fades to Charles Breton in a video chat panel.]
Charles Breton: Good afternoon, everyone. Welcome to this event entitled Fundamentals of Fiscal Federalism. Thank you for joining us. My name is Charles Breton. I am the Executive Director at the Institute for Research on Public Policy Centers of Excellence on the Canadian Federation.
This event is the second in a series created through our partnership between the School and the Center of Excellence on Contemporary Issues in Canadian Federalism. I'll just say a few words to introduce today's discussion and connecting it to some of the ideas we presented in the first event, and then we'll pass it over to your moderator for today.
So, let me start, however, by acknowledging that the land from which I am talking to you is the unceded traditional territory of the Kanien'gehaga. I recognize that we all work in different places and therefore you work on a different traditional Indigenous territory. Please take a moment to consider the first peoples of the land that you are in.
So, a month ago, for our first event titled Why Federalism Matters, we went over the foundations talking about the fundamentals of federalism writ large. I encourage you to go back and listen if you haven't. We also turned this event into a shorter podcast for those interested. You can find it on our website at irpp.org.
So, some of the ideas that we discussed then were about the separation of powers and provinces being sovereign in their own jurisdictions. Both our speakers mentioned that to be robust, a federation needed to be able to adapt and able to embrace the diversity among other orders of government, in part by also embracing the autonomy of provinces.
But this decentralization- because that's what it means to embrace the autonomy of provinces, this decentralization can also have suboptimal outcomes or at least create issues, frictions, yet Jenna Bednar, one of our panelists, described federalism as a problem-solving mechanism which I think we tend to forget when we talk about federalism in Canada. We often see it more as a hindrance, as a problem creating mechanism to some extent.
During today's event, we will see how federalism manages some of the frictions that can be associated with decentralization. We'll see how there's a larger role for the central government in making this decentralization more efficient and effective, especially fiscally, making sure that Canadians across the country can benefit from similar public services.
At the same time, there's a difficult balance between preserving the provinces' autonomy, making sure that they have the fiscal resources they need and this coordinating role for the central government.
So, this is what we will investigate today by looking more specifically at fiscal federalism in Canada and its evolution.
So, with that, we can move on to today's event. In each of these events, before going to the main event, we'll recap a bit of what we've learned in the past.
So, I thank you again for your presence and I now leave you in the care of your moderator for today, Antoine Brunelle-Côté.
Antoine, over to you.
[Antoine Brunelle-Côté appears in a separate video chat panel.]
Antoine Brunelle-Côté: Thank you so much, Charles. Thank you all for joining us today.
My name is Antoine Brunelle-Côté and I'm one of the many assistant secretaries to the Cabinet at Privy Council Office. More specifically, I'm responsible for coordinating and providing economic and budgetary advisors to the PM and the Clerk of the Privy Council Office. I will be your moderator for today's panel and I would like to welcome all of you to this panel discussion.
First of all, it's amazing to see so many people from across the country interested by the issue of fiscal federalism. I'm so glad that so many of you have joined us for this event because we often think of fiscal federalism as a technical and very dry issue. But indeed, it's a very important economic and political issue for our country.
I'm pretty sure a lot of you have watched the news last week. There was ongoing discussions between the federal government and the provinces, negotiations over health transfers. And there's not a lot of countries in the world where for three nights in a row, you open your newscast and it's all about fiscal federalism. So, it's a very important issue and it's great that we'll have an amazing panel to discuss this theme today.
But before we proceed with the presentation, let me share a bit of logistical information to ensure that we all optimize the viewing experience. First, we suggest or recommend that you disconnect from your VPN and that you use a personal device to watch the session whenever it's possible.
I also know that we have a simultaneous translation and real-time translation of communications for this event. So, these services are available through the webcasting platform, and refer to the e-mail that was sent by the school to access these options, these translation options.
At the end, we'll have time for questions for the panelists. So, while they speak or at the end of their presentation, if you have questions for them, go to the right corner of your screen and click the chat button and enter your question. And even if you don't see your question appearing in the chat, don't worry, it gets to the moderator.
Okay, so, that's it for all the technical stuff. Let's now hear from our two fantastic speakers for today. Let me introduce them to you.
First, we'll have Mary Janigan. Mary is a Canadian journalist and historian, and she recently wrote a book entitled The Art of Sharing: The Richer versus the Poorer Provinces Since Confederation. And I'm so glad that the school and the IRPP have decided to invite a historian for today's discussion.
Too often, we discuss fiscal federalism through the lens of- as an economic fiscal issue. But there's no doubt that it's also a political issue, and there's no doubt that the current fiscal arrangements are deeply rooted in history in a specific economic context. So, Mary will be there to talk about this, and it's great.
But don't worry, people, we also have an economist to discuss fiscal federalism. We cannot have a discussion on fiscal federalism without an economist, and we have quite a good one. We have Trevor Tombe from the University of Calgary. He's a professor of economics at the University of Calgary and he's also a research fellow at the School of Public Policy.
And most importantly, Trevor is not your typical academic stuck in his ivory tower. As a policy advisor here, I follow his tweets, like he's tweeting. He's quite active and it's good to for policymakers like us to have an economist who is not just in numbers in his university. So, it's great that Trevor's among us.
So, without further ado, I will get started with the presentation, first with Trevor to kick off this discussion.
So, Trevor, you have about 20 minutes to present us the current picture of fiscal federalism in the country, I think you'll highlight a few of the issues that are at stake. Then, we'll take a step back and we'll ask Mary to make her presentation.
We'll start with you, Trevor. So, the floor is yours.
[Trevor Tombe appears in a separate video chat panel.]
Trevor Tombe: Great. Well, thank you, Antoine, for that introduction and for everyone participating and joining us today.
So, there are a few topics personally that interest me more than fiscal federalism. And luckily, Canada provides us with such a rich history of different arrangements and different moments of how we've tackled different pressure points. I'll be really interested to hear Mary's insights on equalization in particular.
So, what I want to do to start us off is to really set the stage around fiscal federalism in Canada as it is structured today.
[A slide is shown with the title "The Fundamentals of Fiscal Federalism in Canada".]
And at its core, fiscal federalism really does concern the allocation of revenue and expenditure responsibilities across borders of government.
[A slide is shown with the title "Fiscal Flows of Canadian Governments (Pre-Covid, 2019)". It contains three sections titled "Federal Government", "Provincial and Territorial Governments", and "Local and Indigenous Governments". Each section lists different sources of revenue beside different program expenditures.]
So, I'll begin there, just by mapping out for us what are the major revenue sources and major program expenditure responsibilities at the federal, provincial, and territorial governments and local and Indigenous governments.
So, I'll use the pre-COVID data just so we have a sense of what is a normal situation.
