Even in politics, change now comes fast. Social policies need belated re-shaping to fit the times. This article suggests how the necessary cooperation can be restored to our federalism; what new priorities can then be chosen; and how reformed taxation would pay for them.

Health policy comes first. It is the sharpest public concern. It is where federal-provincial cooperation is most broken. It is subject to the fastest acceleration of cost. It most requires assurance instead of uncertainty, foresight in place of improvisation. It is also, however, where vote-seeking most deeply submerges long-term benefit.

More than most items on the policy agenda, medicare carries the burden of past mistakes. While provinces have the main responsibility for health, they cannot discharge it well unless the federal government is locked into a strongly supportive role. The first requirement for reform is to ensure that, this time, the lock is firm. Last time, it was not.

The Pearson government induced medicare by its undertaking in the 1960s to reimburse provinces for 50 percent of the cost of programs conforming to federally legislated principles. The programs quickly became so popularly established that provinces were trapped. They had to stay with medicare though the federal government retreated from its share of the costs. The consequence, however, was that staying meant staying put. The medical world changed, new needs developed, technologies were revolutionized, but a financially challenged health system did little to adapt.

Crisis came with the 1995 budget. Paul Martin tackled the deficit by cutting transfers to the provinces more fiercely than the federal government’s own programs. And he made a fundamental change. All vestige of commitment to sharing social costs was cast aside. The federal transfer became whatever the federal government would decide from time to time to provide. The apparent intention was to move on to further cuts.

Public opinion determined otherwise. It was increasingly impatient with federal and provincial politicians blaming each other for deteriorating services. Now it is Ottawa that is trapped. It has had to rebuild its medicare funding. Reversing the policy of 1995 has become essential for political survival.

The famous five principles of medicare, defining provincial programs, could not have been embedded in federal legislation if it had not embodied also the federal commitment to pay a defined share of the program costs. That commitment is just as much a principle. It was necessary to start nationwide medicare. It is now equally necessary for the rejuvenation of medicare. Federal-provincial partnership will not be secured by more so-called “accords,” soon lost in more arguments about money. Combat will be replaced by cooperation only if the federal share of costs is just as firmly enshrined in federal law as are the other principles of Canadawide medicare.

Legislation is not, of course, unchangeable, but it can be made politically secure. The precedent is the Canada Pension Plan, which cannot be amended without the consent of at least seven provinces having at least 50 percent of the population of Canada. Similar prohibition of unilateral action by Ottawa is the way to close the door on the medicare wrangling of the past ten years.

Relative tax shares have changed greatly since 1965. The legislated federal share of medicare costs cannot return to 50 percent. Fortunately there is now wide acceptance that, as some of us have been saying for years, 25 percent is the reasonable equivalent. This is, of course, a national average. If Ottawa paid to each province 25 percent of that province’s costs, it would be contributing less to the health care of a Canadian in a poorer province than to one in a province able to afford more expensive facilities. The fair formula is 25 percent of the total cost of medicare programs, Canada-wide, divided among provinces in ratio with their populations.

That formula is also crucial to provincial freedom from federal bureaucracy. Even the thriftiest official can hardly think that sneaking dubious expenses into the medicare category is worth the risk when the 25 percent saving is diluted in a national calculus. Ottawa can rely on provincial auditors to defend the federal treasury along with their own.

The federal government cannot commit money without accountability, without agreed purpose. But that does not licence federal politicians to proclaim that “their” money is to “buy change” in the performance of the provinces. There is nothing but political posturing in talk of federal billions tied to specific shortenings of waiting lists. It is not in Ottawa’s power to set such detail. Nor will the provinces get themselves locked into more home care on the strength of federal dollars committed for some years only.

It is not Ottawa’s role to prescribe how provincial programs are run. To talk as if it were is to seek political credit ahead of the most important change of all. It sustains an atmosphere of confrontation when the first need is to rebuild a cooperative relationship with the provinces. Credit comes to federal politicians from the broad nature of health policy across the country, from the big picture not the detail. That was how Ottawa transformed health care in the 1960s. Equally it can effect change in the 2000s. But again it must do so not by encroaching on provincial management, but by leadership in defining the principles of a Canadian health policy.

