Social Policy in Ontario

Beware Ottawa bearing gifts: Classic federalism is back

Posted on January 17, 2012 in Governance Delivery System

Source: Globe & Mail — Authors: Tom Flanagan

TheGlobeandMail.com – news/commentary/opinion
Published Tuesday, Jan. 17, 2012.    Tom Flanagan

Timeo Danaos et dona ferentes –Virgil, Aeneid, II, 49.

Great news for political scientists! Federalism is back in vogue.

The federal government has declined to negotiate a new health-care deal with the provinces. Minister of Finance Jim Flaherty simply announced how much federal money would be made available and left it up to the provinces to decide how to spend it. Then, the Supreme Court of Canada ruled that the same minister’s plan for creating a national securities regulator was an unconstitutional invasion of the provinces’ power over property and civil rights.

Both decisions point in the direction of classical federalism, that is, respect for the jurisdictions accorded to both levels of government, federal and provincial, by the Constitution, recognizing that federalism is a system of divided sovereignty, in which each level of government has powers that cannot be taken away by the other.

“Duh,” as my students might say. It all seems pretty obvious. But it is not obvious in Canada, because for the past half-century our version of federalism – often called executive federalism – has moved far away from the classical model. The federal government has involved itself in numerous areas of provincial jurisdiction, including health, education and welfare, by using the so-called spending power. This power, not mentioned anywhere in the Constitution, rests on the assumption that the federal government can spend money – i.e., give it to the provinces – for any purpose at all, even if the purpose is a matter of provincial, not federal jurisdiction. And with the giving come the conditions, such as the federal insistence that the provinces not allow extra billing for health services.

Proponents of executive federalism often use the argument that the provinces cannot afford to pay for the modern welfare state because the Constitution restricts them to imposing only direct taxes, whereas the federal government can raise money “by any mode or system of taxation.” But there are two other far more important reasons for demanding that the federal government involve itself in provincial jurisdictions.

One motive for inventing the federal spending power was a quasi-socialist desire to redistribute wealth from more prosperous to less prosperous provinces. I call it “quasi-socialist” because regional redistribution does not necessarily entail taking money from richer people and giving it to poorer people. The working class in Saskatchewan is required to contribute to the equalization payments that finance cheap daycare and tuition for the children of the Quebec bourgeoisie. Where’s Karl Marx when we need him?

The other reason, perhaps only dimly articulated in the minds of proponents, is the national government’s greater borrowing power. Everywhere in the world, the welfare state has been built on sovereign debt; and the national government, with its greater share of sovereignty and greater population base, seems like a better credit risk than the provinces.

Borrowing to finance social programs may have seemed like a good idea at the time, but it has produced levels of public indebtedness now recognized as a serious danger – and not just in Greece and Italy. Canada is close to the danger point, too, when provincial and federal debts are added together, and unfunded public pension liabilities are taken into account.

Executive federalism, with its jurisdictional confusion, has contributed mightily to the problem by generating so many shared-cost programs. Such programs create the illusion for both levels of government that they are spending something less than 100-cent dollars. But there is only one taxpayer, so debt accumulates relentlessly, whether it is booked to federal or provincial accounts.

Classical federalism and classical liberalism are philosophical siblings. Both are premised on limited government enforcing necessary rules of conduct but not trying to direct civil society. In the Canadian context, the revival of classical federalism is an essential part of the revival of classical liberalism, with emphasis on smaller government, lower taxes and balanced budgets. It is good news that Stephen Harper’s Conservative government is now moving incrementally toward both classical federalism and classical liberalism.

Tom Flanagan is professor of political science at the University of Calgary and a former Conservative campaign manager.

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Tags: economy, ideology, tax

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