Fiscal imbalance in Canada
Encyclopedia
Fiscal imbalance is the term used in Canada
to describe a monetary imbalance between the Canadian federal government
and the provincial governments.
According to the fiscal imbalance theory, the federal government has achieved an important surplus by cutting its contributions towards provinces, leaving them with responsibilities much too expensive for their resources. A major work having developed the theory is the "Seguin Report", commissioned by then Parti Québécois
(PQ) Premier of Quebec
Bernard Landry
. It was completed under the now former Liberal
Quebec Minister of Finance Yves Séguin
. The federal government run by the Liberal Party of Canada
until January 2006 denied that this imbalance exists arguing, in part, that both the federal and provincial governments have access to the same major sources of revenue and that both orders of government face significant spending pressures and limited resources. However, the Conservative Party of Canada
recognizes the imbalance. Following their victory in the 2006 federal election
in January, they intend to find a solution during their mandate.
A similar situation existed during the 1920s and the Great Depression
when the new welfare state severely burdened the provinces, but the federal government continued to run surpluses. This resulted in the 1937-1941 Rowell-Sirois Commission
. The most important result of this commission was that the restrictions on how provinces could raise money were removed, and the expensive Unemployment Insurance program was transferred from the provinces to the federal government.
In the past few years, the fiscal imbalance has been a major issue identified by all parties of the National Assembly of Quebec
. The Parti libéral du Québec
(PLQ) proposes to work with the federal government to solve the problem by increasing federal transfers to Quebec. Yves Séguin, of the PLQ, proposes transferring control of the Goods and Services Tax
(GST), a value-added tax, from the federal government to the Quebec government. The PQ holds that independence for Quebec
will solve the imbalance, with all powers to impose taxes brought back to the Quebec government. The PQ proposes until then to struggle to convince the federal government to give back money to Quebec.
All major federal parties but the Liberals recognize a monetary imbalance between the federal government and the provinces, and speak of plans to reduce it. The Bloc Québécois
, a sovereigntist party at the federal level, is probably the strongest denouncer of the situation. Prime Minister Paul Martin
and his federal Liberals prefer to speak of a fiscal "pressure" on provinces, therefore not admitting directly a responsibility of the Canadian government. In accepting an amendment to the Throne Speech after the 2004 federal election
, the federal Liberals did officially acknowledge the reality of the situation.
The federal Liberals assert that it is impossible for a true fiscal imbalance to exist as the provincial governments have access to all the same sources of revenue as the federal government. Unlike in earlier years, the problem is not structural but political. The provincial governments are unwilling to risk their popularity by raising taxes and instead want the extra money to come from the federal government. The federal Liberals also partially blame the situation on the tax cuts introduced by many of the provincial governments.
The potential solutions advocated by most of the provincial premiers is that the transfer payment
s from the federal government to the provinces be substantially increased. This has gradually occurred as the federal government has regularly increased its transfer for health care spending. The Bloc Québécois supports Yves Séguin's suggestion that the GST be given to the provinces. Gordon Campbell, the premier of British Columbia
, has proposed that the federal government take over from the provinces responsibility for programs that provide pharmaceutical products to low-income people, the elderly and people with disabilities.
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
to describe a monetary imbalance between the Canadian federal government
Politics of Canada
The politics of Canada function within a framework of parliamentary democracy and a federal system of parliamentary government with strong democratic traditions. Canada is a constitutional monarchy, in which the Monarch is head of state...
and the provincial governments.
According to the fiscal imbalance theory, the federal government has achieved an important surplus by cutting its contributions towards provinces, leaving them with responsibilities much too expensive for their resources. A major work having developed the theory is the "Seguin Report", commissioned by then Parti Québécois
Parti Québécois
The Parti Québécois is a centre-left political party that advocates national sovereignty for the province of Quebec and secession from Canada. The Party traditionally has support from the labour movement. Unlike many other social-democratic parties, its ties with the labour movement are informal...
(PQ) Premier of Quebec
Premier of Quebec
The Premier of Quebec is the first minister of the Canadian province of Quebec. The Premier is the province's head of government and his title is Premier and President of the Executive Council....