This is a test case that goes beyond health care to the future of Canadian federalism. Can our political parties still produce leadership of the kind required for the partnership of governments, leadership not by prescription but by purpose and principle?

Sustaining and modernizing medicare requires some redefinition of its purpose. It was established to pay for treating sickness. The treatments have become ever more elaborate. Their costs will not be kept within bounds unless we also become better at keeping people from being sick. Foresight requires a policy that promotes good health. Children are the beginning. The earlier in life people get comprehensive, preventive care, the less will be the incidence of sickness later. Modernizing medicare means more than prompter, more comprehensive care for sick adults. It also means giving new priority to well children.

Medicare was too big an undertaking to be launched full-scale. So is a new policy for health. A realistic beginning would be designed to provide comprehensive, universally accessible service for children up to the age, say, of twelve: for all pre-teens. The coverage should include a full range of preventive care, such as nutritional supplements and regular check-ups.

Such comprehensive coverage would be broader than medicare’s existing services, limited to physician and hospital care. Federal-provincial negotiations cannot long be confined to home care as the only additional service to adults that will be costshared. Insurance against “catastrophic” costs— defined in relation to income— is most generally important for prescribed drugs, but eye care or dental care can also be financially crippling. If federal-provincial collaboration is firmly established, it should become possible to agree on a wider range of cost-shared services.

Realists will recognize, however, that some subtractions of service may be the price of additions to the sustainable medicare that does most for the health of Canadians. Flexibility in that sense does not detract from the principles of medicare. A purposeful federal government will, however, be firm that its restored, 25 percent costsharing is conditional on the establishment of a new principle: nationwide implementation of comprehensive services for the health of children.

While health care is today the first public concern, the resources for it have to be weighed against other priorities, including other needs of children.

The case for more public investment in education requires no arguing. Increasingly complex technology makes investment in human capital, as economists like to put it, the key to productivity and progress. And for wealth as for health, the key to efficient investment is to start it early. Contemporary neuroscience has made precise what was always apparent to commonsense: the experiences of early childhood are critical to forming the adult personality, mentally, emotionally, socially.

Ironically, as early education has become more important, the main way of providing it has been weakened. Small families, few siblings, single parents, working mothers, distant grandparents: the social changes of recent decades have diminished the place of the home in early experience.

The change is profound. Canada is a laggard in adapting to it. The urgent need is for many more centres where young children come together, essentially to play but in a learning environment, in companionship with adults equipped to foster the early processes of education. Providing such day care so that parents can work is important, but good child centres have a greater purpose. They should be available for all.

The jurisdictional responsibility is provincial, the tax capacity to discharge it greatly varied. The benefit to be obtained is Canadawide, for the economy as a whole. The challenge within our federalism is, once again, for governments to collaborate in the national interest. In the 1950s and 1960s such collaboration meant cost-sharing. It served the public interest well, for a time, but increasingly irritated both provincial politicians aspiring to more power and federal politicians aspiring to more continuing credit for their spending. For medicare, the withdrawal of cost-sharing has been disastrous. Restoration is essential. But that is as much reversing as can now be expected. Demands that early childhood care and education be cost-shared are unrealistic. A new mechanism is needed.

The federal government is now involved in financing child care, but only for some Canadians. Working parents can deduct, from the income on which they have to pay tax, the expenses of care for children under age sixteen. It is a considerable benefit to people with above-average incomes, paying the higher tax rates. It is less or no help to others.

The fair way to make care and early education accessible for all children is a refundable tax credit. It would be available to cover the fees of pre-school children at registered child centres qualified to provide care of educational quality. Provinces would then have every motive to negotiate agreed standards and maximum fees. Public demand would ensure widespread establishment of the centres, some by a variety of private organizations but probably most by municipal school boards in conjunction with existing primary schools. To the varying extent to which they now have kindergarten classes, there would be money to transfer to other school improvements.

No such program can be entirely free from devils in the details, but they would not be difficult to exorcise once politicians make up their minds to do right by the nation’s children, for the future of our society and its economy.

Refundable tax credits are a socially just way to procure needed services equally for Canadians. Provided they are preceded by considerate negotiation with provinces on the administration of services, they can be the most trouble-free instrument for collaboration.

Primary and secondary schooling are firmly established as provincial business that Ottawa must keep out of. Universities have been, since the 1950s, different, but for the past two decades total government funding has been a diminishing share of teaching costs. Students must either be able to afford high fees or be confident or rash enough to risk taking on large loans.

