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Fiscal Federalism and Decentralization

Fiscal Federalism and Decentralization. Parallels of Canadian Experience. Canadian Federation. Constitution articulates the division of powers A federal government 10 provincial governments 3 territorial governments numerous municipal (local) governments

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Fiscal Federalism and Decentralization

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  1. Fiscal Federalism and Decentralization Parallels of Canadian Experience

  2. Canadian Federation • Constitution articulates the division of powers • A federal government • 10 provincial governments • 3 territorial governments • numerous municipal (local) governments • newly evolving system of self-government for aboriginal communities

  3. Canadian Fiscal Federalism • Reconciliation of national unity respecting regional diversity • history of pluralism, regional economies, diversity of population, and multiculturalism • Canadians can enjoy national standards and comparable services at comparable levels of taxation no matter where they live

  4. Division of Taxing Powers • Federal: Any mode of taxation • Provincial: Direct taxation • Municipal: Delegated by the provinces

  5. Division of Taxing Powers Robin Boadway and Ronald Watts. Fiscal Federalism in Canada. Kingston: Institute of Intergovernmental Relations, 2000. P. 6.

  6. Division of Spending Powers • Federal: • Banking • National Defense • Postal Services • Criminal Law, etc. • Provincial: • Health Care • Education • Social Services, etc. • Joint: • Immigration • Agriculture

  7. Fiscal Imbalances • Vertical Fiscal Imbalance • Federal and provincial governments have a mismatch between revenue and expenditure responsibilities • Horizontal Fiscal Imbalance • Different provinces have different fiscal capacities and abilities to provide public services

  8. Recent Canadian Developments • Federal budgets have consistently included surpluses and reduced debt levels since 1997 • Provincial fiscal prospects are more uncertain and uneven • Imbalance the result of built-in growth rates of existing revenue and expenditure structures

  9. Recent Canadian Developments • Federal government has recently shown a preference for direct spending initiatives on social services and post-secondary education • Health care remains an active social transfer to the provinces, though direct federal spending has also increased • Tax system is now being used to fund social transfers

  10. Grants • Major grants include: • Canada Health Transfer • Canada Social Transfer • Equalization • Territorial Formula Financing • Other

  11. The Financial Crisis • Current crisis has led to centralization of national finances: • over $66 billion in mortgages purchased • $4 billion loan to the automotive sector • formation of the Canadian Secured Credit Facility (CSCF) • changes to improve the capacity of the Canadian Deposit Insurance Corporation (CDIC) • Concerted federal/provincial action

  12. Conclusions • The Canadian Experience: • Fiscal Federalism • Decentralization • Centralization

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