Andrew Petter ..................................


Federalism and the Myth of the Federal Spending Power, by
Andrew Petter

MP Intro. Introduction. 1. 2, 3, 4, 5, Conclusion, Postscript, End


III. Constitutional Values

The preceding discussion has called into question the doctrinal position favouring the constitutionality of the federal spending power. It would be naÔve, however, to suggest that doctrine alone can resolve a question of such fundamental political importance. Where major public issues are involved, legal doctrine inevitably takes a back seat to broader political and practical concerns. Nowhere is this more obviously true than in the field of constitutional law. Constitutional decision-making requires courts to resolve important issues of public policy based upon vague, broadly framed provisions - provisions that in many cases were written to take account of social and economic conditions that have long since changed. The realization that constitutional decision-making is political does not end debate on constitutional issues; it helps to inform it. While constitutional provisions may be vague, broadly framed and anachronistic, we tolerate them on the basis that they reflect certain abiding political values. The purpose of a constitution is to protect those values, and the role of the courts is to interpret and apply the constitution in a manner consistent with those values.53

There are many values which find voice in the Canadian Constitution but, in terms of the structure of government, the two most fundamental are federalism and responsible government. Although federalism has many forms, at root it implies a division of legislative and executive responsibilities between two orders of government, neither of which is a system subordinate to the other.54 Responsible Government is a system of representative democracy in which the head of state acts upon the advice of an executive that, in turn, is directly answerable to a democratically elected legislature. Viewed in light of these constitutional values, the debate over the federal spending power takes on new importance. It becomes a debate not just about constitutional doctrine, but about the integrity of the federal system and the preservation of political accountability in Canadian Government.

The underlying rationale for federalism is a belief that while some matters are better decided by the national political community, others should be left to regional political communities. Implicit in this belief is a view that, with respect to certain matters, regional governments can better reflect the political attitudes and aspirations of citizens. It is not hard to see why this might be the case. In a country as large and diverse as Canada, the opinions and priorities of the inhabitants of one region may well differ from those of other regions. A system of regional governments is more likely to be responsive to these regional variations than is a single central Government. This is so not only because regional governments have more extensive knowledge of local conditions and preferences, but also because they depend for their existence upon local voter support. Thus while a central government can afford to ignore the preferences of a particular region of the country (and may have to do so to garner voter support in other regions), a regional government cannot.

In this way, federalism is a democratizing force. It provides citizens greater influence over policies that have been assigned to regional governments than they would have had those same policies been assigned to a central government. Put another way, it ensures that the preferences of more citizens can be reflected in government policy. As Breton and Scott have noted, "an increase in the number of governmental units increases the probability that any person living in any jurisdiction will be a member of a majority able to secure for him or herself the quantity and quality of public policies that he or she (and others of his or her group) prefer".55

The raison d'Ítre of the federal spending power (and of conditional grants in particular) is to permit the federal government to use fiscal means to influence decision-making at the provincial level. In other words, it allows national majorities to set priorities and to determine policy within spheres of influence allocated under the Constitution to regional majorities. Thus, both by design and effect, the spending power runs counter to the political purposes of a federal system. Supporters of the federal spending power have sought to address this concern by contending that conditional grants are offered on a "voluntary" basis and that provincial governments are free to reject them if they wish. However, claims about the voluntary nature of conditional grants are unconvincing. Even those writers who have stressed the theory of "voluntary" grants have had to concede their coercive impact upon provincial decision-making. Hogg describes this impact in the following terms:56

The programme proposed may be well down on a province's list of priorities, or a different kind of programme may be preferable to the province; nevertheless, the federal offer is very difficult to refuse, because refusal would deny to the province the federal grant. Indeed, refusal of the grant wears an aspect of taxation without benefit, since the residents of a non-participating province would still have to pay the federal taxes which finance the federal share of the programme in the other provinces. The result is that the provinces have usually felt sufficiently tempted by "50-cent dollars" to join the federally-initiated shared-cost programmes.

Moreover, the suggestion that conditional grants are "voluntary" again ignores the relationship between spending and taxation. The impact of such grants upon provincial decision-making is a function not only of the carrot of federal spending, but also of the stick of federal taxation. The extent to which funding for such grants is derived from the imposition of federal taxation is the extent to which tax dollars are depleted. The point here is not simply that provincial refusal of such grants would subject residents of that province to taxation without benefit; it is that federal occupation of the available tax room for provincial purposes limits the amount of tax room left to provinces, thus restricting the capacity of provinces to initiate policies they favour. In this way, federal spending that derives from federal taxation has a coercive impact upon provinces as well as provincial taxpayers.

An even more powerful political objection to the federal spending power concerns its impact upon responsible government. The organizing principle of responsible government is political accountability: accountability of the executive to the legislature and of the legislature to the electorate. It is this thread of accountability that transforms what would otherwise be a despotic system of government into a democratic one. Yet if a legislature is to be held accountable to its electorate, citizens must have a definite understanding of the scope of that legislature's powers. An electorate that cannot attribute political responsibility to one order of government or the other lacks both the ability to express its political will and the assurance that its will can be translated into action.57

By allowing the federal government to use fiscal means to influence provincial policies, the spending power compromises political accountability and thereby weakens the ability of electors to exercise democratic control over Government. The argument has been put most forcefully by Smiley:58

. . . there is an increasing number of important public functions for which the federal authorities assert the provinces have the primary responsibilities but on behalf of which federal financial assistance is available. In these circumstances it is almost impossible to enforce accountability, and no satisfactory answer can be given to the broad question of whether the provinces have in fact been delinquent in not providing adequate support for particular services or, alternatively, whether some or all of them could not reasonably be expected to do better in the light of the existing distribution of tax sources, revenues and functional responsibilities. Further, if we were to assume that the federal government has some direct responsibilities in relation to particular provincial programs, it is almost impossible to gauge whether their level of support for these activities has been satisfactory. On a day-to-day basis, also, it is sometimes open to the provinces to avoid responsibility for their actions in conditional grant programs by attributing alleged deficiencies to federal policies.