There is a just way to make university education open to all who can gain from it. The way is neither lower fees nor more loans of the conventional kind. It is to make available, to all qualified students, advances of the amount they require to complete an undergraduate degree. Interest would accrue from the date of each advance. Repayment would begin when the recipient has income above the average industrial wage. A graduated surtax would then be payable until the obligation is fully discharged. The program would be an investment in the precise sense. The funding would revolve. The only budgetary charge necessary would be a default allowance for graduates who, through ill health or other reasons, do not earn more than the average wage.

The same approach will serve an additional purpose. A university education is not the necessary route to all the skills that the high-tech economy requires. Occupational training and educational upgrading for adults are also part of the necessary investment in human capital, and to facilitate them a parallel program of repayable advances should be available.

There are other social needs that Ottawa can serve best by procuring services for people. A leading example is affordable housing to rent, which is a pressing need of a society concentrating in cities. Again, a federal government capable of leadership has a role within federalism. It is not to become involved in the provincial responsibility for municipal finance. It is not to build houses. It is to help people to rent them.

Such federal financing of individuals would create the effective demand for municipalities to build or renovate needed housing, directly or through non-profit organizations. They would charge rents sufficient to cover their full costs. The federal government would make the homes affordable for needy families by contributing to the rents on a scale graduated to family income.

The problems of cities are intensified by an outdated immigration policy. It serves Canada’s internal needs badly. It is sharply contrary to the helpful international role in which we like to see ourselves. In the 1960s our immigration policy was freed from racial discrimination. The consequence, if we follow it through, could be a Canadian society uniquely fitted to thrive in an interdependent world, transformed socially even more than in economics by globalization. But we are not following through. Instead, confusion has submerged any sense of purpose in immigration policy. The numbers, including those admitted as refugees, are considerable. The credentials are, to put it mildly, jumbled.

In the early 20th century the immigrants most needed were farmers. Later they were skilled industrial and professional workers. In this century, the need is different again. Youth is prime. In a market economy, reduced supply enhances value. Our diminished fertility, making fewer young Canadians among the old, calls for switching the emphasis of immigration policy to youth, to children especially.

Advocates of plentiful immigration often represent it as the answer to the problems of an aging society. It is not, if the average age of the immigrants is much the same as that of Canadians now at work. More immigrant children, however, would indeed be a countervail to our low fertility. And increasingly, as scarcity moves up the age scale, an adaptable 20-year-old may have more to give to Canada than a 40-year-old professional.

The economics of immigration are, however, only part of the reason to shift policy toward youth. There are even stronger claimants to our humanitarianism than most of the adults who are able to make their way to Canadian airports to be designated as refugees. Children, orphans or in young families, are the saddest victims of conflict and deprivation in troubled countries. For most, help is best provided as close as possible to home. That is a priority for foreign aid, where it can be effectively given, but there are very many young families and orphans without prospect of meaningful existence unless a door opens for them in the western world.

Among so many, Canada can provide that door for only a small proportion. But to do all that we can do well is central to an immigration policy that fits the needs, of Canada and of the world, in this century. It would be an active policy to put first needs first. Canadian staff would work among refugees overseas with the United Nations agency and with non-government organizations. They would help young families and orphans likely to adapt well to come and to settle in Canada. At the same time, our visa officers, considering other applicants for immigration, would use revised selection criteria, giving more points to adults who are young.

We can take some pride in the society already made by 20th century immigration. Canada has remained a relatively equable society while receiving, especially in recent decades, a rapid inflow of diverse peoples. Nevertheless, cities such as Toronto and Vancouver have lately experienced too much tension to allow for any complacency.

Taking in children is not only the way to redress our low fertility. Children are the most adaptable of immigrants. They have less change to make. They are less challenge to insecurity. There will still be some people who fear ethnic diversity, even of children, as a threat to the social fabric of Canada. There are many more for whom the rescue of children from deprivation and despair is one of the most appealing of causes. Once the policy framework is created by official action, the work can be largely that of voluntary organizations. It is not too much to hope for the development of a community effort, the doing of a great thing together. A nation needs a number of such causes to feel its identity and to be identified by the world.

