Ge­off Norquay

Policy - - In This Issue - Ge­off Norquay

Man­ag­ing the Fed­er­a­tion: A Mixed Bag

For­mer Prime Min­is­ter Brian Mul­roney likes to say that the two most im­por­tant files on a PM’s desk are CanadaU.S. and fed­eral-pro­vin­cial re­la­tions. Stephen Harper came into of­fice in 2006 with a tra­di­tional view of man­ag­ing the fed­er­a­tion in which Ottawa and the prov­inces stayed out of each other’s back­yards. As vet­eran po­lit­i­cal ad­viser Ge­off Norquay writes, Justin Trudeau’s style of fed-prov man­age­ment has been both more and less of a de­par­ture than some might have imag­ined.

Given the nature of Canada’s fed­eral state and of our Con­sti­tu­tion, lead­ing the fed­er­a­tion will al­ways be one of the top re­spon­si­bil­i­ties of the prime min­is­ter. Sec­tions 91 and 92 of the Bri­tish North Amer­ica Act fa­mously lay out the re­spon­si­bil­i­ties of the two lev­els of gov­ern­ment within three group­ings— ex­clu­sively fed­eral, ex­clu­sively pro­vin­cial and joint be­tween the two lev­els.

Else­where, the Con­sti­tu­tion as­signs rev­enues to the two lev­els, and, of course, a con­sti­tu­tion writ­ten 150 years ago could not have en­vi­sioned the growth and cost of national so­cial pro­grams that are nec­es­sary in the mod­ern state. Nei­ther could its drafters have imag­ined to­day’s com­plex­i­ties of en­ergy ex­ploita­tion and trans­porta­tion or the chal­lenges of cli­mate change that are com­mon­place in 2017.

Be­cause fed­eral-pro­vin­cial-ter­ri­to­rial (FPT) re­la­tions are a con­tin­uum, as­sess­ing Justin Trudeau’s man­age­ment of the fed­er­a­tion re­quires start­ing with the sit­u­a­tion Stephen Harper, his im­me­di­ate pre­de­ces­sor, left him.

Harper came to of­fice in 2006 with dis­tinc­tive views on gov­ern­ing Can- ada, and in the fol­low­ing decade, he brought pro­found changes to the bal­ance of power within the fed­er­a­tion. As Ed Whit­comb writes in his new book Ri­vals for Power: Ottawa and the Prov­inces, “(Harper’s) plan was to squeeze the (fed­eral) sur­plus from two sides—re­duce the amount Ottawa was col­lect­ing and al­lo­cate part of the sur­plus in ways that could not eas­ily be re­versed.”

Harper’s pref­er­ence was for a much more clas­si­cal fed­eral model, in which the two lev­els of gov­ern­ment kept to their knit­ting and stayed out of each other’s back­yards. He dis­agreed pro­foundly with the fed­eral gov­ern­ment en­ter­ing pro­vin­cial ju­ris­dic­tion to force its will on prov­inces through new pro­grams. Once in of­fice, he im­me­di­ately took down two of Paul Martin’s sig­na­ture ini­tia­tives, the child care agree­ments be­tween Ottawa and the prov­inces and ter­ri­to­ries, and the Kelowna Ac­cord, which Martin had ne­go­ti­ated with prov­inces, ter­ri­to­ries and First Na­tions lead­ers.

To ad­dress the fis­cal im­bal­ance be­tween the fed­eral gov­ern­ment and the prov­inces and ter­ri­to­ries, Harper first cut the GST by two per­cent­age points early in his man­date. The re­sult­ing tax room could be used by prov­inces should they wish. Bud­get 2007 went much farther: over the next six fis­cal years, the fed­eral gov­ern­ment would in­crease its trans­fers by more than 41 per cent ($18 bil­lion) for post-sec­ondary ed­u­ca­tion, in­fra­struc­ture, labour mar­ket train­ing and equal­iza­tion. Th­ese trans­fers grew even larger post2009, when the Harper gov­ern­ment was forced to re­spond to the world eco­nomic melt­down with a huge fed­eral stim­u­lus pro­gram de­liv­ered largely by the prov­inces, ter­ri­to­ries and mu­nic­i­pal­i­ties.

The Lib­er­als’ fed­eral-pro­vin­cial com­mit­ments in their 2015 cam­paign plat­form spoke to at least four ar­eas of fun­da­men­tal dis­agree­ment with the Harper Con­ser­va­tives in FPT re­la­tions:

• The Canada Pen­sion Plan would be ex­panded, and fed­eral funds were com­mit­ted to the health­care bud­get for home care and men­tal health.

