Confederation until the Second World War, institutional arrangements
in Canada were shaped by a common belief among the courts, constitutional
scholars and most political actors that a clear division of political
responsibilities between two coordinate orders of government was
an essential characteristic of the Canadian state. This coordinate
vision of Canadian federalism was shared by centralists and decentralists
alike. It influenced the recommendations of the Rowell-Sirois
as much as it animated the constitutional jurisprudence of the
Judicial Committee of the Privy Council.3
It so permeated Canadian scholarship during the same period that
the leading constitutional treatise of the 1920s referred to "the
Generally accepted theory that Canada is a federation in which
sovereign power is divided among coordinate governments, none
of which are delegations and among which the provincial governments
are not new creations, but retain 'their independence and autonomy'
demise of coordinate federalism can be traced to the social and
economic initiatives undertaken by the federal government, and
acceded to by most provinces, in the period of reconstruction
following the Second World War.5
The seeds of that demise, however, were sown during the war itself.
Under wartime tax agreements, the provinces agreed to cease levying
taxes on personal and corporate incomes. To compensate the provinces
for relinquishing this tax room, Ottawa assumed all provincial
debts, agreed to pay the provinces unconditional grants based
upon fiscal need, and took over responsibility for the welfare
of unemployed employables.
wartime tax agreements, like the assumption of emergency powers,
were intended as temporary measures to enable the central government
to deal with crisis conditions. Following the war, however, Ottawa
exhibited little desire to relinquish the revenues and the authority
that it had acquired. Instead, buoyed by the revitalized sense
of national purpose instilled in Canadians by the war effort,
and responding to the demands for social and economic reform which
followed the war, federal authorities sought to "continue
to levy the major taxes in order to finance peacetime reconstruction
and to use centralized fiscal policy as a tool of national economic
major constitutional obstacles confronting the federal government
in this enterprise were the division of legislative powers and
the principle of coordinate federalism. The division of powers
gave to the provinces jurisdiction over most areas of social policy
and many aspects of economic regulation, while coordinate federalism
posited a constitutional barrier that protected provincial powers
from federal encroachment.
strategy to overcome these obstacles was set forth in the "Green
Book" proposals that were presented to the Dominion-Provincial
Conference on Reconstruction in the summer of 1945. The Green
Book strategy was a simple one. Given the difficulties of persuading
the provinces to agree to a major reallocation of legislative
powers, the Green Book proposed that the federal government seek
to achieve its policy objectives by means of fiscal intervention
rather than constitutional reform. In particular, it recommended
that Ottawa build upon its wartime tax base by obtaining provincial
agreement to continue to stay out of the personal and corporate
income tax fields, and to refrain from imposing inheritance taxes,
in return for a flat per capita subsidy. The federal government
would then draw upon this tax base to implement, and to push provincial
governments to implement, a postwar agenda of social and economic
Green Book proposals represented an attack on the coordinate orthodoxy
that had prevailed before the war. Unlike the recommendations
of the Rowell-Sirois Report, to which the federal government had
committed itself three years earlier, the proposals showed little
regard for the need to preserve a clear division of legislative
powers or for the desire to promote political accountability within
a federal state. While the Rowell-Sirois recommendations sought
to reallocate powers within a coordinate framework, each order
of government retaining exclusive responsibility to implement
policy within its sphere, the Green Book rejected notions of exclusivity
in favour of overlapping governmental responsibilities and administrative
integration. And while the Rowell-Sirois Report decried the use
of federal spending as a means of overcoming problems of limited
jurisdiction, spending was at the heart of the Green Book proposals.
Spending, was the means by which federal authorities would exert
influence over social and economic spheres previously denied them
by the division of legislative powers.
the Reconstruction Conference broke down in 1946, it laid the
political Groundwork for what was to follow. In 1947, all provinces
except Ontario and Quebec agreed to stay out of the three tax
fields in exchange for tax rental agreements that provided them
with somewhat larger subsidies than those proposed in the Green
The significance of this arrangement was that it gave the federal
government exclusive access to major sources of wartime taxation,
and limited the provincial share in those sources, at a time of
post-war expansion and social reconstruction.
economic impact of these agreements was to enable the federal
government to consolidate and build upon the "temporary" fiscal
gains that it had realized during the war. In 1939, the year that
Canada entered the war, federal income from personal and corporate
was $123 million, about twenty-two per cent of federal budgetary
revenue. By 1963, the year after the tax rental agreements expired,
federal income from these taxes, plus inheritance taxes, stood
at $3.6 billion, over fifty per cent of federal budgetary revenue.10
While provincial income from the three taxes rose from $51 million
in 1939 to $887 million in 1963,11
a factor of seventeen, federal income from these taxes increased
by almost twice as much, a factor of thirty, over the same period.
secured for itself exclusive access to these three major sources
of tax revenue, Ottawa proceeded to implement a strategy similar
to the one mapped out in its Green Book proposals. One by one,
the federal government established conditional grant programs
dealing with highways, education, health and other social services
- all matters falling within provincial legislative jurisdiction.
