Quebec HistoryMarianopolis College
 HomeAbout this siteSite SearchMarianopolis College Library

Studies on the Canadian Constitution and Canadian Federalism


Last revised:
26 February 2001

Canadian federalism and the Spending Power of the Canadian Parliament

Claude Bélanger,
Department of History,
Marianopolis College

Normally, the spending power of governments is understood as the money they spend on particular programs under the authority of legislation passed by their legislative bodies. However, spending power has a specialized meaning in the Canadian constitutional context. It means "the power of Parliament to make payments to people or institutions or governments for purposes on which it (Parliament) does not necessarily have power to legislate." (P.E. Trudeau, Federal-Provincial Grants and the Spending Power of Parliament, p. 4).

Under the authority of the spending power of Parliament, several federal-provincial programs have been funded by the federal government. They were classified in the following manner in the federal White Paper quoted above: 1) Programs for the equalization of opportunity for individual Canadians: primarily family allowances and social assistance programs; 2) Programs for the equalization of provincial public services: comprises the equalization grants to the provinces (unconditional), hospital and health insurance, higher education (unconditional) and the Trans-Canada Highway. 3) Regional economic development programs: includes the Fund for Rural Economic Development FRED), the Agricultural Rehabilitation and Development Act (ARDA), and the Department of Regional Economic Expansion grants (DREE); 4) Specific projects of national importance: in this category can be found the following programs: Expo 67, Roads to Resources and the South Saskatchewan River Development project.

Essentially, the spending power of the federal government has been used to institute conditional grants programs. In 1968-69, the federal government paid out sums of $3.4 billion on such programs, a full 32%; of its budget and most of these were instituted under the authority granted to Parliament by the spending power.

Some federations have clauses that spell out conditions upon which the central government may spend its money outside of its field of jurisdiction. However, only in a few federations is the constitutional spending power so vague as in Canada. The Constitutional Act, 1867, as interpreted by the courts, gives the federal government power to spend sums from the Consolidated Revenue Fund for any purpose, provided that the legislation authorizing the expenditures does not amount to a regulatory scheme falling within provincial powers. The Judicial Committee of the Privy Council dealt with the issue in the following terms:

"That the Dominion may impose taxation for the purpose of creating a fund for special purposes, and may apply that fund for making contributions in the public interest to individuals, corporations or public authorities, could not as a general proposition be denied. But assuming that the Dominion has collected - by means of taxation a fund, it by no means follows that any legislation which disposes of it is necessarily within Dominion competence. It may still be legislation affecting the classes of subjects enumerated in s.92, and, if so, would be ultra vires. In other words, Dominion legislation, even though it deals with Dominion property, may yet be so framed as to invade civil rights within the Provinces or encroach upon the classes of subjects which are reserved to Provincial competence."

There is widespread disagreement as to the meaning of this and other decisions. The centralist interpretation is that the federal government may make conditional and unconditional grants for any purpose, even if it falls under provincial jurisdiction, provided that the program involved does not amount to legislation or regulation. Among those who supported such views was Bora Laskin, formerly Chief Justice of the Supreme Court of Canada. The autonomist position was sustained by the Tremblay Report that argued that Parliament has no power to make grants of any kind in areas of exclusive provincial jurisdiction, even unconditional grants. Others have claimed that the federal government would have the power to make unconditional but not conditional grants. In political terms, this last position might be the wisest one. However, governments have not been very interested to seek further judicial clarification of the matter. Provincial governments have discussed the use of the spending power, demanding to be consulted more. Only Quebec has consistently claimed that it is improper for the federal government to use its spending power for purposes that fall under exclusive provincial jurisdiction.

In its White Paper on the spending power of Parliament (1969), the federal government recognized three kinds of criticisms for its use of the spending power to introduce new federal-provincial programs. These were:

1) That the government and the Parliament of Canada are deciding, without formal participation of the provinces in such decisions, when federal-provincial programs ought to be started. The federal government contended that provinces remained free to refuse to participate and that what the provinces are really criticizing is the political pressure from within their provinces that forces them to enter the programs. The federal argument missed the criticism entirely. What was fundamentally criticized by the provinces was the assumption on the part of the federal government that it knew better than the provinces when to institute a program in provincial spheres of jurisdiction.