• The plat­form promised “national lead­er­ship (to) join with the prov­inces and ter­ri­to­ries to take ac­tion on cli­mate change, put a price on car­bon, and re­duce car­bon pol­lu­tion.”

• “Re­view Canada’s en­vi­ron­men­tal as­sess­ment pro­cesses…to re­store ro­bust over­sight,” and “en­sure that en­vi­ron­men­tal as­sess­ments in­clude and anal­y­sis of up­stream im­pacts and green­house gas emis­sions re­sult­ing from projects un­der re­view.”

• “We will im­me­di­ately re- en­gage in a re­newed na­tion-to-na­tion process with In­dige­nous Peo­ples to make progress on the is­sues most im­por­tant to First Na­tions, the Metis Na­tion and Inuit com­mu­ni­ties…”

The first is­sue on the Trudeau agenda proved rel­a­tively easy to ad­dress. In June, 2016, Fi­nance Min­is­ter Bill Morneau reached an agree­ment with the prov­inces and ter­ri­to­ries to en­able the Canada Pen­sion Plan in fu­ture to pro­vide higher pay­outs to those who were currently not sav­ing enough for their re­tire­ment.

Health­care fund­ing was not as easy to fix. Stephen Harper had in­her­ited Paul Martin’s 10-year Health Ac­cord, which guar­an­teed 6 per cent an­nual year- over-year in­creases in fed­eral trans­fers to the prov­inces and ter­ri­to­ries. As the 2014 re­newal date ap­proached, Fi­nance Min­is­ter Jim Fla­herty in late 2011 uni­lat­er­ally ex­tended the Martin plan by two years, after which the an­nual in­crease would be re­duced and tied to nom­i­nal GDP, but guar­an­teed to be at least 3 per cent ev­ery year.

Prov­inces and ter­ri­to­ries were out­raged but there was noth­ing they could do, so they pinned their hopes on a pos­si­ble Lib­eral gov­ern­ment that had promised “col­lab­o­ra­tive fed­eral lead­er­ship” dur­ing the 2015 elec­tion cam­paign. Once in of­fice, Trudeau ex­plic­itly ac­cepted Harper’s call on ad­di­tional health care fund­ing by flatly re­fus­ing to en­rich the Fla­herty formula. In ad­di­tion, Health Min­is­ter Jane Philpott in­sisted that the prov­inces and ter­ri­to­ries sign agree­ments and be ac­count­able for the new fed­eral spend­ing for home care and men­tal health ser­vices. After loud and protests, the prov­inces and ter­ri­to­ries agreed to the fed­eral terms.

Ottawa’s lead­er­ship on the en­vi­ron­ment and cli­mate change took some time to get rolling. With some prov­inces and ter­ri­to­ries hav­ing adopted car­bon taxes, oth­ers opt­ing for cap-and­trade, Nova Sco­tia us­ing reg­u­la­tions to man­age down emis­sions and Saskatchewan pur­su­ing car­bon cap­ture and stor­age, the March 2016 First Min­is­ters’ Meet­ing failed to bridge the dif­fer­ences and in­stead pro­duced a plan to draft a plan.

In Novem­ber 2016, as FPT en­vi­ron­ment min­is­ters were meet­ing in Mon­treal to work on the plan, the Prime Min­is­ter uni­lat­er­ally an­nounced that putting a price on car­bon was the only ac­cept­able ap­proach, and that if any prov­ince and ter­ri­tory did not, the fed­eral gov­ern­ment would im­pose such a tax and re­turn the money to its gov­ern­ment.

This was a sur­pris­ing and peremp­tory ap­proach from a PM who had promised con­sul­ta­tion and ne­go­ti­a­tion to­wards a pan- Canadian cli­mate change plan. A com­pre­hen­sive plan was ul­ti­mately adopted in De­cem­ber 2016, in which the price of car­bon will move from $10 per tonne in 2018 to $50 per tonne by 2022. Sur­pris­ingly, the Lib­eral plan re­tains the Harper cli­mate change goals the Lib­er­als had at­tacked in op­po­si­tion as be­ing far too lax. With the fed­eral gov­ern­ment re­fus­ing to grant equiv­a­lency to Saskatchewan’s in­vest­ments in car­bon cap­ture and stor­age, it re­mains out­side the Lib­eral plan.

