chapter one slide notes

chapter one

• october alberta referendum
  • five questions: five are non consitutional
  • four questions about authority
    • who may ask - can a province hold this referendum at all?
    • who may decide - what does a result oblige anyone to do?
    • who may amend - secession (leaving canada) needs a constitutional amendment
    • who pays - what changes hands, and what does it cost?
  • none of these are about whether separation is a good idea or not: it is about the fact that they need to be answered before the question can even be asked properly
  • “before ervaluatign a proposal, you ahve to locate it”
    • ‘defensible fiscal claim from an indefensible one’
• ‘people disagree about the scope of government because they hold different political philosophies’
  • freedom versus well being of the community
  • philosophy is not sufficient
    • what do governments actually do?
  • where does the legal power to conduct economic policy reside?
  • how has it evolve over time?
  • what does government spend money on, and how does it raise revenue?
• 
  • ---> last one: ‘evaluate fiscal claim against the transfer architecture’
    • guess: fiscal claim is a prescriptive claim about a certain policy, and we can evaluate it against how the government currently transfers money?
  • key actors in fiscal decision making
  • measures size of government: why population, inflation, and growth adjustments matter
  • federal revenue sources and expenditure
  • provincial revenue sources and expenditure
  • municipal, territorial, and indigenious governments
  • purpose and functioning of fiscal transfers

before the deal

• land was not empty
  • treaties between colonizers and indig folx not the first: ‘Robinson treaties’ signed in 1850
    • british columbia not covered by any historic treaties, a lot of quebec, and labrador, eastern arctic
  • canada recognizes 70 historic treaties signed between 1701 and 1923
  • both robinson treaties (there were two), increased annuities to $4 per person in 1875: they were never raised again even through a century of mining, forestry, and hydrodevelopment (slide 34, lecture notes, LIndsey Tedds)
    • supreme court unanimously held that the crown had breached both treaties
      • called the case Restoule, after lead plaintiff
      • Robinson Huron settled for 10 billion, Robinson-Superior did not; crown offered settlement at 3.6 billion against a claim of 36 billion
  • when the colonies came along, the treaty with the crown didn’t disappear: the agreement simply split into two
    • section 91 (what is this) says which government (crown or colony) may legislate, nothign about what is owed
      • grant of POWER
    • section 109 sent land to the provinces (slide 41, lecture notes, LIndsey Tedds)
      • benefit of the land went to the provinces, responsibility for the relationship went ot Ottawa, and ‘the promise bound the crown in both its rights’ ---> what does this mean?
        • crown gets both the benefits of the land as well as power over the relationship?
      • ‘these obligations do not sit inside of the revenue split: they sit across from it’
        • ---> what does this mean?
      • constitutional protection arrives in 1982 -- made the 174 year old promise enforcable

making the deal

• before 1867

  • crown administers several colonies across what we now know as canada, north of the united states
    • atlantic: NS, NB, PEI, Newfoundland
    • Province of Canada; today, southern ontario and quebec
    • BC on the pacific coast
      • between 1864, negotiated a federal union
        • composed of province of canada, NS, and NB joined: the rest followed
  • we call it 'the deal'

• bargain struck in 1867:

  • colonies hand over theirmain revenue source; ottawa assumes debt and national responsibilities: provinces keep health care, education, and social services, with direct taxation only

• where colonial money comes from

  • what does it mean for a colony to hand over their main revenue source?
    • custom duties on imports, and excise taxes
      • excise tax: indirect tax charged by a government on the production, sale, or use of specific goods than on general retail sales
      • not a preference; a constraint
        • trade moved through a handful of ports, so it could be taxed by a smal administration
          • income and property taxes need machinery that did not yet exist, across settlements that were scattered and poor
      • 
      • what does this figure mean?
    • 
      • three things are hiding in this sentence: what are they?
        • guess:
          • crown has power, being advised by the senate and house of commons, to pass laws
          • but these laws may only concern the responsibility of the province of canada, so the provinces have to make the rest of the laws
        • 1. the crown cannot have sole control over the laws; they must act with the senate/house of commons. taxing and spending require legislation.
        • 2. there is a list: prvinical list exists without telling us what is on it
        • 3. ottawa gets the residual: “all matters not coming within”
          • structural advantage
    • "peace, order, and good government"
      • we call it POGG
      • clause does not say only what the parliment may legislate: says what legislating is for
    • ‘one sentence assigns the power, names who wields it, and declares what it is for’
      • POGG is live law
        • provinical list is section 92, federal one is 91
        • 92 is a closed list, sixteen classes of subject
        • section 91 has 29 classes, but also carries POGG
    • “cannot know what is federal until you know what is provincial”