Some of these programs provided financial assistance directly
to individuals, corporations and provincially regulated institutions
such as universities. However, the most significant took the form
of shared-cost programs under which the federal government agreed
to transfer funds to the provinces for social and economic initiatives
undertaken by them in accordance with conditions laid down in
federal legislation. As Black has observed:12
programs like the Trans-Canada Highway proliferated after the
Second World War and became one of Ottawa's major policy instruments.
The bulk of the funds went into health and welfare which, together
with the highway project, accounted for more than 90 percent
of the federal share of all joint programs in 1959, a proportion
that remained representative of the nineteen-sixties as well.
Frustrated as it was in securing implementation of its comprehensive
post-war Reconstruction proposals. . ., the federal government
was able to achieve most of its social policy aims in a piecemeal
fashion through its conditional grant projects of the late forties
and early fifties.
would be difficult to exaggerate the growth of conditional transfers
as an instrument of federal government policy in the past forty
years. Since the Second World War, Ottawa has initiated over 100
shared-cost programs, most of them of a continuing nature.13
In 1945, conditional transfers from Ottawa to the provinces stood
at $46 million annually,14
less than one per cent of federal budgetary expenditures.15
By 1965, such transfers had grown to $1.2 billion,16
over thirteen per cent of federal expenditures.17
And by 1975, conditional transfers had reached $6.7 billion,18
almost twenty per cent of federal expenditures.19
Thus, by expanding its revenue base and by channeling new revenues
into shared-cost programs and direct grants, Ottawa has been able
to circumvent limitations on its legislative jurisdiction and
to have a major influence on public policy falling within the
sphere of provincial legislative responsibility.
as remarkable as the rise in administrative federalism has been
the lack of controversy it has generated, at least outside Quebec.
The lack of political debate is perhaps understandable. Government
spending is less likely to provoke public criticism than is "command
and control" regulation. Citizens and provincial governments who
benefit from federal spending initiatives are not prone to complain
about them, even if they dislike some of the conditions that accompany
such programs. It is true that provincial Governments have from
time to time objected to the use of federal spending to influence
provincial decision-making. However, in all provinces except Quebec,
such objections have taken a back seat to the desire of provincial
administrations to share in federal revenues and to secure provincial
might be thought that those whose taxes have funded federal spending
programs would be inclined to challenge the constitutionality
of such programs in court. Yet, for good reasons, this has not
been the case. First, the federal government has been careful
to separate its spending programs from the revenue measures that
have made them possible. This has obscured the relationship between
spending and taxing, making it difficult for taxpayers to discern
a clear link between particular taxing and spending initiatives.
Second, because of this difficulty, taxpayers seeking to challenge
a spending program would, until relatively recently, have found
it virtually impossible to demonstrate sufficient interest in
the program to be granted standing before the courts.20
lack of academic controversy, particularly among legal academics,
is more difficult to fathom. Constitutional scholars from English
Canada have viewed the shift from co-ordinate to administrative
federalism with uncritical eyes. Rather than questioning its legitimacy,
the bulk of their energies has been devoted to devising doctrinal
justifications for the federal spending power.21
Scant attention has been paid to the theoretical implications
of that power, and to the political nature of the "new federalism"
which it has spawned.
accounts for the uncritical stance adopted by these scholars?
There are a number of probable explanations. For some, support
for administrative federalism has stemmed from their desire to
broaden the authority of the central government. It is no coincidence
that one of the earliest and most outspoken proponents of the
federal spending power was F.R. Scott,22
as ardent a centralist as this country is likely to see. For others,
support of the spending power appears to be related to their support
for political initiatives with which it has been associated.23
After all, what "progressive" constitutionalist in the postwar
period would want to be seen objecting to federal government support
of highways, education and universal health insurance? Still others
have been inclined to approve of the "new federalism" because
it coincides with their desire to limit judicial intervention
in the political process.24
The shift from coordinate to administrative arrangements has diminished
the adjudicative powers of the judiciary, leaving jurisdictional
issues to be resolved through a process of political bargaining.
