On December 19, 2005, Conservative leader Stephen Harper made a lunch-hour campaign stop in Quebec City to outline his vision for the future of Canadian federalism and Canada-Quebec relations. In the following 24 hours, the speech topped many of the French- language newscasts and was the subject of a great deal of commentary in French newspapers. It would, however, take several more weeks before many in English-speaking Canada would hear about what has come to be known as the ”œQuebec City speech” or the ”œopen federalism speech.”

Since then, many political commentators have gone back to the speech to explain the Conservatives’ surge in popularity in Quebec during the final weeks of the campaign. Noting Harper’s commitments to resolve the fiscal imbalance and give Quebec a voice on the international stage, they argue that the speech laid the groundwork for the Conservatives’ strong show- ing in la belle province on election night a short month later.

There is no question that this campaign stop just before half-time in the marathon election defined the man who would become Canada’s 22nd prime minister in the eyes of many Quebecers. But that focus on Quebec may well be short-changing the speech’s longer-term significance for the whole of federal-provincial relations in Canada. Often described in recent years by media commentators as a ”œQuebec grievance,” the fiscal imbalance is in fact a pan- Canadian phenomenon ”” felt by provincial governments right across the country. Any proposal to resolve the issue, therefore, will and should have resonance for all Canadians.

The 2006 Conservative election platform, Stand Up for Canada, is unambiguous when it comes to the fiscal imbal- ance: ”œIn the last eight years, the federal government has amassed enormous surpluses. Meanwhile, many provinces have seen reduced revenues and have had to run deficits in order to pay for education, health, and other social pro- grams…A Conservative government will [w]ork with the provinces in order to achieve a long-term agreement which would address the issue of fiscal imbalance in a per- manent fashion.”

Of course, part of the challenge for any government is to define what is meant by the fiscal imbalance ”” let alone the degree to which it needs bal- ancing. In basic political terms, and in contrast to the Martin government, the Harper Conservatives acknowledged two basic realities: first, as noted in the cam- paign platform, the federal government was taking in tax revenue in excess of what was required to discharge its juris- dictional responsibilities as defined by the Constitution, while the provinces were having increasing difficulties mak- ing ends meet; secondly, acknowledged more explicitly upon taking office,an adjustment was needed in the horizontal distribution of resources to ensure ade- quate capacity across provinces to deliv- er comparable levels of service.

In addition to acknowledging the very existence of the fiscal imbalance ”” something the Chrétien and Martin gov- ernments had steadfastly refused to do, and which Stéphane Dion still refuses to do ”” the specifics of the Conservative pledge signalled a change in direction at the federal level. Rejecting the recent penchant for short-term and even one- off agreements (in vogue since at least the first ministers’ health agreement of September 2000), the Conservatives aimed at a comprehensive agreement to resolve the matter ”œin a permanent fash- ion.” After so many years of what Paul Boothe has called ”œsmash and grab fed- eralism” (Policy Options, September 2006), the Government of Canada would attempt to put an end to annual negotiations on specific issues and side deals in exchange for a comprehensive agreement to resolve the matter in full. The challenge, of course, would be to find a way to come to a principled restoration of fiscal ”œbalance.” 

Part of the answer to that challenge came shortly after the swearing-in of the Harper government in the form of a 2006 budget paper entitled Restoring Fiscal Balance in Canada: Focusing on Priorities. As many public policy ana- lysts have observed since its publication nearly a year ago, the discussion paper provides a most interesting framework according to which the Harper govern- ment intends to bring the issue to a res- olution. As explained in detail in the paper, any federal proposal would be guided by the following 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.

Ten months later, after consultations with provincial and territorial govern- ments, experts and citizens, the Harper government is preparing to table its final proposal, to be implemented through Budget 2007. Of course, from a political point of view, no one will know until Finance Minister Jim Flaherty rises to deliver the budget speech exactly what is being proposed, how much the federal government has put on the table and whether that amount will be enough for a permanent resolution. Nevertheless, the five principles outlined by the federal gov- ernment allow us to speculate as to the potential long-term impacts of the soon- to-be-announced proposal on updating Canadian federal arrangements.

There is no question that estab- lishing predictable long-term fiscal arrangements will enhance provincial governments’ capacity to better plan beyond any single budgetary cycle. Since the 1995 budget, the provinces (and many federal political parties who were in opposition at the time) have been unanimous in their call for stable, predictable funding, particular- ly for health and social transfers.

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Moreover, enhancing budget trans- parency ”” specifically with regard to anticipated surpluses ”” will also add to the certainty with which governments can plan, and the quality of the infor- mation upon which citizens make deci- sions on public priorities. Depending on how they find expression in the forthcoming implementation propos- als, therefore, it is highly likely that these two principles will be welcomed by parliamentarians and provincial governments alike.

