Fiscal Imbalance in Canada (Essay Sample)

Fiscal Imbalance in Canada Name Institutional Affiliation Course Instructor Date Fiscal Imbalance in Canada Introduction Fiscal imbalance describes a situation where there is a monetary imbalance between the federal government and the provincial governments.. It involves one or more governments needing help to raise enough revenues to fund their programming responsibilities. In contrast, other governments have more income than required to finance their areas of jurisdiction. For example, the federal government may have revenue-raising abilities exceeding the cost of fulfilling national program responsibilities. In contrast, the provincial and territorial governments need the more revenue-raising capacity to meet their constitutional spending responsibilities, especially in health care, education, and social services.. Canada centralizes service delivery with an array of tools, spending power being one of them. Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably similar levels of taxation.[Béland, Daniel, André Lecours, Gregory P. Marchildon, Haizhen Mou, and M. Rose Olfert. Fiscal federalism and equalization policy in Canada: Political and economic dimensions. The University of Toronto Press, 2017.] [Béland, Daniel, André Lecours, Gregory P. Marchildon, Haizhen Mou, and M. Rose Olfert. Fiscal federalism and equalization policy in Canada: Political and economic dimensions. The University of Toronto Press, 2017.] The federal government is the national government of Canada, centered in Ottawa. The term can refer narrowly to the Canadian Cabinet or, more broadly, to the Cabinet and the public service.. It plays a massive role in Canadians' lives ranging from the collection of taxes to the delivery of social services and from the supervision of international trade to the safeguarding of national security. On the other hand, the provinces are responsible for private or local matters, such as hospitals, schools, charities, municipalities, shops, taverns, transportation within an area, onshore natural resources, and property and civil rights.. Everything else is in the hands of the federal government, charged with maintaining “the Peace, Order, and good Government of Canada.” In addition, the federal government is given the power to disallow provincial laws.[Boessenkool, K. J. (2010). Fixing the fiscal imbalance: turning GST revenues over to the provinces in exchange for lower transfers. SPP Research Paper, (10-10).] [Joanis, Marcelin, and François Vaillancourt. "Federal finance arrangements in Canada: the challenges of fiscal imbalance and natural resource rents." In Intergovernmental Transfers in Federations. Edward Elgar Publishing, 2020.] Due to its monopoly, the federal government uses spending power to intervene in the provinces' areas of operation, causing fiscal imbalance.. The spending power, on the hand, limits the decision-making and budgetary autonomy of the provinces, hence influencing their level of spending. Hence, this is caused by excess revenue of the central government about its spending within the jurisdictions allocated to it by the Constitution (the Canada Act, 1982 (UK) 1982, 11). The spending power involves transferring money or tax points rather than jurisdiction, and the areas most affected, such as health, education, welfare, employment training, and regional development, are already within provincial jurisdiction.[Joanis, Marcelin, and François Vaillancourt. "Federal finance arrangements in Canada: the challenges of fiscal imbalance and natural resource rents." In Intergovernmental Transfers in Federations. Edward Elgar Publishing, 2020.] Division of Powers To establish a proper relationship between the spending power and the fiscal imbalance in Canada, it is necessary to look at the division of forces in the Canadian Constitution. The Canadian constitution act 1867 provides for an initial distribution of legislative powers, the bulk 146 Andrée Lajoie, which are found in sections 91 to 95. Section 91 is entitled 'Powers of the Parliament' and comprises twenty-nine subsections ranging from the debt and public property to general residual competence. Section 91 includes unemployment insurance, the raising of money by any mode or system of taxation, as well as quarantine, and the establishment of marine hospitals, to name but those subjects linked to the spending power. To these federal powers must be added old age pensions, inserted in 1951 by section 94A (which nonetheless gives precedence to provinces' legislation in this respect), as well as paramount jurisdiction over natural resources exports, inserted by section 92A in 1982.