MGMT 2801
Government Structure
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Federalism
What Is Federalism?
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• A system of government under which the
constitutional authority to make laws and
raise revenue is divided between the
national government and some number of
regional / sub-national governments
– They are coordinate and independent in their
separate constitutional spheres
!2
The World’s Federations
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• Argentina, Australia, Austria, Belau, Belgium,
Bosnia-Herzegovina, Brazil, Canada,
Comoros, Democratic Republic of Congo*,
Ethiopia, Germany, India, Iraq*, Malaysia,
Mexico, Micronesia, Nigeria, Pakistan,
Russia, St. Kitts and Nevis, South Africa,
Spain, Sudan*, Switzerland, United Arab
Emirates, United States of America,
Venezuela
*Post-conflict societies whose federal constitutions are not consolidated
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Federalism Throughout the World
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Reasons for Choosing Federalism
• Rational explanations:
• combining the benefits of greater size (economic, security)
with the retention of regional control and the recognition
of diversity
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• A federal state is ultimately sustained by a sense of
political nationality or community, or, failing that, a
belief that the status quo is preferable to the
consequences of break-up
• When these conditions no longer exist or are under
pressure (Belgium, former Czechoslovakia, and/or
Canada at various points in time) the federal union
is likely to be questioned
!5
The Origins of Canadian Federalism
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• The American model appeared to be a failure.
• Despite the preference of some Ontario
(Canada West) politicians for a unitary system
of government, most leaders in the other
colonies were unwilling to give up all of their
powers to a new national government
– Canada East (Québec) & Maritimes
• French-Canadian politicians in QC wanted to retain
control over the levers of culture, but Maritime leaders
were also insistent on a federal form of government
!6
Original Expectations
•
Although there was no consensus, it is clear from various provisions of
the Constitution Act, 1867, that the federal government was expected
to be the superior level of government
– Provinces: “glorified municipalities”
– Legislative and revenue-raising powers
• Indirect taxation powers vs. Direct Taxation powers
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– Quasi-federal features of the constitution
• Disallowance: s. 56; disallow laws passed by provincial legislatures; conferred to
the feds under s. 90; has gradually fell into disuse; last used between the period
of 1937-1943 when the feds invoked it on eleven occasions to deal with
legislation enacted by the Social Credit government in AB; Meech would have
kyboshed it
• Reservation: under s. 90, LGs can withhold royal assent to a bill ― reserve it ―
so that it might be reviewed by the federal government; feds then had twelve
months to decide to disallow it; if they didn’t disallow it within 12 months, it
was to become law; last exercised in 1961 and feds didn’t interfere; 1938, last
time a bill was reserved and disallowed when the AB LG refused to a sign a bill
of the Socred government which required newspapers to “…publish ‘corrections’
at the direction of a government agency to any news stories which were
‘inaccurate’ and ‘misleading’; Meech would have kyboshed it
!7
The Federal Division of Powers
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• What were minor responsibilities in the 19th century
have assumed greater importance as a result of
economic and societal changes
• Sections 91 and 92 of the Constitution Act, 1867 are
at the core of this division
• Most of the major policy fields are characterized by
divided governmental authority
• Ottawa’s ‘spending power’
– Provides the constitutional basis for federal spending in areas
of provincial jurisdiction
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Division of Powers
Federal Government
Provincial
Governments
Federal and Provincial
and Governments
Section 91
Section 92
Section 95
Maintenance of peace, order, and Amendment of constitution of
good government
province, with the exception of
office of lieutenant governor
Public debt and property
Direct taxation for provincial
purposes
Trade and commerce
Borrowing of money on provincial
credit
Taxes
Provincial government offices
Borrowing money on the public
credit
Public lands belonging to the
province
Postal service
Reformatories
Census and statistics
Hospitals, asylums, and
charities, other than
marine hospitals
Militia, military, naval service,
and defence
Municipal institutions
Settings of salaries of officers of
the government of Canada
Shop, saloon, tavern, auctioneer,
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and other licenses
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Agriculture and immigration are
shared responsibilities
The Courts and Federalism
• Peace, order and good government (POGG)
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– Question of the residual power; preamble to s.
91; gives the federal government the right to
make laws for the “peace, order, and good
government of Canada in relation to all matters
not coming within the classes of subjects by this
Act assigned exclusively to the Legislatures of the
provinces”
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The Impact of Judicial Decisions
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• They seldom provide the final word in
jurisdictional conflicts between Ottawa and
the provinces.
• They often provide a basis for further
negotiations between governments, as was
true of Re Constitution of Canada, 1981, or
simply one element in an ongoing political
struggle, as was the case in Reference re
Secession of Quebec, 1998.
!11
Quebec
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• Quebec governments have made special demands on
federalism, pushing intergovernmental relations in a
decentralist direction.
• Quebec began the practice of a province opting out
of a federal–provincial program and receiving
financial compensation to run its own program (s).
• Special status, distinct status and asymmetrical
federalism may all be traced to the demands of
Quebec provincial governments.
