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Fiscal Federalism in Canada

Fiscal Federalism in Canada The Equalization program was created in 1957 to equalize provincial fiscal capacity The Equalization program was significantly modified in 1982 with the introduction of a 5 province standard The Canadian Constitution (1982)PART III: Equalization and Regional Disparities The Evolution of the Equalization Program from 1957 to today Canadian Federal vs Provincial Fiscal Projections 2001-2020 Principles vs PracticeThe Barriers Re-Balancing Solutions Executive Federalism in Canada Executive Federalism in Canada Recent DevelopmentsIn 2004 a new framework forequalization was put in place What have we learned?Maintaining Fiscal Balance QUESTIONS? •Federal and provincial governments have independent constitutional basisof authority•Few / no constraints on spending / taxationpowers or ability to borrow•Federal and provincial have extensive areas of separate legislative powers•Strong executives at both federal and provincial levelsSources: WorldBank, Fiscal DecentralizationIndicators, March 2001 (basedon IMF’’sGovernmentFinance Statistics), Inter–AmericanDevelopmentBankSources: WorldBank, Fiscal DecentralizationIndicators, March 2001 (basedon IMF’’sGovernmentFinance Statistics); Finance Canada;Inter–AmericanDevelopmentBankSources: Ronald Watts (Sources: Ronald Watts (ComparingFederalSystems); Finance CanadaTheEqualizationprogramwassignificantlymodifiedin 1982 withtheintroduction of a 5 province standardYearsSources of Revenue CoverageStandardOtherTax RevenueNatural resourcesOtherRevenues of local govt’s1957-581962-631964-651967-681973-741974-751977-781982-831987-881992-931994-951999-002003Income taxIncome taxIncome taxAllAllAllAllAllAllAllAllAllNonePartialPartialAllAllRestrictedRestrictedAllAllAllAllAllNoneNoneNoneNearly alNearly alNearly alNearly alAllAllAllAllNearly all** NoneNoneNoneNoneEducationEducationEducationEducation/propertyEducation/propertyEducation/propertyEducation/propertyEducation/propertyTwo Best ProvincesNational StandardTwo Best ProvincesNational StandardNational StandardNational Standard National Standard5 Provinces5 Provinces5 Provinces5 Provinces5 ProvincesCeiling/floorRevised ceiling/floor Revised ceiling/floorRevised ceiling/floorRevised ceiling/floorCeiling eliminated2004New Framework for equalization***** User fees excluded*** In October of 2004 equalization entitlements were capped at $10B for 2004-05 and $10.9B for 2005-06Source: Finance CanadaSource: Finance CanadaExecutive Federalism in Canada•First Ministers–The Prime Minister of Canada meets with Premiers of the Provinces and Territories, but there is no set schedule for these meetings–Used for Constitutional and Fiscal Issues and for Program Coordination–Premiers have pressed for more regular F/P/T meetings–They have also recently established a “Council of the Federation”to discuss and coordinate their positions on issues which might be raised with the Federal Government–There are also regional meeting of Premiers in the Western provinces and territories, in Atlantic Canada and in central Canada.Executive Federalism in Canada•Ministers of Finance–Ministers of Finance of the provinces and territories traditionally meet with their federal counterpart twice annually, before and after budget “season”–They are supported by a number of committees of officials, who provide common briefing notes on economic and fiscal data and projections, tax coordination, fiscal arrangements and the CPP/QPP–The Governor of the Bank of Canada often is invited to attend a portion of the pre-budget meetings.Executive FederalismExecutive FederalismMore Executive FederalismRecent DevelopmentsIn 2004 a new framework forequalization was put in place•A new ceiling of $10 billion for 2004-05•Protection for the provinces against reductions globally or individually•A new ceiling of $10.9 for 2005-06•Creation of a five person independent expert panel to review the equalization program