2) That shared-cost programs force upon provincial governments changes in their priorities. The federal government's justification was that, ultimately Canada-wide priorities were of a higher value than provincial priorities. By far, this argument was the weakest in the White Paper. What are Canada-wide priorities? Who exactly determines them? Given the numerical and political weight of central Canada, isn’t it automatic that priorities in Central Canada are automatically priorities in Canada?

3) That "taxation without benefit" occurs when the citizens of a province whose provincial government has refused to participate in a shared-cost program are required to pay the federal taxes that finance the federal share of the program offered in the other provinces. Here, the federal argument is that each province is represented in Parliament by M.P.'s and Senators who participated in the decision. With this argument, the federal government would be able to justify by-passing the consultation of the provinces altogether: Richard Simeon has clearly demonstrated in a study (Federal-Provincial Diplomacy: The Making of Recent Policy in Canada, 1972, Ch.2) that policy adjustments can only be properly made in the context of federal-provincial negotiations. As to the possibility of adjustments within the federal Parliament, he wrote: "Legislative party unity is expected by both politicians and public as the very condition of Party government of the cabinet variety. In such circumstances it is almost impossible for members of Parliament to push for policies favorable to their region if they clash with government policy." (p.26) The argument of provincial representation in the Parliament of Canada, and consequently the ability of the Government of Canada to take decisions overriding provincial governments, was frequently used by Trudeau to justify federal intrusions into provincial affairs. He used it very effectively in 1982 to argue that the majority of representatives from Quebec, provincially and federally, had approved of the new constitution. Of course, this majority had been derived from his Liberal followers in the House of Commons. In reality, our system of government is based on the legal proposition that the members of the provincial legislatures speak for the provinces on provincial subjects of legislation, while the members of Parliament speak for the central authority on federal subjects of legislation.

Whatever the validity of the federal response to these criticisms, it mentioned nothing of other major criticisms that have been leveled against shared-cost programs financed through the spending power:

4) That conditional grants amount to federal take-over of fields of jurisdiction assigned to the provinces by the Constitution Act. That it makes a mockery of the formal distribution of powers in the constitution.

5) That Ottawa has failed consistently to consult fully and to develop the programs jointly with the provinces when these programs are instituted in provincial spheres of jurisdiction.

6) That, if these programs continue to be multiplied the federal government will continue to raise a high level of taxes, thus leaving the provinces very little "taxing room" to pay for their own programs.

7) That the shared-cost programs ultimately reduce the provinces to a role of supervisor and manager of federal programs.

If Canada is to continue to function as a federation, and indications are that this is what Canadians still want, the spending power of the federal government will have to be curtailed. Two methods could be used: the federal spending power might be restricted to matters within federal jurisdiction and to unconditional subsidies to the provinces, or alternatively, it might be limited by some constitutional guarantee of the opting out formula with full fiscal compensation and freedom by the opting out province to spend the money as it sees fit. This last method received partial support in the Constitution Act, 1982. S. 40 provided that a province may withdraw from a constitutional amendment affecting its legislative powers when the issue concerns education "or other cultural matters". In such a case, Canada would provide to the opting-out province "reasonable compensation". In 1987, the Meech Lake Accord expanded the principle further by proposing a new article to the constitution (s. 106A) that stated:

The Government of Canada shall provide reasonable compensation to the government of a province that chooses not to participate in a national shared-cost program that is established by the Government of Canada after the coming force of this section in an area of exclusive provincial jurisdiction, if the province carries on a program or initiative that is compatible with the national objectives.

This proposed clause was heavily attacked by Trudeau and was an important reason why the Accord was not accepted. A very similar article was proposed in 1992 in the Charlottetown Accord. It came under considerable fire and was not accepted in the end.

© 2001 Claude Bélanger, Marianopolis College