Now, central governments typically have advantages in raising revenues, in conducting macroeconomic policy, in redistribution across individuals, and in pooling risk, that we experience from either natural disasters or as we've been going through the past few years, pandemics, whereas subnational units typically have advantages when it comes to the provision of public goods and services that have only local effects. And Canada's fiscal arrangements largely reflect that core insight here.
So, if you start with the federal government, it of course raises the bulk of its revenue through taxation instruments that we're all familiar with, personal income taxes, GST, corporate income taxes, excise taxes on specific goods and services. And then much of what the federal government does in terms of its program spending is in the realm of transfers to individuals through elderly benefits, through child benefits, through unemployment benefits. And it's main operations are largely accounted for by things that have national implications, say national defence, for example.
[The French version of the same slide is shown.]
Now, notice here a large difference between the size of revenues raised by the federal government and the amount accounted for by the federal government's own programs. That difference, that is then transferred to provincial and territorial governments. They also raise revenues through lots of instruments that we're familiar with, personal and corporate income taxes, sales taxes, taking many forms depending on the province, HST in some, PST in others, and then property taxes, excise taxes, also very important sources of revenue for provincial governments. And then for some, Alberta, Saskatchewan, Newfoundland & Labrador in particular, resource revenues, royalties on oil and gas primarily also provide significant revenues.
But provincial governments, their area of responsibility in terms of programs are in health, education, including K-12 and post-secondary, and social services. Those three areas account for roughly 80% of overall operations of provincial governments in Canada, and the amount that they raise for themself is typically quite a bit less than the demands on provincial spending are.
And that's where the federal transfers come in, helping to bridge that gap between the revenues being raised by provincial and territorial governments and their expenditure responsibilities. And then locally, there are also transfers from higher orders of government. Municipalities raise property taxes mainly and then fund all of what we think of as local services and infrastructure.
So, taking a step back from just this kind of snapshot of what Canada looks like today gets to appreciate how Canada approaches financing the federation. I think it's important that we appreciate two notions of imbalances between orders of government because how things are structured and what these numbers are can change from one period to another depending on whether these imbalances are growing or shrinking.
[A slide is shown with the title "Fact 1: Canada is Very Decentralized" listed above a graph titled "Subnational Government Share of Total Consolidated Expenditures (2019)" which shows Canada, the United States, Australia, the United Kingdom, and New Zealand.]
So, I'll start with one imbalance that is typically referred to as the vertical fiscal imbalance. This represents the difference between the revenue-raising capability of central governments relative to subnational governments versus the expenditure responsibilities of those governments.
[The French version of the same slide is shown.]
And in Canada, we have a very interesting and unique situation globally, where the amount of decentralization that we see is incredibly large.
So, if we look at total government spending around the world and ask what fraction of that total spending is accounted for by provincial, territorial, and local governments, you see that in Canada it's nearly 70% of the total. Yeah, it's very large. There's a large and growing responsibility on these subnational governments to fund important public services, whereas the federal government has large capacity to raise revenues. And so, some point to that difference, between the revenue raising capability of the federal government compared to the expenditure responsibilities of the subnational governments as that vertical imbalance.
Now, there are some advantages to decentralization like this. Services that governments offer can reflect local taste. This can foster competition across jurisdiction, maybe lead to some experimentation and learning in providing important public services, but there are also disadvantages. Individual provinces have trouble tackling things that have national spillover implications, or potentially provincial governments, especially in smaller provinces, lack economies of scale that allow them to deliver efficiently certain types of services. And then there's equity issues as well that I'll turn to in a moment.
[A slide is shown with the title "Federal Transfers as a Share of Canada's Economy" and an accompanying graph ranging from 1870 to 2020.]
But Canada, to bridge this gap between the revenue-raising capability essentially and the program expenditure responsibilities more locally, we turn to federal transfers, explicit, often transfers from the federal government to provincial governments. And these transfers increase or decrease sometimes depending on underlying economic circumstances or the changing nature and role of governments.
So, throughout most of the pre-World War II period in Canadian history, transfers accounted for less than 1% of the economy. There was, of course, this notable exception during the Great Depression when old age pensions came on the scene and unemployment relief benefit payments grew incredibly large for obvious reasons.
[The French version of the same slide is shown.]
But after the Second World War, we saw a systematic increase in the size of transfers from the federal government to provincial governments and this largely reflects the rapidly growing size of health care systems and educational systems that were the responsibility of provincial governments. And so, increasing federal transfers helped facilitate the rollout of many of those important public services.
Now, COVID, of course, I noted that risk pooling is an important role here, the federal government, and it dramatically increased transfers through the pandemic. This has come down somewhat in recent years to closer to 4%, which is kind of where we are structurally today.
[A slide is shown with the title "Fact 2: Economic Strength Varies Widely" listed above a graph titled "GDP per Capita in Canada 2019" which shows each Canadian province.]
Now, the second imbalance that I mentioned is called the horizontal fiscal imbalance and this concerns differences in the fiscal capacities of different provincial governments to fund and deliver public services. And just to get a sense of how large those differences are, let's take a look at the pre-COVID levels of economic activity in Canada by province.
[The French version of the same slide is shown.]
And so, that's what we're looking at here, GDP per capita. Think of that intuitively as reflecting the per person level of economic strength through the amount of income that's being generated by a provincial economy. And you can see that there are large gaps between, say, Alberta, which for some time had the highest GDP per capita compared to the maritime provinces that are less than 50,000 compared to Alberta's 80.
So, this large difference across provincial governments in economic strength, does translate into large differences in the underlying fiscal ability of provincial governments to finance public services. And so, what we do in Canada to overcome those differences across provinces in terms of economic strength is in two ways.
[A slide is shown with the title "Major (Direct) Transfer Programs in Canada (2021-22)" listed above a graph titled "Per-Capita Federal transfers to provinces, 'Major Transfers' only" which shows each Canadian province. The graph is colour coordinated with the labels "Canada Social Transfer", "Canada Health Transfer", and "Equalization".]
First, we have an explicit transfer program called equalization. We have three major transfers to provincial governments, two of them, the health and social transfers as you can see here, are perfectly equal per capita. Okay, those I think of as programs that are really just trying to overcome that vertical imbalance.
[The French version of the same slide is shown.]
But equalization, you can see here, is unevenly distributed across regions. Some receive none at all, and among those who receive equalization, they receive different per capita amounts
Now, Mary will have much more to say on the role and the history of this program. So, I'll just note here that how much a province receives really largely reflects their ability to raise revenue. And we won't go too far down the rabbit hole of how the formula does that but intuitively, it is just providing top-up payments, if you will, to provinces that have below average fiscal capacity, which largely reflects below average levels of economics strength.
