(Policy papers 2012-2013)

Our country is diverse in ways that enrich us — our geographical variety, our multicultural population — but we also have disparities that create unacceptable levels of inequality. An elaborate system channels revenues from Ottawa to other levels of government (provincial, territorial, municipal, Aboriginal), but it has little or no direct accountability. We need an independent Canadian Commission on Fiscal Transfers that will help us to meet our national goals and objectives in social policy. Reforming federal funding structures would also aid in providing more child care and strengthening post-secondary education.

Notre pays a une diversité qui nous enrichit – notre variété géographique, notre population multiculturelle – mais il y a aussi des disparités qui créent des niveaux inacceptables d’inégalités. Un système élaboré achemine les revenus depuis Ottawa jusqu’aux autres niveaux de gouvernement (provincial, territorial, municipal, autochtone), mais il n’y a que peu, si ce n’est aucune transparence. Nous avons besoin d’une Commission canadienne des transferts fiscaux indépendante qui nous aidera à atteindre les buts et objectifs nationaux. Une réforme des structures de financement permettrait également d’offrir plus de services de garderie et de renforcer l’éducation postsecondaire.

*****

Every year, Ottawa channels billions of dollars to the provinces and territories to reduce inequities among Canadians. This goal is so fundamental to our way of life that one form of redistribution, called equalization, is entrenched in the Constitution. It commits our governments to providing “reasonably comparable levels of public services at reasonably comparable levels of taxation.” Other federal contributions to provinces are primarily in the form of transfer payments specifically designated for health care, post-secondary education, social assistance, and social services. Together these arrangements are called “fiscal federalism.”

It has become increasingly difficult to measure whether fiscal federalism shares the financial burden fairly and does what it’s meant to do to promote national objectives. Governments too often create short-term ad hoc deals that make calculation of who’s up and who’s down next to impossible. The lack of meaningful scrutiny of intergovernmental transfers by the House of Commons is a serious failure of accountability and transparency. But if we look at our progress toward clear objectives such as building and maintaining high-quality infrastructure or eliminating Third World living conditions among Aboriginal Canadians, it’s apparent that the collective impact of all this spending falls well short.

In 2011-12, equalization alone will total approximately $14.7 billion, with about half going to Quebec and the rest distributed across Ontario, Manitoba, Nova Scotia, New Brunswick, and Prince Edward Island. The Canada Health Transfer will distribute almost $27 billion and the Canada Social Transfer (CST) another $11.5 billion. And there are many other federal programs and initiatives that incorporate equalizing elements, such as employment insurance[5], which is currently structured to benefit the unemployed who live in areas of the country with weaker employment.

We urgently need to bring coherence, consistency, and accountability to the perverse jumble of federal contributions to provinces so that it does not divide governments and erode Canadians’ ties to one another. For example, because of its natural resource wealth, Alberta is the biggest contributor to equalization, and some Alberta politicians question why enormous sums are being sent to Quebec to allow that province topay for services that others cannot afford such as subsidized electricity, $7-a-day child care, and the lowest post-secondary tuition fees in the country. Meanwhile, significant differences continue and are even growing from province to province and municipality to municipality in everything from pensions and health care to infrastructure. What can we do?

A permanent non-partisan independent advisory commission, similar to Australia’s Commonwealth Grants Commission, could scrutinize and manage fiscal federalism. This Canadian Commission on Fiscal Transfers would examine how every province is doing based on a giant balance sheet of GDP in each jurisdiction, taking into account all revenue sources, measuring the effectiveness of programs, and charting improvements in equity. The current equalization formula, among other things, would be replaced.

The Commission — experienced officials and academics appointed by Ottawa – would then submit an annual proposal to the federal government for appropriate equalization and other adjustments to fiscal transfers that better promote our national goals of greater equity and equality of opportunity for all Canadians, regardless of residence. It should work in conjunction with the Council of Canadian Governments[2] to examine such difficult issues as whether and which transfers should be made on a per capita basis or according to “fiscal need,” given the disparities among provinces. The Commission’s reports to Parliament and recommendations to the minister of finance would make the system of federal contributions to other levels of government more transparent and much less political. Its findings would inform intelligent debate on longer-term national objectives, thereby building stronger ties among Canadians and greater confidence in the fairness of the system.

