The New Federal-Provincial Government Relations

Published in the Telegraph-Journal 2nd March 2012

Finance Minister Jim Flaherty insists that his government’s March 29th budget will feature jobs and growth alongside the expected belt-tightening measures that have been the hallmark of the Conservatives’ austerity drumbeat over the last year.

While it’s reasonable to assume that measures to foster and support growth will be included in the budget, we have already had a glimpse of the new federal-provincial relations governance model that provides the rationale for its future actions.

“We ran on a clear mandate to create jobs and growth, and to do that by making investments while at the same time making sure that our deficit falls and we return to balance,” Prime Minister Stephen Harper said, adding that “other governments will have to make their own decisions in their own context.”

The provincial context to which the Prime Minister is referring is without the involvement or even interest of the federal government. Harper’s vision of federal-provincial relations has come more clearly into view since his party received a majority last May. Recent actions include the federal government’s unilateral take-it-or-leave-it plans for health transfer payments to the provinces. Ottawa has committed to continue increasing health payments to the provinces at six per cent annually until 2017 after which the rate would be tied to economic growth and adjusted for inflation. That currently is estimated to be about four per cent but Flaherty has said that the rate would never fall below three per cent. Flaherty has said that every province has its own situation to deal with, and the federal government is being generous with its new plan.

Harper has given increasing attention to areas in federal jurisdiction, such as financial institutions, international trade and aboriginal affairs, while emphasizing that the federal government has no interest in provincial areas of responsibility. When asked whether there might be national ramifications to provincial jurisdiction, Harper responded that “we understand that obviously some of the administration of that is the responsibility of the provinces and territories, but we’re acting on a clear mandate of the people.”

This has significant implications for the future of New Brunswick. Federal transfers and equalization are most frequently and immediately brought forward as examples of how smaller provinces could lose out in the face of the new federal government drive to download responsibilities to provincial jurisdiction. The federal government line is that the authority to proceed down any path, unencumbered by federal constraints would give the provinces unlimited scope to design their own futures. Many will welcome the federal government’s retreat from the provinces’ business. They will emphasize the opportunities offered by the no-strings-attached funding that will accompany this devolvement.

They will also have discounted the profound role that the federal government has played in the economic development of each province. From the 1970s to the early 1990s, federal government organizations such as the Science Council of Canada and the National Advisory Board of Science and Technology undertook research into innovation systems, technology extension systems and the industrial policy that became world-renowned. The results of those studies emptied into the famed granting agencies that include the National Research Council that are now indispensable innovation and productivity growth engines. Academics at universities across the country prepared studies elaborating on specific regional experience. The blueprints created by these and other organizations were subsequently used to design and develop innovation-fostering zones in areas such as the Ontario Technology Triangle. In Atlantic Canada, the work of academics studying the importance of federal-provincial cooperation and collaboration resulted in the formation of the Atlantic Canada Opportunities Agency, the cornerstone of economic development for this region.

Each set of research findings underscored that government has a complex but critical role in the development of regional and provincial competitive advantage, involving support for both horizontal and vertical productivity-improving investment. Canada’s economic reality reinforces those findings.  We need a national dialogue on federal-provincial relations that emphasizes the future of competitiveness and prosperity for all Canadians.

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Filed under Business attraction, economic development, New Brunswick, Tax policy

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