But equalization is not the only way in which the federal government redistributes across provinces. The second way in which they do that is much more indirect, where we have many different types of transfers, implicit transfers, if you will, across provinces that are found throughout the federal budget.
[A slide is shown with the title "Indirect Financial Transfers in Canada" listed above a graph titled "Distribution of Federal Revenue and Spending, by Province (2019)".]
And this is not unusual in federal systems. Roughly speaking, Canada redistributes roughly 2% of its GDP across provinces through the federal budget and that's a similar share to the United States, even though they do not have an explicit program like equalization.
[The French version of the same slide is shown.]
And so, here, what we're looking at is, in blue, per capita federal revenue raised from taxpayers or businesses in each province, compared to federal expenditures, in red, per capita to either individuals or programs being delivered in different provinces. And you can see that some regions, Ontario, Alberta, British Columbia, there is, on average, more revenue being raised than expenditures by the federal government into those provinces, whereas others, Manitoba, Maritime region, Quebec to a lesser extent, there is more in federal spending than there is revenue raised from those locations.
And you can think about that as a kind of transfer. It's indirect but the net effect is that there is financial resources that are redistributed across locations. On the revenue side, this is largely because most federal revenue, as we saw, is raised through taxes that are a function of income and consumption. So, regions that have above average levels of economic activity will naturally pay more in taxes. Higher income individuals will pay more personal income taxes. Profitable businesses, finance in Ontario, or oil and gas in Alberta will pay more in corporate income taxes federally.
And so, that means, revenues, federally, will reflect underlying differences in economic strength and federal spending too. Provinces differ in terms of what share of their populations are retired, for example. Demographics differ and therefore elderly benefit payments will flow more to provinces that have an older average population. Unemployment benefits, too, will largely reflect differences in economic strength. And so, these are many of the ways in which the federal government will indirectly redistribute financial resources.
[A slide is shown with the title "Implicit Transfers, by Province, 1961-2020" listed above a graph titled "Interprovincial "Fiscal Transfers" in Canada, as % of GDP" which shows each of the Canadian provinces.]
Now, interestingly in Canada, we have- really, it's just an incredible job that Statistics Canada does, putting these data together. And so, we not only have a good sense of where we are today but we have good sense of where we've been as a country since the 1960s in terms of these implicit transfers.
And so, here, what we're looking at are, recipients, if you will, regions that have more federal expenditures flowing in and federal revenues being raised from those regions, and then contributors.
[The French version of the same slide is shown.]
So, Ontario, in pink here, you can see, historically, is a very large net contributor but that rises and falls with different economic shocks that the province experiences. Most recently, the very large shock to its manufacturing sector as a result both of import competition but the financial crisis and disruptions to the auto sector in particular was a major blow to Ontario that shrank the amount that it, on net, contributes to the federal budget.
Alberta too is a very volatile province economically. Periods in the seventies, when oil prices were high, in the 2000s, when oil prices were high, or in recent years, when it was low, the amount contributed by Alberta on average rises and falls to reflect that. In terms of recipients, you also see that kind of changing economic circumstances changes the amount that is implicitly redistributed towards those regions.
And I'll draw your attention here to Newfoundland & Labrador which I think tells a very interesting story where despite being a relatively small province in terms of its overall population, it was a large recipient of federal dollars, net, prior to an increase in offshore oil production. Sometimes, nearly 30% of Newfoundland and Labrador's entire economy was accounted for by these net inflows through the federal budget. But you can see in recent years, it has shrunk to a sliver and we're, potentially this year or next, maybe going to see a situation where Newfoundland & Labrador becomes a net contributor, if you will, where more revenue will be raised by the federal government from that region that is spent. So, that'll be interesting to watch.
[A slide is shown with the text "Long-Term Challenges".]
So, even those implicit transfers, they reflect that horizontal imbalance between provincial governments in terms of economic strength. So, in the last five minutes that I have, I want to end by drawing our attention towards some longer-term challenges that I think we'll need to increasingly think about in Canada.
[The French version of the same slide is shown.]
So, I'm going to select four, not because these are the only challenges that we should think about or necessarily the most important ones, they're just ones that I think we haven't put enough attention towards.
[A slide is shown with the title "Atlantic Canada's Aging Population" listed above a graph titled "Share of Atlantic Canada's Population Age 65+" which ranges from 2020 to 2040.]
First is demographic challenges and rising health care cost pressures that provincial governments will face. Antoine noted in the introductory comments here that we've been talking a lot about health transfers and that's an ongoing conversation between federal and provincial governments.
[The French version of the same slide is shown.]
I think some regions will be experiencing health care cost pressures much more dramatically than others.
So, I'll draw our attention to the Atlantic Region, where currently about one in five individuals is over the age of 65. That's going to grow by the early 2030s here to about over one quarter and rising even further after that. Newfoundland & Labrador in particular may soon, within a decade or two, have roughly one in three individuals over the age of 65. And so, that's going to mean that health care cost pressures are going to grow particularly large in Atlantic Canada, increasing, potentially, the size of that horizontal imbalance.
So, provinces are aging at different rates. And so, even into the 2040s, Alberta will have a share over the age of 65 that the Atlantic region does today. So, increasing horizontal imbalances driven by differences in demographics, that's something that we currently haven't done much to incorporate into our current transfer arrangements. Almost nothing about demographics is really reflected in them currently.
[A slide is shown with the title "Provincial Finances Are Unsustainable listed above a graph titled "A Projection of Canada's Net Public Debt to GDP, by Order of Government" which ranges from 2020 to 2045.]
The second issue is that rising health costs are not just a challenge for one region of the country, they are a challenge for all, and if you project out many years into the future, and these are my own estimates, but the Parliamentary Budget Office presents its own as well, the fiscal capacity of the federal government will grow stronger over time, whereas provincial governments, it will grow weaker.
[The French version of the same slide is shown.]
Think of this as federal revenue rising faster than its program expenditures will, whereas provincial governments will see the reverse, largely because of aging populations and rising health care costs. And so, what we see here is a projection for net debt to GDP. For the feds, it is consistently sustainable in the sense that it is structurally declining over time, whereas provinces see the reverse. And so, here this is an increasing size of the vertical imbalance, if you will, and how we address this, I think it will be difficult to avoid changes to some of our fiscal arrangements like the health transfer.
[A slide is shown with the title "Greenhouse Gas Emissions in Canada" listed above a graph which shows each of the Canadian provinces.]
The third issue, I'll note, concerns an increasingly important issue, and we're seeing the end of COP27 right now, and that's climate change and lowering greenhouse gas emissions. But in Canada, we have very large differences across provinces in terms of their greenhouse gas footprint, if you will.