Bernard Landry
Bernard Landry
Bernard Landry, is a Quebec lawyer, teacher, politician, who served as the 28th Premier of Quebec , leader of the Opposition and leader of the Parti Québécois .-Personal:...
. It was completed under the now former Liberal
Parti libéral du Québec
The Quebec Liberal Party is a centre-right political party in Quebec. It has been independent of the federal Liberal Party of Canada since 1955....
Quebec Minister of Finance Yves Séguin
Yves Séguin
Yves Séguin is a former Canadian politician in Quebec.He was first elected as the Quebec Liberal Party member for Montmorency in 1985. He was the parliamentary assistant to the Minister of Revenue from 1985 to 1987. He was then made the Minister of Revenue himself in 1987. He was also made the...
. The federal government run by the Liberal Party of Canada
Liberal Party of Canada
The Liberal Party of Canada , colloquially known as the Grits, is the oldest federally registered party in Canada. In the conventional political spectrum, the party sits between the centre and the centre-left. Historically the Liberal Party has positioned itself to the left of the Conservative...
until January 2006 denied that this imbalance exists arguing, in part, that both the federal and provincial governments have access to the same major sources of revenue and that both orders of government face significant spending pressures and limited resources. However, the Conservative Party of Canada
Conservative Party of Canada
The Conservative Party of Canada , is a political party in Canada which was formed by the merger of the Canadian Alliance and the Progressive Conservative Party of Canada in 2003. It is positioned on the right of the Canadian political spectrum...
recognizes the imbalance. Following their victory in the 2006 federal election
Canadian federal election, 2006
The 2006 Canadian federal election was held on January 23, 2006, to elect members of the Canadian House of Commons of the 39th Parliament of Canada. The Conservative Party of Canada won the greatest number of seats: 40.3% of seats, or 124 out of 308, up from 99 seats in 2004, and 36.3% of votes:...
in January, they intend to find a solution during their mandate.
A similar situation existed during the 1920s and the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
when the new welfare state severely burdened the provinces, but the federal government continued to run surpluses. This resulted in the 1937-1941 Rowell-Sirois Commission
Rowell-Sirois Commission
The Rowell-Sirois Commission officially known as the Royal Commission on Dominion-Provincial Relations was a Canadian Royal Commission looking into the Canadian economy and federal-provincial relations. It was called in 1937 and reported in 1940....
. The most important result of this commission was that the restrictions on how provinces could raise money were removed, and the expensive Unemployment Insurance program was transferred from the provinces to the federal government.
In the past few years, the fiscal imbalance has been a major issue identified by all parties of the National Assembly of Quebec
National Assembly of Quebec
The National Assembly of Quebec is the legislative body of the Province of Quebec. The Lieutenant Governor and the National Assembly compose the Parliament of Quebec, which operates in a fashion similar to those of other British-style parliamentary systems.The National Assembly was formerly the...
. The Parti libéral du Québec
Parti libéral du Québec
The Quebec Liberal Party is a centre-right political party in Quebec. It has been independent of the federal Liberal Party of Canada since 1955....
(PLQ) proposes to work with the federal government to solve the problem by increasing federal transfers to Quebec. Yves Séguin, of the PLQ, proposes transferring control of the Goods and Services Tax
Goods and Services Tax (Canada)
The Goods and Services Tax is a multi-level value added tax introduced in Canada on January 1, 1991, by then Prime Minister Brian Mulroney and his finance minister Michael Wilson. The GST replaced a hidden 13.5% Manufacturers' Sales Tax ; Mulroney claimed the GST was implemented because the MST...
(GST), a value-added tax, from the federal government to the Quebec government. The PQ holds that independence for Quebec
Quebec sovereignty movement
The Quebec sovereignty movement refers to both the political movement and the ideology of values, concepts and ideas that promote the secession of the province of Quebec from the rest of Canada...
will solve the imbalance, with all powers to impose taxes brought back to the Quebec government. The PQ proposes until then to struggle to convince the federal government to give back money to Quebec.
