Federalism are separating Canadian national and common interests
Federalism enables large countries such as Canada to respond to different regional issues while remaining unified by national and common interests. It allows for power to be diffused between the provinces while still maintaining a central authority. For the purpose of this essay, the focus will be fiscal federalism. I’ve selected two sources regarding the topic, Hamish Telford’s The Federal Spending Power in Canada: Nation-Building or Nation-Destroying? and Aaron Majors and Josh McCabe’s The Adversarial Politics of Canadian Fiscality. It should be noted that The Federal Spending Power in Canada over a decade old, but still provide an in-depth analysis of the subject matter. The Adversarial Spending Power in Canada examines 20 years of Canadian fiscality, namely it aims to answer the question of how and when different types of tax regimes and tax policies become fulcrums for social protest and broader movements of social policy reform. The Federal Spending Power in Canada argues that while Canadian federal spending power has helped build the modern Canadian state, the spending power has also precipitated a process of nation-destroying
Aaron Major and Josh McCabe’s The Adversarial Spending Power in Canada: Nation-Building or Nation-Destroying? begins by laying out the evidence for their arguments. Major and McCabe begin by explaining that taxation is the lifeblood of the welfare state, with many of the written accounts citing that countries’ ability to sustain a welfare state in the face of efforts of retrenchment to their reliance on consumption taxes. Major and McCabe explain that consumption taxes have the ability to raise impressive revenues, but are rarely the target of political opposition that led have to neoliberal policy changes. Major and McCabe go on to address specifically Canada, and the recurring argument that the high autonomy that the provinces enjoy reduces the likelihood that significant policy reforms will be instituted at the national level. Major and McCabe say that their findings generally support the claim that social fragmentation when taking on an adversarial form provides opportunities for changes in tax policy. Major and McCabe cite the case of the Canadian Conservative Party’s rise in influence after the 2006 federal election as an example.
A portion of the article explains in great length the political history of the equalization payments and the growing pains that came with the development. Major and McCabe state that the equalization process as we know it today emerged from cash transfers from the federal government to the province during the Second World War. This system commonly has been described as a transfer from the “have” province to the “have not” provinces. In 1957, the cash transfer program was reformed to include an approach to determine which provinces would receive transfer payments and how much Major and McCabe would be based on the difference between their provincial revenue and the revenue that was generated by the two richest provinces. Over the next 25 years the equalization program underwent incremental changes and in 1982 was reformed again with the Constitution Act. The changes the Constriction Act put through were influenced by the energy crisis of the 1970s. The rise in the price of oil increased the revenue of western provinces, this exacerbated the already existing horizontal fiscal gap. Because of this, the equalization payments received the poorer Atlantic provinces were increased. Additionally, Major and McCabe explain how this combined with the implementation of the GST contributed to the sentiment of western alienation.
The latter half of the article delves into the politics of deficit reduction and the rise of a federal value-added tax. Major and McCabe begin with Mulroney’s Conservatives' 1984 election victory. It was during Mulroney’s second term as Prime Minister that he set about an ambitious overhaul of the tax system. He did this in order to prepare Canada for the changing global economy and to move forward with free trade agreements with the United States and Mexico. Major and McCabe explain that in order to address structural budget deficits, Mulroney, to find a way to expand the tax base. His solution was to introduce the GST, with the goal of replacing the Manufacturers’ Sales Tax, which has had a smaller tax base and was impeding Canadian manufacture's efforts to compete on the international market. It was a hard-won battle for Mulroney, with the Conservatives using their control of the House of Commons to push the GST through. On the first of January 1991, the GST went into effect replacing the MST, the rate of which services were taxed at was set a 7 percent with a list of exemptions.
Again, the western provinces felt alienated, their money was sent out of the province and is used to subsidize poorer provinces. The Conservatives ended paying dearly for their hard-fought victory with the GST, losing all but two seats in the 1993 election. The Newly formed Liberal government under Jean Cretin set about attempting to scrap the GST but found that Major and McCabe could not find an alternative that could generate the same revenue. Major and McCabe instead focused on harmonizing the GST with provincial sales taxes. Provincial governments resisted it with fears of political backlash, and by 1996 only Québec, New Brunswick, Nova Scotia, and Newfoundland had signed on for harmonization. Over the decade the western provinces remained steadfast in their opposition to the harmonization, with only PEI joining. This culminated in 2006 with the Conservative regain control of the House of Commons by campaigning with the fiscal imbalance and equalization being central talking points. The conservative leader at the time Stephan Harper voiced the popular discontentment saying “Government has money to waste, government has money to steal, government has money to spend on the benefit of the few. It’s time for benefits to mainstream Canadians.”
Major and McCabe end their article by affirming that the relationship between tax regimes, policy change, and protest. With respect to which tax regimes are likely to produce cleavages, their findings give refinement to the question. Major and McCabe say this about their research, “it afﬁrms one of the foundational insights of ﬁscal sociology: in collecting revenues states redeﬁne the body politic, dividing and shaping political coalitions and inﬂuencing the strategies of politicians” In the end, Major and McCabe reach the conclusion that different tax regimes will garner different results when executed by different parties in different regions, essentially that the response to a tax regime varies greatly from province to province, country to country. They also conclude that depending on who oversees the party, implementing these changes has a great effect on what the response will be from the population.
