What do the legal commitments mean?
Equalization and its impact on Cape Breton
The letter was dated July 29, 2010 and it was authored by then Nova Scotia Finance Minister Graham Steele in response to a request for information by the organization Nova Scotians for Equalization Fairness (NSEF).
The letter was important as it further clarified the position of the provincial government regarding federal equalization transfers to the province and how those funds were to be used within the province.
First, Minister Steele indicated that the annual equalization transfer to Nova Scotia was unconditional.
This means that although there is a defined purpose for the transfers, which is set out in the Constitution (specifically that all residents can receive reasonably comparable public services for reasonably comparable levels of taxation), there is no reporting responsibility imposed on the provinces. They are free to spend this funding in any way they may choose.
This has profound implications for the poorer regions within the province because, obviously, although the province, as a result of the federal transfers, may have the financial means to ensure all residents in Nova Scotia could receive reasonably comparable public services (to a national standard) for a reasonably comparable tax burden, the provincial government has the freedom to allocate the resources at its discretion with no annual evaluation of impact and with no reporting responsibility whatsoever.
Cape Breton’s Members of Parliament have tended to accept this view as well. Once the federal government fulfilled its obligation of providing the annual equalization transfer to Nova Scotia, as federal elected representatives, they appeared to believe that they had absolutely no ability to influence the allocation of the money within the province.
For this reason, they have tended to be very silent on the matter even though the economic and financial data show the extent of the resources being denied Cape Breton every year.
Comparable to Nova Scotia’s concerns regarding the possible exclusion of natural resource revenue in the resource-rich provinces from the federal formula, having unconditional funding to provinces can (and has in Nova Scotia’s case) resulted in increasing rather than decreasing disparity in the levels of public services within the province. This will be addressed in a subsequent section when the actual equalization entitlements for municipal units are provided. Obviously, this is counter to the intent of the program.
Although, the unconditional nature of the transfers provides provinces with discretion, clearly at some point over time if a provincial government is not using the funding for the purpose defined and intended they are at odds with the principle that is rooted in the Constitution.
In other words, using the provincial government’s own words, if the “right” of all Canadian citizens that is embodied in section 36 (2) is to be fulfilled, there must be a reasonable limit on the extent to which the federal payments can be used “unconditionally” within any receiving jurisdiction.
The second key point set out by Finance Minister Steele in his correspondence was that “... services delivered by municipal governments, such as waste collection and snow removal, are funded mainly by municipal property taxes. These are not the services, nor the taxes referenced in the Constitution Act, 1982.”
This opinion is not one that is obvious from the language in the Constitution, which does not distinguish or define classes of public services but simply speaks of “public services.” Furthermore, as Minister Steele and all subsequent provincial finance ministers in Nova Scotia are aware, property tax revenue plays a very important role in the federal equalization calculation.
If municipal services funded by property tax revenue were not relevant to the national equalization program, surely property tax revenue would be excluded from the formula.
It is also appropriate to address another matter that is implicit in Minister’s Steele’s comments.
He appeared to be suggesting at the time that the public services delivered by municipalities are somehow less important than the public services delivered by provincial governments. This is not necessarily the case.
In Nova Scotia, municipalities are responsible for water and wastewater systems, for roads and bridges and sidewalks, for policing and fire services, for recreational facilities and programs, and so on. These are services that impact the lives of all citizens every day and they are fundamentally important.
Moreover, within our Constitution, the provision of these services and infrastructure, even though they are delivered by municipalities, is ultimately the legal responsibility of provincial governments.
NEXT WEEK: The federal-provincial Fiscal Arrangements Act
“(Cape Breton’s Members of Parliament) have tended to be very silent on the matter even though the economic and financial data show the extent of the resources being denied Cape Breton every year.”