All major federal parties but the Liberals recognize a monetary imbalance between the federal government and the provinces, and speak of plans to reduce it. The Bloc Québécois
Bloc Québécois
The Bloc Québécois is a federal political party in Canada devoted to the protection of Quebec's interests in the House of Commons of Canada, and the promotion of Quebec sovereignty. The Bloc was originally a party made of Quebec nationalists who defected from the federal Progressive Conservative...
, a sovereigntist party at the federal level, is probably the strongest denouncer of the situation. Prime Minister Paul Martin
Paul Martin
Paul Edgar Philippe Martin, PC , also known as Paul Martin, Jr. is a Canadian politician who was the 21st Prime Minister of Canada, as well as leader of the Liberal Party of Canada....
and his federal Liberals prefer to speak of a fiscal "pressure" on provinces, therefore not admitting directly a responsibility of the Canadian government. In accepting an amendment to the Throne Speech after the 2004 federal election
Canadian federal election, 2004
The Canadian federal election, 2004 , was held on June 28, 2004 to elect members of the Canadian House of Commons of the 38th Parliament of Canada. The Liberal government of Prime Minister Paul Martin lost its majority, but was able to form a minority government after the elections...
, the federal Liberals did officially acknowledge the reality of the situation.
The federal Liberals assert that it is impossible for a true fiscal imbalance to exist as the provincial governments have access to all the same sources of revenue as the federal government. Unlike in earlier years, the problem is not structural but political. The provincial governments are unwilling to risk their popularity by raising taxes and instead want the extra money to come from the federal government. The federal Liberals also partially blame the situation on the tax cuts introduced by many of the provincial governments.
The potential solutions advocated by most of the provincial premiers is that the transfer payment
Transfer payment
In economics, a transfer payment is a redistribution of income in the market system. These payments are considered to be exhaustive because they do not directly absorb resources or create output...
s from the federal government to the provinces be substantially increased. This has gradually occurred as the federal government has regularly increased its transfer for health care spending. The Bloc Québécois supports Yves Séguin's suggestion that the GST be given to the provinces. Gordon Campbell, the premier of British Columbia
British Columbia
British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...
, has proposed that the federal government take over from the provinces responsibility for programs that provide pharmaceutical products to low-income people, the elderly and people with disabilities.
See also
- Fiscal imbalanceFiscal imbalance- Meaning and Types :Fiscal imbalance is the term used to denote a mismatch in the revenue powers and expenditure responsibilities of a government. In the literature on fiscal federalism, two types of fiscal imbalances are measured: Vertical Fiscal Imbalance and Horizontal Fiscal Imbalance...
- Politics of QuebecPolitics of QuebecThe politics of Quebec are centred on a provincial government resembling that of the other Canadian provinces, namely a constitutional monarchy and parliamentary democracy. The capital of the province is Quebec City, where the Lieutenant Governor, Premier, the legislature, and cabinet reside.The...
- Politics of CanadaPolitics of CanadaThe politics of Canada function within a framework of parliamentary democracy and a federal system of parliamentary government with strong democratic traditions. Canada is a constitutional monarchy, in which the Monarch is head of state...
- Quebec general election, 2003Quebec general election, 2003The Quebec general election of 2003 was held on April 14, 2003, to elect members of the National Assembly of Quebec . The Parti libéral du Québec , led by Jean Charest, defeated the incumbent Parti Québécois, led by Bernard Landry.-Unfolding:...
- Canadian federal election, 2004Canadian federal election, 2004The Canadian federal election, 2004 , was held on June 28, 2004 to elect members of the Canadian House of Commons of the 38th Parliament of Canada. The Liberal government of Prime Minister Paul Martin lost its majority, but was able to form a minority government after the elections...
- Economy of CanadaEconomy of CanadaCanada has the tenth largest economy in the world , is one of the world's wealthiest nations, and is a member of the Organization for Economic Co-operation and Development and Group of Eight . As with other developed nations, the Canadian economy is dominated by the service industry, which employs...
- FederalismFederalismFederalism is a political concept in which a group of members are bound together by covenant with a governing representative head. The term "federalism" is also used to describe a system of the government in which sovereignty is constitutionally divided between a central governing authority and...