One area for dialogue is how we can develop better coherence and comparability in income support and social services across the country. This would mean assessing the national impact of programs for individuals like the Canada Child Tax Benefit and reaching a broad agreement on the specific purposes to be served by the billions of dollars transferred under the CST, for example, to ensure that all Canadians can meet their basic needs and develop their potential.

We have already achieved an imperfect national framework and strategy with respect to access to health care[6]. Having the same goal with respect to social transfers reflects the belief that Canadians should have equal access not only to basic health care but also to adequate food, clothing, and housing through income security programs, and to essential social services. A coordinated approach would not just enhance equity and equal opportunity across the country; it would increase Canadians’ mobility, leading to a more dynamic and efficient labour market.

Sharpening the focus on matters of national concern will lead to real progress on ensuring important supports like affordable, available child care. Most Canadians accept that promoting the well-being of children and relieving the stress of parents, especially women, who are struggling to balance work and family have both social and economic benefits. Child care is not an end in itself: it is a means to an end, allowing parents to work or go to school and to provide better opportunities for the next generation. High-quality child care and early childhood education (ECE) equalize opportunities for children to have successful and fulfilling lives.

Canada’s record in supporting child care is extraordinarily poor, given our relative wealth and prosperity. Canada provides regulated child care spaces for fewer than 20% of children age six and younger with working parents; the rates are 60% in the United Kingdom, 69% in France, and 78% in Denmark. Little federal funding goes to child care through the amorphous CST. As with so much of our dysfunctional system of fiscal federalism, it is impossible to assess what impact, if any, these contributions have on strengthening the child care infrastructure in Canada and on assisting families that need help the most.

By far the most federal support for child care — well over $3 billion a year — is now delivered through the taxable $100-a-month Universal Child Care Benefit and the child care expenses tax deduction, which disproportionately benefit Canadians who are better off. Neither does anything significant to improve the availability and affordability of child care spaces, especially for lower-income Canadians. These funds could be transferred to the provinces in a reconstituted CST to directly fund public and non-profit providers, which would substantially increase child care spaces. Provincial governments should establish the standards for the quality of services and their fees, and they should integrate child care services with ECE programs.

One substantial way to ensure that the CST focuses on social assistance and social services would be to pull out its post-secondary education (PSE) component. The federal transfer for PSE provides limited support directly to students — some $350 million a year through the Canada Student Grants Program, which comes to just over $1,300 a year for each of 250,000 debt-strapped students. Most federal support goes directly to the universities. A $1 billion Post-Secondary Education Infrastructure Trust was established in 2006. And no less than 80% of public support for university research in Canada comes from the federal government, much of it through the granting councils, including the Social Sciences and Humanities Research Council, the Natural Sciences and Engineering Council of Canada, the Canada Council, and the Canadian Institutes of Health Research.

All levels of government need to collaborate on a national system to promote agreed purposes and objectives for PSE, as in other developed countries. This must include how to ensure more funds go to the students and to reducing their costs of post-secondary education (of which tuition is only a component) so that younger Canadians are not condemned to start their working lives under the shadow of unmanageable debts.

The Standing Senate Committee on Social Affairs, Science and Technology in its report of December 2011, Opening the Door: Reducing Barriers to Post-Secondary Education in Canada, recommended that the federal PSE funds should be reconstituted as a new, independent Canada Education and Training Transfer. The report recommended that the federal government work with the Council of Ministers of Education, Canada (CMEC), to develop a national strategy that includes setting targets, collecting better data, recognizing and transferring credits, expanding online learning, and funding research and pilot projects. The goal would be to enhance the accountability of provinces and territories for the federal funding they receive. This is a valuable approach to developing clear purposes and objectives for PSE and PSE funding, and since the CMEC is collaborating with the federal government, the final arrangements could be subject to endorsement by the Council of Canadian Governments[2]. Any new federal investment should ensure increased access and that income is not a barrier for qualified students.