The var­i­ous re­view pan­els es­tab­lished by the Lib­er­als re­ported ear­lier this year on the National En­ergy Board and the Canadian En­vi­ron­men­tal As­sess­ment Act, with a view to cre­at­ing more trans­par­ent pro­cesses, stronger con­sid­er­a­tion of green­house gas im­pacts and greater com­mu­nity and In­dige­nous par­tic­i­pa­tion. Leg­is­la­tion to ef­fect th­ese changes will likely ap­pear this fall.

As major pipe­line projects (Kinder Mor­gan) move for­ward slowly and oth­ers (En­ergy East and Petronas) are can­celled, the fed­eral gov­ern­ment’s chal­lenge re­mains how to achieve its ob­jec­tives while en­abling major projects to be built on timeta­bles ac­cept-

able to cap­i­tal mar­kets and pro­vin­cial/ter­ri­to­rial needs. Prov­inces and busi­ness are in­creas­ingly con­cerned that the fed­eral in­sti­tu­tional bar­ri­ers to major projects have be­come in­sur­mount­able in Canada. The de­lays on Kinder Mor­gan se­ri­ously threaten the PM’s deal with Al­berta to en­able the build­ing of ac­cess to tide­wa­ter for bi­tu­men ex­ports in ex­change for that prov­ince’s adop­tion of higher en­vi­ron­men­tal stan­dards. At some point, the PM will likely be forced to make some tough calls to keep peace in the fed­er­a­tion.

Sep­a­rate and apart from the fed­eral gov­ern­ment’s laud­able Abo­rig­i­nal agenda, as the Prime Min­is­ter pur­sues his “re­newed, na­tion-to-na­tion re­la­tion­ship with In­dige­nous Peo­ples,” he will likely face some tough reck­on­ings with re­al­ity. There are some 620 In­dige­nous com­mu­ni­ties in Canada that share the “na­tion” fan­tasy, and their sheer num­bers, com­bined with his adop­tion of their rhetoric, will make his am­bi­tious goals all but unattain­able. In fair­ness, the PM has be­gun invit­ing some national In­dige­nous lead­ers to at­tend some FMC ses­sions, to fur­ther pro­mote rec­on­cil­i­a­tion and to demon­strate a gov­ern­ment-to-gov­ern­ment ap­proach to In­dige­nous en­gage­ment. On the neg­a­tive side, most prov­inces and ter­ri­to­ries have yet to put in place rev­enue-shar­ing agree­ments with In­dige­nous com­mu­ni­ties for nat­u­ral re­source projects. Only the North­west Ter­ri­to­ries has such an agree­ment in place.

Things will likely be even more dif­fi­cult on the con­sul­ta­tion front. Canadian judges have al­ready blocked re­source projects over an ab­sence of con­sul­ta­tion with In­dige­nous groups. With the Supreme Court-man­dated “duty to con­sult” still be­ing de­fined, it is likely only a mat­ter of time be­fore a judge strikes down a fed­eral, pro­vin­cial or ter­ri­to­rial bud­get or major leg­is­la­tion due to in­ap­pro­pri­ate con­sul­ta­tion. Few Cana­di­ans are likely to ac­cept the po­ten­tial paral­y­sis of gov­ern­ment on such grounds that could re­sult. Like all in­com­ing prime min­is­ters be­fore him, Justin Trudeau in­her­ited the fed­er­a­tion of his pre­de­ces­sor, and has added his own agenda items to the fed­eral-pro­vin­cial-ter­ri­to­rial ta­ble. So far, he has not at­tempted to change the ba­sic power re­la­tion­ships es­tab­lished by Harper. But while Harper largely stopped telling prov­inces and ter­ri­to­ries how to run their gov­ern­ments, the Trudeau Lib­er­als have shown the abil­ity to be quite di­rec­tional and some­times rigid in their ap­proach to prov­inces and ter­ri­to­ries. Some will wel­come Trudeau’s more ag­gres­sive ap­proach as the nor­mal ex­er­cise of “lead­er­ship” of the fed­er­a­tion; oth­ers will see it as a re­turn to the bad old days of FPT re­la­tions, in which “one size fits all,” and the fed­eral gov­ern­ment gets to pick that size.

Adam Scotti photo

Prime Min­is­ter Trudeau speaks with me­dia dur­ing a press con­fer­ence fol­low­ing the First Min­is­ters Meet­ing in Ottawa. Oc­to­ber 3, 2017.

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