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Balancing the Three Tiers of Government in Canada
12/03/2004

My posting earlier today about Québec and its interest in adjusting the so-called fiscal imbalance is about an issue that touches on so much of the debate on the Canadian scene these days.

Provinces want more taxation power from the federal government because they say that they have too many responsibilities but not the revenue to pay for them. Municipalities want more taxation power for the same reasons. When higher levels of government transfer dollars to lower levels, they often do so with strings attached.

From reading the news, it might seem that no one is happy with any of this. We read about Quebeckers complaining that Ottawa is holding on to too much money. We read about Albertans complaining that too much of their money is redistributed elsewhere. And we read about Torontonians complaining that the province takes all their money without giving enough back.

Some would say that there is a simple solution to all of this. The higher tiers of government should give up taxation room and the lower levels of government should pick up the slack. The argument in favour of this is that the appropriate tiers of government would have everything they need to run their programs -- the constitutional authority and the financing ability. It creates a neat little package of accountability and responsibility.

On the other hand, if left on their own, some of the mid or lower levels of government may not be able to afford programs that we now consider important. Some of the have-not provinces might not be able to sustain universal public health care, for example, if they had to fund it entirely from their own tax base. So, the advantage of having the federal government involved is that it can set a standard -- e.g., universal public health care from coast to coast -- and tax the whole country to make it possible.

We already know the disadvantages... Accountability is split and there is less certainty that the right amounts of money will go to the right places. Ottawa can waste the money or can fail to deliver. It's worse on the provincial-municipal level where cities not only must rely on provinces to get their fair share of funds, they don't even have a realistic choice of raising money on their own.

In this week's eye, John Sewell again calls for Toronto politicians to demand the right to levy income taxes. He wants the city to get tax points from the higher levels of government because we can't rely on bogus handouts from Ottawa and Queen's Park. Contrary to what some right-wing naysayers think, here's what could happen if Sewell gets his way:

  1. Ontario dumps under-funded responsibilities onto municipalities (already happened)
  2. The municipalities find that they can't manage these downloaded responsibilities (already happened)
  3. Municipalities win the right to charge income taxes (Sewell's plan)
  4. Tax-base-rich municipalities (like Toronto) realize that they are much better off paying for services on their own, and help elect hard-core conservatives to Queen's Park to cut provincial income taxes and download more responsibilities onto municipalities
  5. Tax-base-poor municipalities can't raise the money locally to pay for the services that the province used to provide

Well, I don't know if this will ever transpire. However, I do know that there is a delicate balance.

On one hand, anyone reading this blog regularly would know that I feel some governments really do need much more of a commitment from their senior partners. I believe that the more local the government, the more important it is, and the more accountable it is.

On the other hand, we need to be careful about what these lower-tier governments are seeking. Perhaps in Québec's case, they want more taxation power because it gives their provincial government more "sovereignty". Others may support shifting tax powers to lower tiers simply so that their city or province can keep more money. They may even hope that a scenario similar to the one I outlined above may take place.

Those of us who support the idea of higher level governments setting broad standards and distributing the funds to make things happen must be assured that this is being done efficiently and fairly and with proper respect for the real needs of local communities. Recently, this has been questionable, to say the least. But, for me, it is important to continue to try to make it work.


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