[The French version of the same slide is shown.]
Alberta, obviously, I think, stands out as a significant and disproportionate contributor to Canada's overall emissions, and so what role does the federal government play in terms of bridging these differences in emissions and therefore the overall cost of meeting our climate goals? I think this is going to be a very important area to look at, not the least of which because it is a increasingly a source of friction between the federal and provincial governments and I think the next couple of months in Alberta will be particularly interesting to watch and I think a lot of it does touch on questions of climate policy. We saw Saskatchewan, for example, have a white paper that was focused almost exclusively on climate issues.
[A slide is shown with the title "Resentment in the Canadian Federation" listed above a graph showing each of the Canadian provinces from least resentful to most resentful.]
And that brings me, I guess, to the third and final challenge for Canada, and that's resentment in the Canadian Federation. Concerns around the underlying fairness and equity of Canada's federation are increasingly questioned, and there's some recent work, some really exceptional work by Charles that we heard from earlier, and colleagues Olivier Jacques and Andrew Parkin.
[The French version of the same slide is shown.]
I gave a link to the full study at the bottom here where they, using detailed survey questions of Canadians, construct an index of regional resentment.
And think about zero here as that point between resentment and less so. And on average, Canadians in all regions are resentful about their province's place in Confederation. But notice this is especially true in the oil and gas producing regions of Saskatchewan, Alberta, Newfoundland & Labrador.
And so, in response to survey questions, a fairly large share of individuals in these regions will point to not receiving their fair share or not having an adequate voice in national decision-making. This is not a new challenge for Canada, of course, but I think it is one of rising importance and it's one where, personally, it's not clear to me whether political leadership, federally or provincially, is up to the challenge.
And so, I look forward to the conversation that we have but I think at this point, I will turn it over now to Mary. So, thank you very much.
[Mary Janigan appears in a separate video chat panel.]
Antoine Brunelle-Côté: Thank you so much, Trevor. Let's- sorry. Mary, go ahead.
Mary Janigan: Antoine, thank you for the introduction. Trevor, thank you for a fabulous trip across the fiscal federalism state. It's a beautiful introduction.
I went back in time to look at equalization because I wanted to know how it came to be. I emerged with the realization that without equalization, we wouldn't exist as a federation. We could not survive. And that was quite a disconcerting, if not entirely unexpected moment for me. I went back and looked at Confederation and in Confederation, one of the most sacred things that everyone insisted upon was that all provinces were equal.
So, you had furious behind the scenes negotiations about who got what in fiscal terms, but no one could ever say out loud or no one officially could say that the provinces were not equal. And this started the struggle that persisted for decades.
When Confederation happened, New Brunswick negotiated special subsidies for itself, larger subsidies based on a slightly different accounting of what it would cost to run their government. Two years later, Nova Scotia got a special deal but no one anywhere would admit the truth. And the maritime provinces which had been wealthy were suddenly finding themselves poorer because Ottawa took the duties from customs and other revenues, customs duties in order to fund its government in return for the subsidies, so you could see what happened.
As time went on, in particular, one special basic subsidy was spelled out in the Constitution. So, as time went on with inflation, with the provinces finding themselves that they were facing an industrializing economy that brought all kinds of special pressures, they had to figure out how to regulate. They had to back the bonds of canals and railways. They did not have as much money as they needed. And worse, federal subsidies were ever an decreasing part of their revenues. So, they started to complain.
20 years later, they officially met. They asked for more money. Sir John A. MacDonald ignored them. They kept this up. We get into 1907 and finally, Sir Wilfrid Laurier wants them to stop badgering him, agrees to a subsidy increase, and this has to be done by amending the Constitution. But of course it's not enough, population screwed, inflation fostered. So, we keep going with a discontented provincial group and Ottawa, the horizontal- I'm sorry, the vertical imbalance, as Trevor has spoken about, was extreme.
So, into the 1920s, people are moving more and more into large communities and they don't have the supports they need if they lose their jobs. Families aren't around. Churches can't help much. Charities are struggling with government to help them. Mackenzie King tries to sort out things and there upon, he does something that has only gone one small way to ameliorating the resentment in the West. I would argue that Westerners have been angry for decades.
When Ottawa created the three prairie provinces, it did not give them resource control. Other provinces had it. So, forests, oil, water, all of these resources were kept by Ottawa. In 1927, Mackenzie King made an effort to increase the maritime subsidies and to give resource control back to the provinces, those provinces. But of course, by the time it got there, there was the depression and it almost cost more to develop the resources than to take revenues from them.
But behind the scenes, the Bank of Canada was quietly looking at Australia. It did look at other federations as well but Australia intrigued those key Bank of Canada people. Australia, in 1933, had faced the fact that Western Australia had voted to secede. They managed to thwart that through technicalities but it became clear that something had to be done to alleviate fiscal disparities. They created the Commonwealth Grants Commission which, through quirky ways based on spending and revenues, transferred money to poorer states. It became a model for equalization.
We get into the later 1930s. Alberta defaults on its bonds. Manitoba and Saskatchewan are close to the break. So, Mackenzie King does something which is convenient for him. He creates a royal commission to look at the imbalances between revenues and responsibilities and to look at how different provinces are handling these imbalances. It reports in wartime, indeed, the report is tabled as France is falling.
It recommends is a major reshuffling of revenues, giving more responsibilities to Ottawa. But it also calls for something called National Adjustment Grants which would be based on provincial spending on key programs. The only province that wouldn't get it is Ontario. But Ontario is pretty powerful and the wealthier provinces, which have resisted, every step of the way, any further recognition except for extra relief and public works projects for the poorer provinces, they balk. And so, there's resistance to the adoption of the report.
Ottawa takes control of key provincial revenues in wartime and it gives back portions of the revenue plus additional grants for each provinces. This is really an implicit recognition that not all provinces are equal. In wartime, it wants to keep the money. The provinces resist, Quebec and Ontario especially, Quebec quite vehemently.
Meanwhile, you could see, as you go across time and look at the files on women's groups and labour unions, they want social programs. They could see what's been going on in Great Britain. They can see what's going on in the United States. Australia's surpassing them, and this seems to be the good life that everybody promised if they survived the war.
So, you have the federal government caught between two pressures. Quebec will not sign these rental agreements in peacetime and it's losing a lot of money, but it wants to keep its role handling revenues and responsibilities itself. And on the other hand, you have these social groups in the rest of Canada becoming increasingly frustrated.
And then Louis St. Laurent, got into a rather reckless quarrel. He proclaimed that Quebec was the province like the others, Duplessis vehemently disputed that, and it was becoming a crisis, both in terms of income tax- Duplessis put on a personal income tax and Quebeckers might be paying double taxation, and also St. Laurent realized it was starting, you could see the beginning of Quebec, quiet revolution.