Finally some younger scholars seem simply to accept the spending
power as a fait accompli, a precondition to the functioning
of a modern federal state.25
Having been weaned on administrative federalism, such scholars
apparently have difficulty conceiving of contemporary government
functioning in any other way.
is nevertheless astounding that such a major restructuring of
the Canadian state should have attracted so little critical commentary.
This is especially so given that the constitutional foundation
of the "new federalism" is, at best, shaky.
of the Royal Commission on Dominion-Provincial Relations
(1940). As I noted by D.V. Smiley, Conditional Grants and
Canadian Federalism (1963), p. 6: "The general solution
of the Rowell-Sirois Commission was. . . towards a situation
in which the functional responsibilities of the federal
and provincial governments were delineated in a relatively
clear-cut fashion, with each level being assured adequate
revenues to discharge the obligations conferred upon it."
Watson's statement in The Liquidators of the Maritime
Bank of Canada v. The Receiver-General of New Brunswick,
 A.C. 437, at pp. 441-442, typifies the view of the
object of the [British North America] Act was neither
to weld the provinces into one, nor to subordinate provincial
governments to a central authority, but to create a federal
government in which they should all be represented, entrusted
with the exclusive administration of affairs in which
they had a common interest, each province retaining its
independence and autonomy.
Kennedy, The Constitution of Canada (1922), p. 411.
It is true that federal efforts to overcome the rigidity of
coordinate federalism were initiated following the First World
War and that such efforts were renewed in response to the
political pressures placed upon Ottawa during the Great Depression
of the 1930s. However, it was not until the period following
the Second World War that federal authorities mounted a sustained
attack on the coordinate federalist model.
P.W. Hogg, Constitutional Law of Canada (2nd ed., 1985),
Included in that agenda were universal old age pensions, health
insurance grants, and employment measures encompassing unemployment
insurance, welfare benefits and an anti-cyclical public investment
strategy." Taken as a whole, the proposals represented an
integrated and ambitious social security and economic welfare
program of staggering proportions.": A.M. Moore, J.H. Perry
and D.I. Beach, The Financing of Canadian Federation (1966),
Ontario joined the system when the agreements were renewed
in 1952, although the province retained the right to levy
There was no federal inheritance tax in 1939.
F.H. Leacy (ed.), Historical Statistics of Canada (2nd ed.,
1983), series H1-18.
Black, op. cit., footnote 1. p. 73 (note in text deleted).
Hogg, op. cit., footnote 6, p. 120.
Moore, Perry and Beach, op. cit., footnote 7, p. 33.
Leacy, op. cit., footnote 10, series H34.
Ibid., series H474-493. This figure includes the value
of tax points and cash compensation payments to Quebec for
established programs and also includes the value of tax abatements
to provinces for the financing of post-secondary education.
Ibid., series H34.
Ibid., series H474-493.
Ibid., series H34. This percentage has decreased only
slightly in the past decade. Conditional transfers to the
provinces in 1984 (including the established programs and
contracting out tax transfers) stood at about 20.9 billion,
nearly 18 per cent of federal expenditures: Canadian Tax Foundation,
The National Finances, 1986-87 (1987), p. 16:26, and letter
from R.A. McLarty, Department of Finance, Canada, August 6,
to the decision of the Supreme Court of Canada in Thorson
v. Attorney General of Canada,  1 S.C.R. 138,
(1974), 43 D.L.R. (3d) 1, citizens had to be able to show
that they were "specially affected" by a governmental measure
in order to obtain standing to challenge the constitutionality
of that measure in court.
infra, footnotes 26-28.
F.R. Scott, The Constitutional Background of Taxation Agreements
(1955), 2 McGill L.J. 1.
for example, G.V. La Forest, The Allocation of Taxing Power
Under the Canadian Constitution (2nd ed., 1981), pp. 45-51.
Hogg, op. cit., footnote 6, pp. 111-131. See also E.A.
Driedger, The Spending Power (1981-82), 7 Queen's L.J. 124.
See K. Hanssen, The Constitutionality of Conditional Grant
Legislation (1966-67), 2 Man. L.J. 191; J.E. Magnet, The Constitutional
Distribution of Taxation Powers in Canada (1978), 10 Ottawa
L. Rev. 473.