September’s First Ministers Meeting on health care "the third within four years " was less different than billed. The effective negotiation was again out of pub- lic view, the exchange again of money for promises. But the money was more, for more years, the promises therefore more definite, than before. While far from the advertised fix of medicare for a generation, this ”œaccord” should last a year or two longer than the previous ones; it may bring appre- ciably more improvement in the health care of Canadians.

The greater significance of the September meeting lies, however, in what it did not do. The provinces had unani- mously proposed a new way to lessen the political strife over medicare. They offered Ottawa an active role in the provi- sion of health services. National pharmacare would have meant that instead of just giving money to the provinces, the federal government would have delivered a major pub- lic service to Canadians across the land. The prime minister refused even to discuss it. He also persisted in turning his back on the paths of cooperative federalism that his prede- cessors trod, with shifting dedication, for fifty years.

Authoritarian though the walk was, still the talk was necessarily of cooperation. Spin doctors do not expect jour- nalists and the public to know that cooperative federalism is more than hectic negotiations to patch up differences, for a time. It is a committed partnership. It requires mutual respect. It rests on principles accepted by both federal and provincial governments. It means that policies affecting both are conducted according to rules recognized by both. That is how our social programs were established and how, if at all, they will be maintained.

The Martin style is, as yet, differ- ent. It seems to have been brought over from the corporate world. It is the style not of public affairs but of private charity. The man of money decides what donations to make to causes he favours; so Ottawa decides from time to time what subsidies it will provide to which provincial programs.

The imitation may give a sense of authority, but it is not political leader- ship. It is not federalism as committed partnership. It is sugar-daddy federal- ism. It won’t work. It won’t work for Ottawa because public opinion gives the provinces bargaining power to press continually for more donations. It won’t work for the public or the provinces because its uncertainties frustrate sound programming. It won’t work politically for anyone because it yields, not accountability and steady policy, but improvisation and endemic conflict.

As things stand, there is danger that history will mark 2004 as the year when federal politicians gave up on the long struggle to right the imbalance of Canadian government. The struggle will be successfully resumed only with understanding of the politics of that imbalance.

The imbalance now commonly talked about is fiscal. Provincial gov- ernments are allegedly short-changed because Ottawa hogs more tax revenue than its responsibilities require. In the recent throne speech debate an acknowledging nod to that claim was dragged from a government in desper- ate need to be better liked in Quebec. Nevertheless, it would be a valid claim only if the functions of government had stayed unchanged since Confederation. It is disconnected from present reality.

The British North America Act got the division of powers right for its times. Section 91 not only gave the federal government the responsibili- ties generally required for ”œthe Peace, Order and good Government of Canada,” it provided the levers of power for the early purpose of confed- eration, for the national policy to cre- ate an economy from sea to sea. By similar means, by its fiscal and mone- tary and trade policies, by immigra- tion, by taxing and subsidizing business, Ottawa continues to do much to shape the economy and with it the lives of Canadians. But for most people that influence is vague and indirect. The bank rate is not the stuff of politics like medicare. And econom- ics apart, the items of section 91 are chiefly regulatory, about what govern- ment will and will not allow people to do, rather than what it does for them.

Section 92, in contrast, concen- trated on ”œMatters of a merely local or private nature in the Province.” In 1867 and for long after, those were far from being the material of major pub- lic services. But it is now 60 years since, in response to the depression of the 1930s and the war of the 1940s, society and government were trans- formed. The items of section 92 became the public services " for health, education, welfare and much else " that impact directly on people and communities and are therefore the centre of political concern.

In consequence, we are not only an unusually decentralized federation. In hardly any other country, whether federal or unitary in constitution, are the public services that people most care about, that most affect how they vote, almost all the responsibility not of the nation-state itself but of author- ities within it. Constitutional amend- ments were required for the exceptions of unemployment insurance and public pensions. Otherwise, Ottawa has jurisdiction over few of the things with direct political impact.

For politicians, this imbalance is the ghost they don’t talk about. Provincial governments are slow to acknowledge it because they would rather see Ottawa as the bully to blame. The federal emperor does not want people to see how thin are his clothes, how limited his power to deliver what peo- ple most want. When the Martin gov- ernment was snatching survival from defeat last June, it did not emphasize that its promises had no substance without the provinces. Only with hindsight does it become clear that the emperor is sometimes quite with- out clothes. The pathos of the spon- sorship scandal is that in the shock of the almost lost referendum, when the federal government wanted to be bet- ter loved in Quebec, the closest it could get to most of the people was to have advertising firms arrange to put up flags.

Nevertheless, however little admitted, the federal-provincial imbal- ance has been at the heart of our poli- tics for 60 years. People have increasingly expected the major public services to be much the same across Canada. They are what most voters have most in mind most times they cast ballots, federal as well as provin- cial. The story of politics since 1945 is in large part the story of varying attempts to overcome the imbalance of government functions.