So, St. Laurent did something ingenious. He took the extra portion, the grant portion of these tax rental deals, and he took the money and he redistributed it to every province whether or not they signed on to these deals. What he did, in effect, was quite remarkable. He admitted through his very action that the provinces were not equal. Sure, there had been attempts to mention that but this flat out indicated that the provinces were fiscally unequal. He did this unilaterally.
He held a few federal conferences. There was no agreement. There was general agreement with the principle, everybody wanted to sound generous, but everybody quarreled with the amounts- well, not everybody. Ontario felt too much was being given and it wasn't getting enough back in terms of the amount of income tax return to it, and the maritime provinces said this is not enough, but you suddenly have non-conditional transfers that are given without an application form and that helped the poorer provinces over the objections quiet of some of the richer provinces.
St. Laurent made peace. He made peace but it cost him dearly. In the next election, Ontario campaigned. Leslie Frost campaigned, arguing that Ontario had been shortchanged and so would the Maritimes, and it was part of the reason that Diefenbaker lost. But you have to look at what happened when equalization checks went out. Suddenly, there were programs that were appearing that even the poorer provinces could manage to pay for.
So, you looked at CAP, the Canada Assistance Program. You looked at hospital care in which the feds picked up a chunk. You looked at post-secondary education grants. You looked at a whole range of federal and provincial programs, cost share, that would not exist without equalization. And these programs, in turn brought the federation into the modern era.
Suddenly, there was hospital care, there was Medicare, probably the most important and significant of them. You had an agreement that Canada was the federation that could provide for its people. Now, that's an agreement on sharing but it's also a deeply pragmatic understanding of how this country has to work. It has to share.
Economists, Trevor has handled both sides of this coin. There are disadvantages to some of the federal transfers in terms of what they cost the wealthier provinces like Alberta but they also provide both equity and efficiency. You don't want everybody in Prince Edward Island moving to Ontario for better health care or better education. On the other hand, you cannot leave people stranded in Prince Edward Island with access to very poor educational, social, and health outcomes.
This network of fiscal transfers was put together, starting with equalization, bringing this nation into the modern world. I am not making an argument for the formula, that can be changed. As Trevor and others have pointed out, equalization is a success but that does not mean the formula is sacred. I spoke earlier about Western discontent, dating back to Riel's resistance in 1870. These are longstanding grudges that have to be skillfully handled but you have to keep the network intact. And I came to that conclusion reading decades of provincial squabbling of what could be shared, what should be shared, and how much anyone got. Equalization and the other programs, health, social transfers, saved us.
I pass this over to Antoine.
Antoine Brunelle-Côté: Thank you so much, Mary. Thank you so much, Trevor. It was great, especially, Mary, I really like the historical perspective. I learned a lot to be honest. It's great.
Maybe I could launch with a few questions, giving time to people to ask questions via the chatroom.
We just went through a major shock, right? COVID-19 was a major shock. And Mary, you explained quite well that a lot of the evolution of the fiscal federalism in Canada was the result of shock, like the Great Depression, World War II, etc. And we saw during COVID that the federal government started to play a very, very big role. I don't have the exact number but I think $0.80 of the dollar that were spent were spent by the federal government, like a massive response by the federal government.
And as a result, we see now that a lot of the provinces are starting to run surpluses and some in the federal government were still in a deficit. So, I would be interested to have your views of if you think COVID has kind of changed, a bit, the fiscal federalism paradigm or the relationship between the order of our governments.
Maybe we could start with Trevor and then Mary.
Trevor Tombe: Sure, that's a great question and you're right to note that it's these moments of stress on the system that leads it to change as we come out the other end. And if you would have asked me that question a year and a half ago, I would have a very different answer than what I'm going to give you here.
I did previously think that COVID was going to have significant implications for fiscal federalism in Canada, primarily because not only was it a shock that was largely absorbed federally but it was a very uneven shock across space in terms of the fiscal and economic implications of it. We had a contraction in the pre-COVID higher income regions that was significantly larger than in other regions, and so the degree of horizontal imbalance fell to its lowest level ever measured in 2020 and that had big implications for- or sorry, I should say potentially big implications for equalization.
And so, for interesting reasons that we don't need to get into, it was entirely possible that COVID would have led to a situation where Ontario becomes an equalization-receiving province as well as Saskatchewan and Newfoundland & Labrador, leaving just Alberta and B.C. to be non-recipients. And we were within a whisker of that actually happening for the 2022/23 payments.
And such a situation, I think, would have led to pretty significant pressure to change that program and that formula, but squeaked by. The formula is behaving normally right now and is likely to for the next couple of years so we avoided big pressures there in the short term.
But there was another program called stabilization which is there to provide a kind of revenue insurance, if you will, to provincial governments. And provinces saw big drops in their revenue, just like the federal government did, because of the contraction in economic activity in that program. It looked like it was going to be there to provide significant support to all provincial- not all, most provincial governments and all of the major provincial governments. It just didn't work out that way. The recovery from the initial shock was quite a bit stronger than anyone reasonably anticipated and we'll probably just have Alberta and Saskatchewan receiving under that program, Alberta for sure but much more limited.
And it's one area where the federal government did already dramatically expand, tripling the size of that program, and that might be the only kind of lasting implication for the explicit arrangements but we are seeing that COVID has led to pressures that will involve changes in other programs, EI reform probably tops the agenda, and the federal government is currently looking at it. So, I think the full implications are less than I previously thought but I think time will tell.
Antoine Brunelle-Côté: Thanks, Trevor. Mary.
Mary Janigan: I actually have noticed- first of all, I agree with Trevor and he has crunched the numbers perfectly, but I've noticed a kind of psychological hangover from COVID that made the negotiations among the health ministers so much more vivid and dramatic. I understand that Canadians came to realize that their health systems were not working properly and they're putting pressure on the provinces which are putting pressure on the feds for more money.
How this shakes out, we've just had preliminary negotiations, but COVID was a shock to the political system and I think it's going to result, in the end, in negotiated increases, probably in those per capita amounts. But also equalization rises automatically now and I think it's going to force some people to look at the formula for increasing it. It increases with nominal GDP.
This has managed to work because so many people have juggled things, there's been extra money left over which has to be redistributed in very strange ways. I suspect that COVID has shocked enough people into looking twice at how equalization grows and how it's distributed. I could be wrong but I could see this coming.
Also, Trevor has said that possibly, the per capita adjustments may have to be predicated on taking account of the age imbalances, in some of the provinces in the Maritimes and Atlantic Canada with an aging population, perhaps those per capita amounts could be higher. I'm not sure how that would work. I fear another grand fight but that's what COVID has brought us, I believe.