• what is on each list

  • federal:
  • taxing power
    • any mode or system of taxation
      • direct or indirect - and indirect exclusively
  • the main subjects
    • defence: navigation and shipping
    • trade and commerce
    • criminal law
    • money, banking, and currency
  • what else
    • POGG: everything not on the other list
      • plus the power to borrow when revenues fall short
  • provincial
  • taxing power
    • indirect taxation is closed to them
  • the main subjects
    • health - education - social services
    • muncipalities - administration of justice
    • property and civil rights
  • what else
    • section 125 shields each order’s lands from the other

• 

• note: a constitutional limit that closes off an entire class of tax is exactly rhe kind of constraint that shapes what provinces can propose - and it is about to be tested.

what came with the money

• ottawa took on responsibilities that sat with the colonies - the stuff the federal government takes care of
  • also assumed the existing debts of the provinces - servicing and repayment both
  • federal debt was about 25 percent of GDP at confederation
  • taking on the provinces debts is why revenue asymmetry looked reasonable in 1867
    • obligations moved with the money - at the time

the mismatch

• the order of government with the broad, open ended revenue power is not the order carrying the heavy obligations
  • ottawa can raise money by any mode or system of taxation
    • own responsibilities - defence, trade, commerce, criminal law, money, and banking - are not the ones that consume modern budgets.
  • provinces held to direct taxation within the province, and hold social services.
    • they do not line up, and nothing in the constitution makes them line up.
  • nothing has ever repaired this: managing it is what fiscal federalism means
• the order with the money is not the order with the obligations
• everyone runs on deficits: in what sense does ottawa have money?
  • debt-to-gdp ratio: does the debt grow faster than the economy, indefinitely, under current policy
    • on this test, the parlimentary budget officer finds federal policy sustainable: ~ 1.8% GDP in the room, or 46
    • princes and territories as a group: sustainable, but with essentially no room. several not individually sustainable.
      • driver is health spending as the population ages
• fiscal capacity: the ability to raise revenue, not the cash in hand
  • equalization defined on this term

power of the purse

• expensive business of the government was federal
  • defence, canals, and railways, and debts of the colonies
• what we asked the government to do changed
  • the functions we came to care about more changed: education, healthcare, income support
• federal spending power:
  • ottawa can spend in areas it cannot legislate in, and attach conditions
    • cannot set tuition
    • can give funding to provinces and say what the money is for
• money is a way of legislating in someone else's jurisdiction
• the deal, whole
  • colonies hand over their main revenue source - ottawa assumes their debts and takes the national responsibilities
    • provinces keep health, education, social services -with direct taxation only
  • 

what 1982 changed

• patriation: made in canada procedure that meant asking the parliment of the united kingdom to pass a statute, brought the power home
  • patriation had been tried and failed since the 1920’s
    • nobody could agree on how a patriated constiution would be changed
  • what broke the deadlock was QB
    • pierre trudeau promised renewal if the 1980’s sovereignty refernum failed
      • it did, and he carried good on his promise
      • produced section 35, and [[the amending formula]]
  • alberta and SK got a different grievance: a decade of fights over who got the resource revenue
    • national energy program in 1980: lougheed and blakekey led provincial negotiation, price was section 92A
  • section 92A - the resource amendment = was the only part of the whole patriation package that changed division of powers between the two orders of government
    • how did this change powers?
  • the charter is what 1982 is remembered for. section 92a is what it did to public finance.
    • grievance that produced it is the one on the ballot on oct. 19.
  • read section 92a against section 92
    • provinces held to direct taxation only - except on resources, where they get the same privileges as ottawa as far as indirect taxation goes
      • alberta’s royalty regime lives in that exception

the constraint bends

• the direct/indirect line is the only thing standing between a province and an entire class of tax
  • it comes up every time a province wants a revenue source it does not obviously have
  • never settled be economics
    • economics asks who bears the burden - a court asks something else, and the court’s answer is the one that governs
  • there have only ever been two ways out:
    • move the line: get a court to call the tax you want a diret one; this is how the provincial sales taxes exist
    • move the money: leave the line alone, ottawa raises the revenue and hands it to the provinces. that is transfers.
    • ---> slide 127