• Issue of ‘vision’; causes discord in English Canada
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Centre–Periphery Relations
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• The political reality is that the influence of
Canadian provinces on federal policy and their
treatment by Ottawa has often been unequal, the
demands and interests of Ontario and Quebec taking
precedence over those of the ‘peripheral’ (West &
Atlantic)regions.
• National policy; control over natural resources; official
bilingualism; federal decision-making
• Federal institutions and the process of intrastate
federalism (representing/accommodating regional
interests within national political institutions) have
proven inadequate to the challenge of providing
satisfactory representation for provinces outside of
central Canada.
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Centre–Periphery Relations, cont’d
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• Ottawa’s use of the constitutional powers of
reservation and disallowance was targeted chiefly at
western provincial governments
• Saskatchewan and Alberta entered Confederation in
1905 without full provincial powers
– Interests of farmers vs. fishermen;
• The growing economic strength of the West
sharpened, not diminished, this sense of grievance
against Ottawa and central Canada
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Provincial Governments as
Champions of Regional Interests
•
Institutional reasons for the importance of provincial
governments
Given the limitations of intrastate federalism, provincial
governments and premiers have emerged as the chief
spokespersons for the regions
Province-building
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Executive federalism
•
•
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– Recent evolution of more powerful and competent provincial
administrations which aim to manage socioeconomic change in
their territories and which are in essential conflict with the
central government, i.e. QC & AB
– Describes the relations between cabinet ministers and other highranking officials of the two levels of gov’t
– Meetings of the PM and Premiers
– First Ministers’ Conferences (FMC)
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Fiscal Federalism
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• The gap between the cost of provincial
responsibilities and the provinces’ revenue-raising
is at the root of problems of fiscal federalism –
FISCAL GAP!
• At Confederation the responsibilities of the
provinces were comparatively inexpensive, but this
changed in the middle to late 20th century
• Ottawa has entered the picture through the
spending power, helping to finance shared-cost
programs that are administered by the provinces
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Public Finance in Canada: Revenue and Expenditure
as Percentage of GDP for Each Level of Government,
1950-2009
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The Four Pillars Of Fiscal
Federalism Until 1996
Conditional and unconditional grants
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• Or shared-cost programs involve payments by the federal government
to provincial governments choosing to undertake programs to federal
government specifications
• Largest program was the Canada Assistance Plan (CAP), a shared-cost
program established in 1966 under which the feds paid one-half of the
cost of provincial social assistance programs for welfare, day care,
child welfare, and homemakers’ assistance
• In return, provincial programs had to meet certain conditions
• Had to be based on need, though they could vary widely across the
country, and could not discriminate against applicants from another
province by placing residency restrictions on the qualifications for
assistance
• Feds favour conditional grants, while the provinces favour
unconditional grants - SURPRISED?
• Issues – accountability, credit, insensitivity to local concerns,
freedom, lack of visibility
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What is Equalization?
Equalization is the Government of Canada’s transfer
program for addressing fiscal disparities among provinces
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–
Equalization payments enable less prosperous provincial
governments to provide their residents with public services
that are reasonably comparable to those in other provinces,
at reasonably comparable levels of taxation
The purpose of the program was entrenched in the Canadian
Constitution in 1982:
•
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"Parliament and the government of Canada are committed to
the principle of making equalization payments to ensure that
provincial governments have sufficient revenues to provide
reasonably comparable levels of public services at reasonably
comparable levels of taxation." (Subsection 36(2) of the
Constitution Act, 1982)
Equalization payments are unconditional – receiving
provinces are free to spend the funds according to their own
priorities
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How Equalization Works
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• Equalization entitlements are determined by
measuring provinces’ ability to raise
revenues – known as "fiscal capacity"
• A province’s Equalization entitlement is
equal to the difference between its fiscal
capacity and the average fiscal capacity of
all provinces – known as the "10 province
standard"
• Provinces whose fiscal capacity is above the
standard do not receive Equalization
payments
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A New Era: The CHST
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• 1995-1996 budget heralded a new era in fiscal
federalism; unilateral reform
• Federal government created the Canada Health and
Social Transfer (CHST) by folding EPF and CAP into
one giant block transfer for health, social policy and
post-secondary education
• Cash transfers to the provinces under CHST
decreased from $18.3 billion in 1995-1996 to $12.5
billion in 1997-1998, a reduction of about one-third;
enormous blow to the provinces
• In 2004, the CHST was divided into the CHT and CST
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The CHT and CST
Looking Ahead
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• Federal government transfers:
– $57.7 billion to provinces and territories for
health, education and social services in
2010-2011
• CHT consists of:
– $25.4 billion in cash, and $13.1 billion in tax
points; it increases 6% per year
• CST consists of:
– $11.2 billion in cash and $8 billion in tax points;
it increases 3% per year
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Federal Cash Transfers as Percentage of
Provincial Government Expenditures, 2008-09
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And Finally…
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• The financing of healthcare and the
maintenance of national standards has been
a longstanding source of conflict in
intergovernmental relations
• Federal social transfers to the provinces
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