Hamish Telford’s The Federal Spending Power in Canada: Nation-Building or Nation-Destroying? analyses the federal spending power in Canada. Telford uses different approaches when conveying his point, which provides a nuanced argument. He uses the constitution from a comparative perspective, the judicial interpretation, the federal principle, nation-building, and the search for a solution. Telford begins by saying “For the past 40 years, the federal spending power in Canada has been one of the most contentious issues in federal-provincial relations, and it has been central to Québec’s dissatisfaction with the Canadian federation.” In the article, Telford argues that while federal spending power has aided in the construction of the Canadian state, the spending power has given rise to a process of nation-destroying. Telford adds that many of the social programs created by the spending power, namely healthcare, have become a part of Canadian national identity, outside of Québec. Telford argues that in that sense it has been central to nation-building. Although Federal spending power has been a source of bitterness and discontentment in Québec. Telford says that successive governments of Québec have objected to the use of federal spending power, and to the encroachment into areas under provincial jurisdiction. Telford says in this sense federal spending power may be interpreted as nation-destroying.
Telford begins his section on the federal spending power and the constitution by explaining how the federal government's spending power provides the foundation for federal conditional grants. Originally the provinces were persuaded into accepting conditional grants on the primes of major social programs, such as Medicare. Telford says that the original justification for these grants was their superior fiscal position, but when opposition arose in Québec during the 1950s and 1960s, the federal government was forced to develop a constitutional justification for their spending power. Although this was seen by Québec as an exercise of raw fiscal power, not constitutional authority. The provinces have the right to reject federal conditional grants, but in most cases, fiscal realities compel the provinces to accept. Without self-sufficiency, the provinces are forced to rely on fiscal transfers from the federal government, but one province, Québec, interprets this as cultural subordination. Telford says the federal government has defined spending power as “the power of parliament to make payments to people or governments for purposes on which it does not necessarily have the power to legislate.” According to Telford Justice John Douglas Lambert of the British Columbia Appeal Court described the constitutionality of the federal spending power as “fragile,” and the Canadian Bar Association described the legality of federal spending power as “uncertain.”
Telford’s next section, judicial interpretation of the federal spending power begins with a quote from a Globe and Mail editorial that says, “the courts have ruled that, while Ottawa can’t pass laws in areas of provincial jurisdiction, it can spend money there.” Telford goes on to write that in a subsequent case, Justice Beverly McLachlin wrote, “I have not considered the constitutional limits, if any, on the federal spending power, in my view, be left to another day.” Telford then writes about the spending power and the federal principle. Telford says the federal principle may be defined as “the method of dividing power so that the general and regional governments for each, with a sphere, co-ordinate and be independent. Telford then goes into detail, saying, “if this division of sovereignty is to be meaningful, each order of government requires autonomous legislative, taxing, and spending powers.” Telford goes on to say that with regard to Québec that there have been repeated attempts to have fiscal relation conform to the federal principle, but that the federal government states that Québec’s understanding of federalism does not and cannot work.
Telford’s next section, the federal power and nation-building, begins by saying that under Trudeau, the federal government attempted to justify its spending power, and interference in the jurisdictions of the provincial government, as serving the national interest Telford says the federal government reasoned that “because the people of Canada will properly look to a popularly elected parliament to represent their national interests, it should play a role with the provinces, in achieving the best results for Canada form provincial policies and programs whose effects extend beyond the boundaries of a province.” Telford goes on to say that the federal government argues that spending power is the “vehicle,” “By which the ‘national interest’ in the level of the general provincial public services or of a particular public source can be expressed”
When comparing the two articles, it is apparent that both overlap with each other’s area of research. But Telford’s approach focuses more on the constitutionality of federal spending power while paying close attention to the response of the western provinces and Québec, and their response to changes in spending power over the years. Major and McCabe take a broader look at fiscal federalism, using other countries such as the United States and Switzerland in their analysis. Major and McCabe seem to lack nuance, their article seems to lack direction, trying to answer the specifically Canadian problem of western alienation and discontentment with the federal government in Québec by looking elsewhere. However, both articles acknowledge the adversarial nature of federal spending power, and how it has become one of the most contentious issues both inter-provincially and vertically. Both articles explain how the sentiment of western alienation came about, while also explaining why Québec is opposed to the meddling of the federal government in their provincial jurisdiction. Major and McCabe focus mostly on the functions and underlying mechanisms that make fiscal federalism work, while Telford examines the ramifications of the federal-provincial spending dynamic. Telford’s examination does take a more nuanced approach with respect to Canada specifically, looking into the dynamic between the provinces giving money and the provinces receiving money. Telford also goes into detail explaining why Québec is so strongly opposed to federal spending, explaining the history behind their discontentment with the feds.
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