What the provinces might find less acceptable is the federal government’s linking the fiscal imbalance to the eco- nomic union. As stated priorities since the early 1990s, internal trade barriers, labour mobility issues, securities regu- lations and the recognition of foreign credentials are unquestionably issues in which the provinces are intricately involved and that impede the federal government’s ability to create a stronger economy. What is new is not the federal government’s interest in bringing these matters to some meas- ure of resolution; it is that, rather than make federal transfers con- ditional on federal prefer- ences regarding provincial issues, the Harper govern- ment has linked the perma- nent resolution of the fiscal imbalance to the perma- nent resolution of another ”œstructural” problem in fed- eral arrangements that is of great concern to Ottawa.

The decision by the federal government to move away from unilateral con- ditions defined by Ottawa raises another, equally interesting question. Even if the federal government no longer defines common standards uni- laterally, Canadians will not want com- mon standards and portability across the country any less. Who, then, will determine the benchmarks for provin- cial performance in service delivery, par- ticularly for social programs? Given their current inability to agree on equal- ization, it seems far-fetched to imagine provincial governments negotiating and agreeing on these common standards. But in the absence of Ottawa deciding on them, we may be on the verge of see- ing ”œpan-Canadian” standards that need not mean ”œfederal.” Down the road, overseeing the negotiation of such standards may well even be the role of an enhanced Council of the Federation.

We’re certainly not there yet, but there are some hopeful signs. It’s gone almost unnoticed across the country that Alberta and British Columbia last year signed an extensive Trade, Investment and Mobility Agreement. It will streamline business registration and reporting requirements, recognize occu- pational certifications in both provinces and provide open access to government procurement between the two jurisdic- tions. The BC government believes that over time, this agreement has the poten- tial to add $4.8 billion to real GDP and create 78,000 new jobs. These potential successes on a smaller scale may well provide the impetus to move to pan- Canadian agreements.

Increased and more predictable funding with fewer and shorter strings will therefore go a significant way toward enhancing provincial autonomy in provincial matters. More interesting still, however, is the Harper government’s stat- ed commitment to more closely confine federal government activity to policy areas traditionally defined as federal juris- diction. In this, the Conservatives are proposing to frame and limit federal action de jure as well as de facto.

Explicitly listing spending priorities in the areas of national defence, security, immigration, aboriginal policy and international affairs, the 2006 budget paper proposes to reverse more than a decade of successive federal govern- ments using their spending power to cre- ate a role for themselves in areas of provincial jurisdiction. In doing so, the Harper government is resisting a power- ful electoral urge to make itself more present and relevant in the eyes of the electorate by playing a more active role in those public services citizens access more frequently. And, depending on the size of the proposed monetary settle- ment included in the 2007 budget, this current government may in fact go a long way to bind future governments to that same discipline.

Of course, the assumption that fol- lows the observation is usually that this clarity of roles and responsibilities and the commitment by Ottawa to focus on its own jurisdiction will disentangle our levels of government and more accu- rately reflect the intended division of labour in sections 91 and 92 of the Constitution. Commonly referred to as ”œclassical federalism,” this view holds that the only likely relationship between the federal and provincial governments is one of interference of the former in the latter’s backyard. Disentanglement, therefore, is a desirable thing, and inter- governmental peace will ensue.

Trouble is, it is doubtful that such a disentanglement of both levels of gov- ernment is either possible or desirable in 2007. Citizens today expect high quality public services, and do not much care to know what level of gov- ernment is responsible for what portion of an array of connected services. In response, governments everywhere have worked hard to reorganize the delivery of public services around the needs of citizens, to align policies and programs and to deliver services jointly.

Interdependence is the norm in a world in which the vast majority of meaningful policy challenges defy neat compartmentalization into departmen- tal silos, levels of government or sections of a constitution. That reality is what makes the inclusion of the final princi- ple ”” collaboration ”” so revealing. Putting a twist on classical federalism, the Harper government has acknowl- edged the critical importance of collabo- ration in modern governance and recognized that true, accountable part- nerships require clear roles and responsi- bilities as well as a certain degree of shared decision-making, risk and accountability. The value in the five principles as a whole is this acknowledg- ment that well-defined roles and respon- sibilities do not necessarily mean isolation. In negotiating the implementation of the federal proposal, the chal- lenge will be to frame the circumstances that will govern the independence and the interdependence of governments.

The final question, of course, is whether the proposed resolution of the fiscal imbalance constitutes trans- formative change or business as usual for federalism in Canada. Depending, of course, on the monetary value of the proposal, the guiding principles outlined by the Harper government last year offer the possibility of both continuity and change.

On the one hand, a federal govern- ment that sticks to section 91 while allowing the provinces to be better financed to deal with section 92 (by addressing both the vertical and horizon- tal imbalances) will change the way in which many issues are addressed and commonality across the country ensured. On the other hand, the Harper proposal does not put an end to all inter- dependence, nor does it break with developments of the last decade toward collaborative governance. Indeed, Harper has been clear that he sees a continuing substantial federal role in three areas of provincial jurisdiction ”” health care, infrastructure and post-secondary educa- tion. In fact, in combining the need to delineate roles and responsibilities with creating new mechanisms for collabora- tion and coordination in areas of shared responsibility, this proposal may well allow for both levels of government to better understand how to design, man- age and account for federal-provincial partnerships in many policy areas.

The only potential downside to resolving the fiscal imbalance is, What in the world will we policy analysts write about now?