Federal-Provincial Relations 101
Kevin O’Leary and the peril of taking poke at provinces
Suppose, for the sake of argument, Kevin O’Leary were not an idiot.
Imagine an alternate reality in which the probable front-runner for leader of the Conservative Party of Canada did not just blurt out whatever half-chewed nostrum it pleased him to say, but had something resembling considered policies, together with the first understanding of how Canadian politics or government worked.
In that world — under the highly restrictive terms of the thought experiment I have described — might there be a shred of sense in his announced stance toward the provinces, an approach that has been aptly described as “coercive federalism”?
As promulgated on his occasional visits to Canada and explained in a recent interview with Postmedia, it would entail “a new tonality for government” in which a Prime Minister O’Leary would use “everything in my power … every leverage and fulcrum” to “coerce” provincial governments into adopting the economic policies he thought fit.
I grant that the Boston Stranger’s previous aperçus about selling Senate seats or making unions illegal do not entitle him to a great deal of benefit of the doubt. Neither does his habit of insulting individual premiers (sample: Rachel Notley is a “vicious, poisonous, toxic cocktail of mediocrity (and) incompetence”) or declared intent to “get rid” of several of them suggest a nuanced understanding of the intricacies of federal-provincial relations.
But just supposing there were something in his latest proposal, what might it be?
Some context. Canada is a federation, not a unitary state. The federal and provincial governments are, for the most part, sovereign within their own spheres, and while the Constitution drafted at our founding by Sir John A. Macdonald and the other Fathers of Confederation allowed for Ottawa to over-ride provincial laws in certain circumstances, these exceptions are either narrowly drawn or constrained by precedent or both.
We assigned substantial powers to the provinces in recognition of the great differences that exist across our vast country, both in our circumstances and our views of the proper role of the state.
Federal powers are accordingly confined, in the main, to matters that transcend provincial boundaries, notably with regard to the economy and foreign policy, leaving the provinces to tailor social and other policies to the particular needs of their populations.
And yet it is not unknown for the federal government to intervene in provincial jurisdictions by means of the federal spending power, using federal dollars to reward or penalize certain policies. Notably, the Canada Health Act empowers Ottawa to withhold transfers from provinces that allow doctors to bill patients for services covered under medicare, or that fail to live up to other of its famous five conditions.
So there is some precedent for O’Leary’s vow to deduct “some form of transfer or equalization payment” from provinces that enact economic policies he dislikes.
Provincial economic policies, what is more, are not a purely internal matter.
The policies pursued by one province can affect every other: whether because they divert flows of trade, capital or labour one way or the other, or because by slowing the economy they cost the federal treasury.
Deficits in one of the larger provinces can raise borrowing costs for everyone else, or even affect the value of the dollar. In the extreme case, a province that defaulted on its debts — for example, because of runaway health costs — could ignite something of a national crisis.
So it is not unreasonable for the federal government to take an interest in this. Indeed, there is a perfectly legitimate, if long neglected, federal role in enforcing the economic union, using the powers constitutionally assigned to it for that purpose to strike down provincial measures that disrupt the internal market, such as the subsidies Saskatchewan is now using to poach investment from neighbouring provinces.
Likewise, some sort of coordination of federal and provincial borrowing has long been proposed, and may become an urgent necessity in future.
But there is an obligation on anyone aspiring to national leadership to approach this question with some discretion and tact, not to say humility.
O’Leary may imagine his own policies to be so evidently superior to those of the provinces as to automatically justify his intervention, but federal powers have as often been used to hobble provincial economic growth (see: National Energy Program, supply management, regional development, etc. etc.) as encourage it — and indeed O’Leary’s own dirigiste policies are subject to the same criticism.
Making equalization payments conditional on certain policy choices — O’Leary has even talked of using them, Canada Health Act-style, to punish provinces that adopt carbon pricing — would be explosive, though not, I think, unconstitutional: the relevant provision is vague enough to permit almost anything. It’s just not clear it’s necessary.
Yes, it’s ridiculous that New Brunswick and Nova Scotia, as O’Leary complains, refuse to exploit the oil and gas resources beneath their feet, but in part that is because the equalization program, as currently designed, discourages them from doing so. Transfers are reduced at such a punitive rate as provincial revenues increase that the program acts much in the manner of the familiar “welfare trap” — the potential for social assistance programs, if clawback rates are too high, to discourage recipients from taking a job or earning more income.
O’Leary need not, in other words, tread all over provincial turf or tear up longstanding federal-provincial arrangements to bring about an improvement in provincial economic policies.
As prime minister, he could just stop penalizing good policies; in other areas, he could get the feds out of the way. Ottawa may be part of the solution, but it’s as often part of the problem.