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28 The federal government had occupied extensive tax room duringWorld War II through a political agreement with the provinces. Once the war wasover, however, the federal government was reluctant to give up significant taxroom to the provinces. See Section D for further details.
29 It should be noted that the federal government does haveexclusive jurisdiction for the provision of unemployment insurance.
30 See Table 5 in Appendix to Section B.
31 At present for example, Alberta and Ontario are strong critics offederal spending power, whereas British Columbia is favourably disposed to itsuse.
32 See Table 5 in Appendix to Section B.
33 This statement is not true of Quebec.
34 This subject is covered in greater detail in SectionD.
35 Richard Simeon, and Ian Robinson,State, Society, and the Development of Canadian Federalism (Toronto, University of Toronto Press,1990), p. 150.
36 It is important to note the restriction the federal governmenthas recently accepted on the use of spending power in the Social Union Framework Agreement.
37 Quebec did not sign the Agreement.
38 See section three of the Social Union Framework Agreement,“Informing Canadians – Public Accountability and Transparency.”
39 The data used to obtain Tables B.1-B.7 come from the CANSIMdatabase, which is a database of statistics about the Canadian economy producedand maintained by Statistics Canada. Tables B.8 and B.9 are based on dataobtained from the Department of Finance of the federal government.
40 Note that this explanation is discussed more fully under SectionC Nature of Programs Focussed on Horizontal Imbalances.
41 Explanation of CAP and EPF is provided in Section C under Natureof Programs Focussed on Vertical Imbalances. For fiscal year 97/98 thesetwo transfers were replaced by the CHST.
42 Recall that we are subsuming the municipalities within provincialgovernments. In fact, many of the principles that apply between thefederal government and the provinces also apply with respect to the provincesand their municipalities.
43 It has become an equal per capita grant.
44 Table C.1 is based on data presented in the budget documents thataccompanied the 2000 federal budget produced by the Department ofFinance.
45 The federal government interprets the principles of the CanadaHealth Act that imposes the conditions on these transfers.
46 Under the Hospital Insurance andDiagnostic Services Payments program the federalgovernment contributed 25% of the national per-capital cost of in-patientservice and 25% of the provinces per-capita cost of approved patient servicesmultiplied by the average number of insured persons in the province in theyear. As a result of this formula the high-cost provinces receive a lowerpercentage of their total expenditure from the federal government that do thelow-cost provinces. Under the Medicare program the federal government providedthe provinces with payments that were equivalent to half the national averageper-capita cost of providing insured services multiplied by the average numberof insured persons in each province in the year. Therefore, provinces withper-capita costs below the national average received more than 50% of theircosts, and those with costs above the national average receive less
47 In 1990 the federal government limited the increase in CAPtransfers to the three wealthy provinces (British Columbia, Alberta andOntario). Increases in CAP transfers were limited to a 5 per cent increase. In1995, this limit on CAP transfers was made permanent when the CAP transferswere combined into the Canadian Health and SocialTransfer. The evolution of these transfers isexplained in Section C The Nature of Programs Focusedon Vertical Imbalances.
48 This was not a major change, given that much of the healthtransfer was equal per capita since it was based on national average provincialhealth expenditures.
49 In the case of Quebec, the tax-transfer was more than one-halfsince Quebec had been allowed to opt out of some of the shared-cost programs inreturn for tax points.
50 This is because taxpayers from high-income provinces payproportionally more taxes to the federal government, per capita, than do thetaxpayers from the lower-income provinces.
51 The Atlantic provinces are excluded because they are the poorestprovinces and Alberta is excluded because of its enormous revenues fromresources.
52 The funds are not directly transferred from the ‘have’ provinces to the ‘have-not' provinces. The funds goto the federal government and then to the ‘have-not’ provinces.
53 The federal government can, and does, levy corporate taxes butthey can not levy royalty fees on production.
54 As indicated in Section A, municipal governments are the creationof the provinces and there is not constitutional recognition of localgovernment in the constitution.
55 In fact, the Canadian constitution restricts the provinces tousing ‘direct’taxes for raising revenue for their own purposes. Although an economicsinterpretation of direct taxation would seem to preclude sales and excisetaxation, provincial sales and excise taxes have been deemed by the courts toconstitute direct taxation. This interpretation is based on the notionthat retailers are the collection agents of the government and that they aremerely collecting taxes that are intended to be imposed directly on consumersof taxed goods. This interpretation has been extended to includevalue-added taxation as well, despite the fact that tax liability can occurwell before the retail stage. The argument is that ultimately the tax isintended to apply to consumers.
56 It should be noted that these provinces constitute 70 percent ofCanada’spopulation.
57 Economists might argue that, given the mobility of capital, itmight be preferable if the corporate tax were exclusively federal.However, given that the provinces have the right to levy income taxes, such asystem could not be imposed on them.
58 It should be noted that Quebec did not opt-out of the two largestcost-shared programs: the Canada AssistancePlan or the Medical/Hospital insuranceprograms.
59 Both Quebec and Ontario set up their own corporate income tax in1947 but Ontario signed the 1952-1957 Tax Rental Agreement with the federalgovernment and abandoned its corporate tax, leaving Quebec as the only provinceoutside the Tax Rental Agreements in 1952. In 1957 Ontario signed a new TaxSharing Agreement with the federal government but this did not include corporate income taxes,resulting in Ontario re-establishing its corporate income tax. The result wasthat both Québec andOntario collected their own corporate income taxes.In 1981 Alberta adopted its own corporate income tax system.
60 This was because the federal government collected most of thetaxation revenues under tax rental and tax collection agreements they hadnegotiated with the provinces. See Section D for further details.
61 Minor amendments to the constitution have not been ascontroversial. Indeed, two have been passed in the last several years. Bothrequired the support of Parliament and the province affected. The Constitution Amendment, 1997 (Québec),removed the province's requirement to provide denominational schools,facilitating the establishment of a linguistically-based system of education. Asimilar amendment, the Constitution Amendment, 1998 (Newfoundland Act), removedthat province's requirement to provide denominational schools and enabled theprovince to modernize its school system.
62 There are requirements, however, that intergovernmentalagreements relating to the formal amendment process of the Constitution besubmitted to legislatures.
63 See Neil Nevitte, The Decline ofDeference, (Toronto: University of TorontoPress).
64 This was the situation before the signing of the Social Union Framework Agreement (SUFA)in 1999. Under the terms of SUFA the federal government accepted somerestrictions on the use of its spending power that may remedy this concern bythe provinces. However, it should be noted that SUFA is only anintergovernmental agreement with no formal constitutional or legalstatus.
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