An illustration of the above concerns is provided by the Canada Health Act.59 Under the terms of that Act, funds are made available to provinces that establish hospital insurance and medicare programs in accordance with federally stipulated criteria. Provinces that fail to adhere to these criteria are denied full federal funding. The purpose of the Act is to influence provincial policy with respect to the provision of public health insurance. The extent to which it achieves this purpose is the extent to which decisions assigned under the Constitution to regional political communities have been effectively transferred to the national political community. Moreover, the diffusion of political responsibility serves to weaken the ability of either community to attribute political responsibility for the strengths and deficiencies of the public health care system.

Suppose, for example, that a majority of citizens in a particular province came to believe that medical user fees should be imposed upon higher income earners in order to finance a preventive health care initiative aimed at school-age children. Under the Act, the imposition of such fees would produce reductions in federal transfers to the province with no commensurate reductions in federal taxation. The political pressure created by the combined threat of declining federal grants and continued federal occupation of the tax field would make even the most sympathetic provincial government balk at implementing a policy of this kind.

Some may say that the solution is for citizens who favour such a policy to organize at the national rather than the provincial level. The first thing to note about this suggestion is that it qualifies as a solution only if one is prepared to abandon the political purposes of assigning health care to provincial control in the first place. The problem, however, runs much deeper than that. Even if citizens, by organizing nationally, were able to convince the federal government to endorse their proposal, that government would be forced to rely solely upon fiscal measures to implement the reform. While such measures probably could be structured so as to compel provincial acquiescence with federal requirements, they could not give the federal government direct regulatory control over the policy. Thus the policy, although well conceived at the federal level, could suffer from incompetence or lack of political support on the part of the provincial authorities charged with its administration.

What the above example shows is that the spending power does not simply shift political responsibility from one order of government to the other; it intersperses responsibility between both orders. The result is to require those advocating a particular reform to fight a battle on two fronts. At the same time, it becomes virtually impossible for citizens to determine which order of government to hold accountable for policies that fail or, for that matter, for ones that succeed. The consequence is to diminish the influence of ordinary citizens over government policy-making and to heighten the power of governmental elites. Political decisions become less a product of responding to public opinion and more a product of intergovernmental accommodation among senior politicians and bureaucrats. Moreover the problem is not confined to those areas in which the spending power is currently exercised. Once the authority of the federal government to spend where it pleases is accepted, it becomes possible for politicians and citizens to attribute responsibility for almost any deficiency in provincial policy to an absence of federal support. Thus provincial governments routinely blame their failure to provide adequate programs, such as welfare, daycare and housing, on a lack of federal support, encouraging voters and interest groups to look to Ottawa for solutions to these problems.

In sum, reliance upon the spending power to overcome legislative limitations in a federal system of responsible government creates the worst of all possible worlds. It imposes upon citizens the costs and inconvenience of supporting two orders of government while denying them the benefits of local control. In addition, it creates a situation in which political power is so diffused that citizens possess less ability to influence and control government decision-making than they would even in a unitary state.

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53.

As Dickson C.J.C. put it in Reference re Manitoba Language Rights, [1985] 1 S.C.R. 721, at pp. 751-752, (1985), 19 D.L.R. (4th) 1, at pp. 24-25:

This Court cannot take a narrow and literal approach to constitutional interpretation. The jurisprudence of the Court evidences a willingness to supplement textual analysis with historical, contextual and purposive interpretation in order to ascertain the intent of the makers of our Constitution.

The Court has in the past inferred constitutional principles from the preambles to the Constitution Acts and the general object and purpose of the Constitution. In the Patriation Reference . . . the Court found the federal principle to be inherent in the Constitution in this way.

In other words, in the process of Constitutional adjudication, the Court may have regard to unwritten postulates which form the very foundation of the Constitution of Canada.

54.

Some writers have posited visions of federalism that deviate from this norm. However, as Professor Hogg notes, in doing so "they have so eroded the concept of federalism that it has become too vague to be useful": op. cit., footnote 6, p. 81. Moreover, whatever the merit of these visions in conceptual terms, it is clear that they have little application to the vision of federalism represented in the Canadian Constitution. Sections 91 and 92 of the Constitution Act, 1867 divide political powers between Parliament and the provincial Legislatures in a manner that seeks to avoid the possibility of overlapping jurisdiction. Under s. 92, the provinces are given the power to "exclusively make Laws in relation to Matters coming within the Classes of Subject next hereinafter enumerated", while, under s. 91, Parliament is given authority to make laws "in relation to all Matters not coming within the Classes of subjects by this Act assigned exclusively to the Legislatures of the Provinces". It is true that the Constitution Act, 1867 provides for a few areas of concurrency, but these stand out as narrow exceptions to the general pattern of division in ss. 91 and 92. See G.P. Browne, The Judicial Committee and the British North America Act (1967), esp. pp. 29-32; Black, op. cit., footnote 1, pp. 7-8.

55. A. Breton and A. Scott, The Design of Federations (1980), p. 15.
56. Hogg, op. cit., footnote 6, p. 120. See also Hanssen, loc. cit., footnote 25, at p. 197.
57. Trudeau made the same point when he wrote: "Since the same citizens vote in both federal and provincial elections, they must be able to determine readily which government is responsible for what; otherwise democratic control of power becomes impossible.": op. cit., footnote 49, p. 80.
58. Smiley, op. cit., footnote 2, p. 54.
59. R.S.C. 1985, c. C-6.