Antoine Brunelle-Côté: Thanks, Mary. Let me follow up on what you were just saying because- let's play a little game. Say that I put you in front of the Minister of Finance and the Minister of Intergovernmental Affairs and ask you, we need to brief the Minister of Finance and the Minister of Intergovernmental Affairs of what works well, what doesn't work well, and what should be our approach.
You mentioned a few ideas that you have to improve things. What would you recommend to the Finance Minister and the Minister of Intergovernmental Affairs, what should be our priorities as a federal government in terms of fiscal federalism? Are we going like big bang reform or are we just doing like piecemeal? What should be our approach to reduce questions? And maybe Trevor could also answer after.
Mary Janigan: Trevor?
Trevor Tombe: No, please go ahead. I'll follow.
Mary Janigan: In one of the questions, it was suggested that Canada look at some kind of royal commission, look at transfer payments, seeing them as a whole, not grabbing them piecemeal. I know that various parliamentary committees and Senate committees have looked at this over the years but they always look at specific programs, how they work.
I would argue- and I'm sure that many people will grab me and shake me, but I would argue it's time for a royal commission on transfer payments. I would love to have a royal commission look at these payments overall in the light of post-COVID, in the light of the changing economy, in the light of the changing world, in the light of greenhouse gas emissions and what we're going to do about them. I think that might be the way to go.
If I were sitting in the ministry in the short term, I would single out health transfers, simply because so many people are fixated on them now and Ottawa's already indicated that in some way, in some unspecified amount, it's prepared to tinker to change them. That's where I would go.
Trevor Tombe: Yeah, I think that's right to think about what the federal government should do in light of these challenges as short, medium, and long-term responses. And in the short term, I think it's going to be unavoidable to have an increase in health transfers, not just because of the political dynamics involved but there is a legitimate case for additional funding being provided from the federal government for the simple reason that it's more efficient for the federal government to raise revenue, especially on things like corporate and personal income taxes, than it is for provinces to raise those revenues.
I guess simple intuition is if a province were to do it, it's easier for income shifting, for example, across locations or for individuals to migrate, and so tax bases are more sensitive to provincial rates than federal. And so, there's an economic case to have the federal government do some of that revenue raising on behalf of provincial governments and then transferring the difference to them, and the size of the health pressures are significant depending on the assumptions that you make.
The increase in total health spending over the next 20 years just from aging alone is potentially on the order of 2 to 3% of GDP. That's very large. Think of it as between six to ten or so points on the GST. So, a big fiscal challenge awaits and there's a strong case for the federal government to bear some of that challenge.
And it'd be pretty simple in the short term to introduce increments to the health transfer that are functions of demographics. It would be very hard to just eliminate the CHT and replace it with one that's a function of demographics, because then some provinces would receive less and others would receive more, and as history being the guide here, that usually doesn't work. So, there's usually changes that make the overall size of transfers more generous but disproportionately more for some regions compared to others. And so, it'd be a demographic increment that would provide more to Atlantic provinces than average, for example. So, I think there's a strong case for that in the short term.
But over the longer term, a deeper look at all of the fiscal arrangements is critically important, aging, energy transitions, technological changes, a much more volatile international environment as well. And Canada, because it is so decentralized, thinking about the structure of fiscal arrangements and how they are or are not well-suited to overcoming those challenges is critical for the country's long-term prosperity.
So, there is a group outside government that's looking at that that I'm involved in, housed through IRPP and the Canada West Foundation. We'll be coming out with a paper fairly soon that unpacks a lot of these challenges and tries to encourage us to think about what our response to them should be. If you were to Google it, it would be under the Intergovernmental Fiscal Relations Commission and we'll likely change that to the Fiscal Federalism Research Group.
So, watch the news for that dropping in short order. But having governments do that as well through something like a royal commission is, I think, something that needs to be a part of the conversation.
Antoine Brunelle-Côté: Thanks, Trevor. One of the other questions that I have for you guys is about comparison with other countries. Trevor, you mentioned that we're very decentralized and we're probably one of the most decentralized federations. But have one of you, like Mary or Trevor, looked at what other countries are doing? Are they facing the same type of issues and how do they deal with these big issues that we're facing.
Trevor Tombe: I guess I'll just quickly note that every country is going to have its own unique set of economic and social and political pressures that these arrangements need to balance, and they change over time and in different ways. And so, we're always going to look different compared to other countries.
But in terms of programs that are responsive to demographics, there are many. And so, a lot of examples of transfers from central to subnational governments that respond to differences in the pace of aging, and so that being one of the bigger challenges we face, I think there's lots of models that we can look at in that regard.
Mary Janigan: I think that Canada- it's not been recognized how much Canada has looked to Australia, and Australia has been a key model for decades. Long before it even brought in the Commonwealth Grants Commission, Australia was looking to Canada and the United States for how federations survive, how they work, how they can work through their problems. Trevor is right. Each federation has its own problems.
I cite, however, the fact that the United States, a federation, does not have a non-conditional transfer program. They do it through specific programs, for example, highways, and they do it through programs such as defence. But if you look at the differences in educational spending per student between the poorer provinces, poorer states, and the wealthier states, it's pretty unsettling, very unsettling, actually. Students in poorer states such as Mississippi have a far less proper chance of getting a good education, and this seems to show up in voting patterns and in other issues that are hotly debated.
Australia is our closest model. When Canada was looking for models at the Royal Commission, it looked at pre-Hitler Germany. It looked at Brazil. It looked at South Africa. It looked at India before independence and partition. Every federation has its own problems but I would argue we're better off facing these problems rather than scuttling the system.
Trevor Tombe: Maybe I'll just quickly jump in here to build on a point that Mary raised that I think is a really interesting way that Australia approaches its fiscal arrangements.
So, the Commonwealth Grants Commission that she referenced, I guess for participants who haven't heard of it before, it's an independent body that advises the Australian Government on fiscal arrangements and makes recommendations and engages in measurement of fiscal capacity and needs across locations. And that independent non-partisan, non-political body providing analysis and recommendations is something that might help improve Canada's ability to respond to some of these longer-term challenges. It could be a body that can dive into the data, think about first principles, make recommendations in a way that's more permanent than our typical approach which is ad hoc.
So, the last time that we did a deep dive into our fiscal arrangements was having an expert panel look at it, The O'Brien Commission, and they did exceptional work.
Mary Janigan: Yes
Trevor Tombe: And if such a body could exist to regularly engage in that kind of work, then I think we could see much more thoughtful, regular reforms to the arrangements rather than waiting for pressures to mount before doing a wholesale reform.
