- Restoring Fiscal Balance in Canada Consultations -

Invitation by the Honourable Jim Flaherty, Minister of Finance

On behalf of Canada’s new government, I invite you to participate in our national online consultations on fiscal balance. Our plan is to build a stronger economy by ensuring that governments have the resources and clarity they need to deliver the services Canadians want, and people in every corner of the country should have the opportunity to provide their thoughts on how we proceed.

These consultations represent an important opportunity to continue the dialogue on restoring fiscal balance—a dialogue we committed to pursuing in the government’s Budget 2006 paper, Restoring Fiscal Balance in Canada.

This past spring Canada’s new government made a commitment to consult Canadians on this important issue, and we are delivering on that commitment.

I look forward to hearing from you.

Sincerely, Jim.

Background

Cooperation and collaboration between the Government of Canada and the provinces and territories have been critical to the development of the Canadian federation. All governments, working together, have created a network of programs covering health, education, social services, infrastructure, justice and a range of economic and social policies designed both to improve the quality of life of Canadians and to enhance the economic performance of the country.

Debates over fiscal arrangements in Canada are not new. We have always had to adapt to evolving fiscal circumstances and changing roles and responsibilities of governments.

All orders of government faced difficult financial circumstances in the early and mid-1990s, forcing governments to reduce spending in order to bring their finances under control. And while the return to sound fiscal management was necessary and has generated many benefits for Canada and Canadians, it also contributed to federal-provincial tensions.

There are four major sets of concerns at the heart of the debate on fiscal balance:

1. Concerns over transparency in federal fiscal planning

A series of unanticipated federal surpluses in recent years has generated concern over the transparency of federal budget planning. Unanticipated surpluses can also contribute to significant year-end spending, at times in ways that are not consistent with initial budget plans presented to parliamentarians and to the Canadian population. Unplanned year-end spending has also contributed to federal-provincial tensions, particularly in light of the fact that some of this spending occurred in areas of primarily provincial responsibility.

2. Concerns over blurred accountability due to reduced clarity in roles and responsibilities

Increased federal spending in areas of primarily provincial responsibility and a lack of focus on areas of clear federal responsibility have made it difficult for Canadians to know with confidence which level of government to hold accountable for specific policies and initiatives.

3. Concerns over predictable, long-term fiscal arrangements

Debates about the Equalization and Territorial Formula Financing programs, the appropriate level of the federal contributions to national priorities (such as health care, infrastructure and social programs), and targeted federal spending to address regional needs are by no means new. Over the past decade, however, concerns have been raised that the stability, predictability and fairness of some transfers and other investments were being compromised. While overall transfer levels have been restored, concerns remain that not all transfers have been put on a principle-based, long-term, predictable funding track, including those supporting post-secondary education and training. The recently released reports of the Expert Panel on Equalization and Territorial Formula Financing (the O’Brien reports) provided important insight into these two programs. To learn more about the details of these transfers, please visit the transfers subsection of the Department of Finance website.

4. Concerns over a competitive and efficient Canadian economy

Although Canada is experiencing one of the longest periods of uninterrupted economic growth in its history, challenges still remain. To strengthen and enhance the efficiency and competitiveness of the Canadian economy, all governments will have to work together better, especially with respect to internal trade and labour mobility, employment for immigrants, efficiency of capital markets and tax harmonization.

Canada’s new government is committed to a renewed relationship with provincial and territorial governments, based on collaboration in restoring fiscal balance and supporting the provision of quality services to Canadians. The government has set out a multi-pronged strategy, designed to ensure balanced fiscal arrangements in which all governments have access to the resources they need to meet their responsibilities.

The government’s approach to addressing concerns related to fiscal balance will be guided by five principles:

• Accountability through clarity of roles and responsibilities.
• Fiscal responsibility and budget transparency.
• Predictable, long-term fiscal arrangements.
• A competitive and efficient economic union.
• Effective collaborative management of the federation.

Your Views

• How should these key principles be implemented in order to help restore fiscal balance and reinforce a strong economic union?
• What do you see as the areas for priority action?

- Restoring Fiscal Balance in Canada Consultations -