Adult immigrants have had their nurture and education paid for in other countries. Younger immigrants will be more expensive for us. The changed policy, offsetting the consequences of an aging society, will in time strengthen the economy. Good social policies are, in that sense, investments. Some can provide a rate of return for the public interest that private investors would relish for themselves. But the public gain is reflected in government revenue only partially, and often slowly. In the time-frame that influences most decisions, social programs are a cost. Vote-getting apart, it is necessary to propose also how taxes will pay for them.

If economic growth is strong, existing taxes may be enough for some reforms. Phased but vigorous implementation of the kind of program outlined in this article is likely to require more revenue than is now in prospect. That does not mean, however, increasing taxes as we know them.

On the contrary, low incomes are now taxed too much for social justice. Most wages and salaries are taxed too much for an enterprising economy. Our fiscal deficit is created by all the money that now goes untaxed.

Fifty years ago Canada had a tax system reasonably fitted to the needs and norms that had emerged from depression and war. It produced enough revenue to make politicians complacent. Their chief concern was division of the benefit. The battle for tax share between federal and provincial governments distracted attention from the larger public interest in safeguarding the treasury. Pork-barrel expenditures are noticed but are insignificant beside the subtle, mostly stealthy operations that over the past thirty years have distorted fair taxation to serve particular interests.

We now have taxes that press heavily on low and middle wage-earners, much more lightly on the growing number of people to whom ways of legal avoidance or illegal evasion are wide open. The richer the individual, the bigger the corporation, the more help are the specialists in disguising income, the greater the benefits from lax auditing of labyrinthine transactions, the more advantageous the tax havens.

The unfairness is conspicuous, the effect cumulative. More and more people dodge tax with an easy conscience. The disrepute of the tax system is the most damaging of all the ways in which politicians have for a generation been eroding public confidence in government. The reform most needed is reform of taxation.

The key to that reform has been on the table since the report of the Carter Royal Commission in 1967. It is to treat all financial receipts alike. The tax rate on wages and salaries should be equally the tax on dividends and interest, on inheritances and gifts, on realized capital gains, on stock options and lottery winnings.

The Carter Commission was investigating how much income tax rates could be reduced if they applied comprehensively, to all dollars received, instead of to income narrowly defined. Now a further consequence is even more important. Taxing all receipts the same would remove the main devices for tax avoidance. It would expose all the gimmicks that now reduce taxes for favoured groups.

It would make tax evasion considerably more difficult. It would greatly weaken the official excuses for tolerating the use of tax havens, by both corporations and individuals.

Broader taxation would, in short, finance vigorous modernization of Canadian social programs. And it would open the way to further, major reforms. One, to corporate taxation, would have social benefits but is outside the scope of this article. The second is to replace some personal income tax by fairer taxation of personal expenditures.

Income is a return on what the individual puts— by work or by capital— into the economy. Consumption is what the individual takes out of the economy. In economic theory, it is consumption, not income, that should be taxed.

If graduated taxation had begun that way a century ago, we might be considerably better off today. Income taxation has since shaped our institutions too thoroughly for a reversal to be practicable now. But modification is possible and greatly desirable.

The Liberal election platform of 1993, authored mainly by Paul Martin, promised to abolish the federal sales tax, the GST. A progressive government would have kept the promise. It would have replaced the GST by consumption taxation graduated to levels of personal expenditure, which would raise more revenue, be evaded much less, and be greatly fairer.

With that, a new social policy could include relief from the tax that now presses heavily on low and moderate incomes because it begins too soon and rises at too short intervals. The progressive way to start relieving the burden is to increase the miserably low basic allowance. That would in itself improve the lot of many poor families. It could be made the most direct weapon against the worst of deprivation by converting the increased allowance into a refundable tax credit. With that, joined to improvement of the child tax benefit, we would at last make the steady progress against family poverty that has been so long promised and so little delivered.

In sum, the ways to fit social policies to new times can be combined with strengthening the incentives to work and enterprise. They will best serve both our society and our economy if we have the foresight to make our first priority the nurture and education of children. There are, however, two essential conditions for success. Effective programs for all Canadians are possible only if we repair our federalism. To make rapid progress practicable, we must repair our taxation. If those requirements are met, purposeful government in Ottawa could make Canada again a leader in a new world.