Mary Janigan: Trevor has considered the pros and the cons. Trevor, I can't speak for you, but you look thoroughly at the idea of whether or not there should be a panel, as LaCour and Beland recommended.
Trevor Tombe: I personally do like the idea, if only because it could help elevate the conversation beyond just the political back and forth between provincial and federal leaders. And some of these issues are technical that are really hard to address outside of a body of, people are going do the deep dive into the formula itself rather than, I guess, a very superficial level of engagement that we see between political leaders at the moment.
Mary Janigan: If I could add for a minute too, as Trevor has pointed out, the problem is, the issue is so politicized in Canada and the provinces are so different from each other and their expectations, that on the one hand, you could have a massive argument setting it up. But on the other, perhaps over a few years of having hopefully non-partisan looks at the fiscal state in each province, we might come to more understanding of where we're going as a federation and how we can get there in the future. The fight over resource revenues has been massive, how you handle them, what you do about it. It's unnecessary slope. So, I think that's where it could come from.
Thank you, Antoine, Trevor.
Antoine Brunelle-Côté: And practically, Mary, how will you set up such an independent because as you mentioned, quickly, it would become politicized, right? That's the big question. If the federal set it up quickly, they would say, the feds are setting it up, they want to orient the debate in a certain way, and the provinces, there would be in-fighting. So, practically, how do you set it up so that it works?
Mary Janigan: Well, L. O'Brien was a very respected, very revered former civil servant. Nobody really truly squawked when he was appointed to head that look. In Australia, what they did in 1933 was appoint a very unusual economist, mathematician, and his reputation ensured that there was very little squawking at what L. F. Giblin recommended in terms of what the states got and how it went. The Royal Commission looked at that, and in the end, Giblin seemed to admit that a lot of it was ad hoc. We couldn't get away with that today but you would have to have very, very expert non-partisan people to take over there. I hate to say it, I'm not even sure a former politician would qualify, a few. You could have had Peter Lougheed take it over or William Davis, but it does require an expert.
Antoine Brunelle-Côté: Trevor, you want to say something about this? Do you want to pitch yourself to sit on the-
Trevor Tombe: No, definitely not.
Antoine Brunelle-Côté: Okay, Go ahead.
Trevor Tombe: I guess I was going to note we had something almost like this, although it didn't focus on fiscal arrangements specifically, called The Economic Council of Canada or previously known as, I think it was, the National Productivity Commission. And this was kind of a body that was permanent, that was there to dive into different issues and provide recommendations. And it had had some reports on fiscal arrangements before, but that wasn't its sole focus. So, it's not like we have no experience with such bodies.
Antoine Brunelle-Côté: Let me come up with one other question. Of course, there's a lot of negative sentiments towards the federation as we all know. In the past, some governments, like I think about the Paul Martin government, they tried to deal with this through side agreements, right? We talk about the offshore accords with Newfoundland and Nova Scotia. What are your views on potential dealing with these negative sentiments towards the federation and through more bilateral-type accords?
Trevor Tombe: I guess I would note that throughout Canadian history, the federal-provincial dynamic has often involved periods of pretty intense disagreements over issues. And in some ways, these disagreements are there to just serve, how do I say this without being too cynical, just some shorter-term political objectives for both the federal and provincial governments. We see picking on someone else as a foil, can distract public attention and pressure from issues that you might be responsible with.
I'll point to Alberta. We have a lot of challenges here or at least did prior to oil prices rising as much as they have but most of the solution to our financial and budget pressures in Alberta are of our own making, yet governments here will often point to the federal governments to try and shift the blame. And so, that's something that's completely normal throughout Canadian history.
And then, side arrangements can be a way of potentially dissipating some of that pressure potentially but regions might also be raising genuinely unique issues, and I think offshore is one of them. With Newfoundland & Labrador in particular, lots of really interesting legal questions, historically at least, about who owned the offshore resources. Was it Newfoundland & Labrador or was it the federal government? And so, that's an issue that because it's so localized and unique, these side arrangements are, I think, a completely appropriate way to approach those issues.
In Canada, you may see such a thing, I'm just going to speculate, on climate policy related to policies around electrification, things like this, just because you have some regions that have perfectly clean electricity generation already, Quebec and B.C., whereas it's Alberta and Saskatchewan that are mainly the ones that are facing the challenge of decarbonizing electricity. So, having unique arrangements between federal and provincial governments in that space, I think also might make sense.
Mary Janigan: From Confederation, Ottawa was making unique arrangements with the Maritimes and it continued to do it. It did so in the 1920s when they increased the size of the subsidies to the three maritime provinces. In the 30s, once again, Bennett, R. B. Bennett increased the subsidies to the maritime provinces. There was always an understanding that there would be special needs at special times. It doesn't obviate the need for a more broad long-term look at the fiscal network. But if we hadn't had those side deals with the maritime provinces, we were going to have the Maritimes lose equalization dollars almost on a dollar per dollar basis in terms of the revenues they were getting. So, these impoverished governments struggle along and develop their resources and suddenly, they find that they're being penalized for it.
There used to be that people were getting social assistance. If they earned a dollar, they lost a dollar in terms of social assistance. We figured out a way to make deals for people that obviate these problems. And we did the same thing for the provinces, for the needier provinces. I think it was a good approach to take, while we still have to look at where we go from here in terms of which subsidies change, how they change.
Equalization, the formula hasn't been changed now since- I think it was renewed again in 2019 and the formula was the same as had been applied in 2014. There really is the need to look again in consultation. There's no need, there's no duty to consult with the provinces but I truly believe that Ottawa should be consulting with the provinces. There might be some great ideas out there that can be applied for the renewal of the formula. It comes up for renewal in 2024.
Antoine Brunelle-Côté: Thanks, Mary. That leads me to- I guess, another question that I have is about how the federal government can ensure that we deliver on our key priorities, the federal key priorities. A lot of the transfers that we've described are somewhat unconditional and would just transfer money to the provinces but, of course, as a nation, Canada, the federal government wants to impose certain standards, but how do we do it best with the tools that we have at our disposal? Can we achieve our objective as a federal government through the mechanisms that we have in our toolbox? Trevor?
Trevor Tombe: Yeah, I guess putting aside the question of whether the federal government should seek to have conditions on its financial transfers because that's an interesting conversation in its own right, given how we've split the responsibility for public service delivery. But historically, having conditions on transfers is not at all unusual. So, the federal government has large fiscal capacity and it can use its spending power in order to nudge provinces to adopt specific programs as we've seen recently with child care, for example. The federal government just provides dollars that provinces are free to accept or not. But if they accept, then they have to have programs that align with- they don't need to be exactly the same across the country but align with federal priorities.