[Boessenkool, K. J. (2010). Fixing the fiscal imbalance: turning GST revenues over to the provinces in exchange for lower transfers. SPP Research Paper, (10-10).] Section 92(Exclusive Powers of Provincial Legislatures) comprises sixteen subjects. They include direct taxation within the province for the raising of revenue for provincial use. For example, the establishment, maintenance, and management of hospitals, asylums, charities, and eleemosynary institutions in and for the province, other than marine hospitals, as well as a residuary power specific to its sphere (generally all matters of a merely local or private nature in the province’). In addition, education, which is covered separately in section 93, is the provincial portion of the power over resources provided for in section 92A, and the joint powers stipulated in section 95 over immigration and agriculture. By contrast, the powers of the executive are the subject of a few provisions scattered throughout the text of 1867, which incorporate the powers already granted to the executives of the colonies that would form the federation while specifying other powers, notably those concerning certain judicial appointments and the expropriation of provincial lands for defense purposes.. However, the spending power of the federal executive is not mentioned therein, just as no mention is made of the spending power of the provinces.[Joanis, Marcelin, and François Vaillancourt. "Federal finance arrangements in Canada: the challenges of fiscal imbalance and natural resource rents." In Intergovernmental Transfers in Federations. Edward Elgar Publishing, 2020.] In Canada, Provinces, and territories provide 62 percent of all program spending, and this share is increasing.. These governments are constitutionally responsible for delivering key social programs: health care and education, the fastest growing programs of the provinces and territories, receiving about two-thirds of their program spending. Only 38 percent of all public services are provided through federal channels, and this proportion is projected to decline.[Labbé, Jolène, James D. Ford, Malcolm Araos, and Melanie Flynn. "The government-led climate change adaptation landscape in Nunavut, Canada." Environmental Reviews 25, no. 1 (2017): 12-25.] Fixing the Fiscal Imbalance The federal government is plans to tackle the issue of fiscal imbalance in their upcoming federal budget. Some of the areas of focus include solving the issue using equalization program. In this move, government endeavours transferring many to the provinces to wok on social programs and infrastructure. The transfers will boost the provincial revenues hence offsetting the negative impact the of imbalance. Additionally, the Canadian Health and Social Transfer (CHST) allocates some funds targeting essential health, improving education, and social programs. Equalization funding ensures that all provinces are able to provide comparable levels of programs and services at comparable levels of taxation. To accomplish their crucial programming goals, provinces and territories must have access to adequate funding from both their own-source revenues and federal government transfer. The current situation of imbalance enables the federal government to use its “spending power” to engage in many new activities. The initiatives are being offered at the expense of adequate federal support of the health care system and another key social programming.[Joanis, Marcelin, and François Vaillancourt. "Federal finance arrangements in Canada: the challenges of fiscal imbalance and natural resource rents." In Intergovernmental Transfers in Federations. Edward Elgar Publishing, 2020.] [Joanis, Marcelin, and François Vaillancourt. "Federal finance arrangements in Canada: the challenges of fiscal imbalance and natural resource rents." In Intergovernmental Transfers in Federations. Edward Elgar Publishing, 2020.] Conversely, shelling out more federal dollars will do little to stop the demands for more money by the provinces. To end the seemingly never-ending "fiscal imbalance" debate, the federal government should eliminate its health and social transfers to the provinces, concurrently reduce federal taxes, and allow the provinces to make up for the lost revenues through higher provincial taxes. Such reforms constitute a genuine solution to the current problems and offer a more rational and productive fiscal framework for the future. Despite these substantive transfers, the provinces of the “fiscal imbalance” have made much. The driving force behind the imbalance is the difference in federal and provincial spending growth. The provinces incur more spending increases than the federal government due in part to pressures in three of the largest programs provided by the provinces: health, education, and social assistance. To address provincial concerns regarding the imbalance, the federal government has dramatically increased its funding of provincial programs through transfer payments such as the Canadian Health Transfer (CHT) and Canadian Social Transfer (CST). Unfortunatel...