Now, provinces also historically have had the ability to opt out of those transfers if they have their own and a roughly equivalent program provincially, and then what the federal government did is provide some tax point transfers to those provincial governments rather than cash transfers. I think Quebec still enjoys- I shouldn't say enjoy, receives what's called the Quebec Abatement, which is a past tax point transfer that they received as they opted out of new cash transfer arrangements that other provinces accepted. So, having conditions on federal dollars, nothing new, and that's the way in which the federal government can ensure that its priorities are being achieved by the dollar it's putting on the table.
Mary Janigan: The health transfer has, I believe, five conditions, and they're all general principles. If Ottawa got into the nitty gritty, I believe everyone would despair. But it does look at no user fees, it does look at portability. If you have health insurance in Ontario, you could be covered in Quebec. Also, the Canada Health Act, it's portable public administration, three other conditions that ensure that there's a general level of treatment.
With the Canada Social Transfer, I believe that people who receive social assistance, who move are eligible for social assistance without huge qualification times in other provinces. These are general, pretty common sense regulations. It's not been difficult to have them work because all provinces are essentially in agreement that this is how it should function.
I should mention that the tax points that are transferred, Ottawa often equalizes, takes account of those points and what they raise, and provides covers in equalization as well. It's a wonderful way to make these national programs work with a minimum of imposition. I would hate to see detailed lists because every province would recoil especially, probably, Quebec.
Antoine Brunelle-Côté: Yes, absolutely. It could make the discussion tricky. Okay, before we wrap up, we're almost out of time and I just want to give you an opportunity to add any things you want, but before that, I would like- if I may, I have one technical question to Trevor, on one of his slides, just because we've done work on this and I've read the PBO report on the sustainability of provincial finances and I note you have a slide where you have the debt sustainability for the federal government and for the provinces. And I note that your crossover point where it crosses is much earlier than in the numbers that I've seen from PBO in the past. I think PBO was in 2040 something. So, I'm just wondering how you explain this and what kind of different assumptions you make too, just a technical point. I don't want to bore people with technical questions, but Trevor?
Trevor Tombe: No, that's a great question and an important question because thinking about these long-term financial pressures is going to be increasingly important. And we are seeing now regularly in the federal budgets or in its most recent fall economic statement, the federal government including its own long-term projection of net debt to GDP ratios. So, it's an important exercise.
And where my estimates, which are based on a paper in the Canadian Tax Journal about two years ago now differ from the PBO is in terms of what's being modeled and how they're being modeled. So, the PBO thinks about subnational governments versus the federal government. And so, provincial and local governments are combined in the PBO estimates and local governments don't have nearly as large of a longer-term sustainability issue that provincial governments do because property tax rates just automatically change from one year to the next in order to raise the revenues that are required to fund local operations. So, that's a big difference.
A second one is in the level of detail that I model in provincial revenue projections. They look at own source revenue and federal transfers. That's it. And so there's no distinction between different types of federal revenue sources. And for some, looking at resource revenues over the long-term is a particularly important and potentially challenging source of revenue, especially when we're thinking decades into the future when demand for oil and gas is going to be lower, prices correspondingly lower, resource revenues lower still.
That's a challenge that shows up in in my long-term projections that wouldn't in theirs, as they implicitly assume that provincial governments maintain their own source revenue as a share of GDP, which is fair enough but would require constant policy choices being taken by provincial governments to make up for any shortfalls whereas I kind of keep policy as it is today, hold that static. So, I think both exercises are nice complements of one another. So, don't get me wrong, I'm a big fan of the PBO analysis on this question.
Antoine Brunelle-Côté: Yeah, and that type of work, Trevor, thanks to you and thanks to the PBO, I guess it's important to do these long-term sustainability exercises. It's critical for the country.
Okay, so before I wrap it up, I just want to offer both of you a chance to say anything that I may have forgotten, things that you will want to say, anything that crosses your mind that you may wish before I conclude.
Maybe we're going to start with Mary.
Mary Janigan: What has struck me and stuck with me for years is how important the network of fiscal transfers really are, how they hold the nation together. I'm not saying it's economics alone that makes Canada work, but without this very carefully created network of transfers that keep Canadians united, I don't think we'd exist. And I really appreciate the opportunity to speak about it and especially speak about the role of equalization, and those payments have to be changed. The formula has to be changed, but that doesn't matter as long as the principle stays, Canada can keep going I think. That's how strongly I feel about it.
Antoine Brunelle-Côté: Thanks Mary. Trevor.
Trevor Tombe: I'll just note on our end on a general note that as we've talked about today, federal transfers and fiscal federalism and arrangements, more generally, they're central to Canada's system of government. They ensure that provinces have sufficient capacity to deliver critical public services like health and education, and they redistribute revenues across regions to achieve both equity and also efficiency goals. And while the transfers take many forms, the economic and social and political pressures that they need to respond to continuously change. And so, the fiscal arrangements must always continually change in an ongoing way.
And historically, at least, it's funny that Mary mentioned the 1907 constitutional amendment. This is an example at the time when they wanted these arrangements that they agreed to then to be final and unalterable, quote. In our Constitution itself from 1867, language to the effect of these subsidies are in full settlement of all future demands. We've come a long way since then, recognizing that circumstances change and fiscal arrangements need to. And so, federal transfers are always up for negotiation and sometimes that negotiation is messy but it's a necessary part of the process and the way that Canada has functioned and will continue to.
So, I think these disagreements, maybe we see them ebb and flow or fall apart recently with the health transfer arrangements, is I think in part a good thing, like it's part of the process that we have and so we shouldn't lose sight of that.
Mary Janigan: That was so eloquent.
Antoine Brunelle-Côté: Yeah, eloquent, to the point. I like it. I'm glad that I asked you to provide the last- to give you the final words because now I don't really have to wrap up because you did such a great job, Trevor and Mary, wrapping up and explaining why these issues were relevant, are relevant, and will be relevant in the future.
So, I would like just to take one minute to thank you both, Mary and Trevor, for your participation today. It was amazing. And also, of course, once to thank the people who listened to us across the country, for all the people who participated into the event. I hope everyone has enjoyed the event as much as I did.
I will also note that your feedback for people who have listened is important to the school and to the IRPP. And I invite you to complete the electronic evaluations that you'll receive in the next few days. And of course, the School has more events to offer you. As Charles was mentioning at the beginning, there's a series on federalism but there's much more than just that, and encourage I you to visit their website to keep up to date and register to all their future learning opportunities.
And once again, I want to thank all of you and I wish you to have a wonderful day wherever you are in the country. Thank you very much.
Mary Janigan: Thank you for having me.
Trevor Tombe: Thank you.
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