The bravest attempt, appropriate- ly, was at the beginning, when the King government proposed to estab- lish extensive social security programs nationally, provided the provinces gave up much of their taxing power. Ontario and Quebec led the refusal. The resulting stalemate could be ended only as the postwar economic boom induced a new confidence among Canadians and thereby strengthened both support for social programs and pan-Canadian feeling. Public opinion throughout the country, including Quebec from 1960, increasingly favoured a welfare state. And while there was never any doubt that this would require asymmetries " as our federalism always has " the social benefits should and would be much the same from sea to sea. The barrier to nationwide programs was the political imbalance. Provinces had the jurisdic- tion but greatly different abilities to finance the programs. Ottawa taxed nationally but could not operate the programs.

The solution was cost-sharing. The major programs of the 1960s were created by the federal commitment to reimburse the provinces for half of their costs. Provided a program was consistent with nationally established principles, it could be operated to suit the province’s particular circumstances as well as with the steady financial reassurance necessary for good pro- gramming. This approach produced not only medicare but also, through the Canada Assistance Plan, nation- wide upgrading of social services and social assistance according to need. And it financed rapid broadening and improvement of more accessible post- secondary education.

With these and some direct feder- al measures, Canada as a whole had its quiet revolution. While cooperative federalism lasted, the social union was coherent, effective and largely amica- ble. Its weakness was that, once the programs were established, little of the continuing political credit for them went to the federal politicians who were levying taxes to support provin- cial spending.

In consequence, cooperative fed- eralism faltered badly in the 1980s, the period when federal politicians were most reluctant to tax as much as they spent. As mounting debt put them under increasing financial stress, they sought a little easy relief by continual- ly shaving their sharing with the provinces. And when the debt had grown too big to bear, financial panic made the feds blind to the cooperative imperative in federalism. The Martin budget of 1995 abruptly cancelled all commitment to cost-sharing.

As finances have improved and public opinion has required more money for medicare, it is not coopera- tive federalism that has returned. Driven now to a longer-term arrange- ment than his predecessor made, the prime minister will still do anything rather than relate federal money to provincial costs. He prefers to promise, for 2006 to 2014, escalation by a fixed 6 percent a year, regardless of what the state of public finances may be. Whether so rash a commitment will hold may be questioned, but it surely shows that cost-sharing, even at the modest 25 percent proposed by the provinces, is " for asfarascannowbeseen"out
of the question.

Indeed, the present government seems determined to be unfettered by principle even for the transfer to the provinces that is now enshrined in the Constitution. From its beginning in 1957, so-called equalization was based on a measure of the provinces’ unequal capacities to raise revenue. The formula has been revised several times. It will be aban- doned altogether for the addition now on offer. The plan begins with a total amount of money Ottawa is prepared to transfer; how it is divided will be bargained, not determined by an equalization formula. This again is a recipe for recurring conflicts, not com- mitment to partnership.

Clearly there is no point in urging a return to the cooperative feder- alism of principled transfers from federal to provincial treasuries. The pres- ent government will not be so tied. But that is no excuse for sugar-daddy fed- eralism. A cooperative social union can operate in other ways besides cost- sharing, indeed in better ways.

The main way is by direct federal payments to individuals. It has been used, in various forms, since 1944. The additional way proposed by the provinces " national pharmacare " would not only give Ottawa some of the direct service to people that it so much lacks, it affords a way to lead, by action instead of words, the rejuvena- tion of medicare as a whole.

Health policy still remains con- centrated on the purpose with which medicare necessarily began: the treat- ment of sick people. We do much less to deal with the factors that help to make them sick. Better preventive care is crucial for sustainable medicare. And preventive measures are more effective the earlier in life they are given. Responsibility for pharmacare would give the federal government an oppor- tunity for direct policy leadership by putting proper emphasis on the health and welfare of children.

Full-dollar insurance coverage, such as medicare provides for physi- cian and hospital services, is impracti- cable for pharmacare. Everyone recognizes the need for some co-insur- ance, a small fee per prescription. Proposals such as those of Romanow and Kirby call also for a deductible, an annual amount that the individual pays before insurance kicks in. Social justice requires that this measure of what is catastrophic for the individual should be related to his or her income.

That justice applies, however, to adults, not to people below working age. If it operated national pharma- care, the federal government could establish the priority of care for youth. Whatever the income-related deductible for adults, it should not apply to children. Ottawa would then be well placed to propose the most needed of reforms to medicare. Its financial support could be offered to provincial programs providing the full range of preventive care for children: pre-natal coun- selling; baby clinics; for pre- school and school children, regular medical, dental and optical check-ups; access to treatments over the same broad range; immunizations; nutritional supplements " in sum, all care to promote good health for youth. No reform is more important for both the economic and the social wel- fare of Canada. And preven- tion being increasingly cheaper than cures that become ever more elaborate and expensive, there is no better way to contain some of the future cost of medicare.

It would be hard for any province to disagree with this broadening of Medicare, though Quebec and Alberta might want to show their independ- ence by demanding some exceptional provisions. The provinces in their pro- posal recognized that Quebec could require distinct conditions for the operation of national pharmacare. And the federal government in September made much of its ”œside deal” that exempts Quebec from hav- ing its medicare performance moni- tored in the way accepted, on paper at least, by other provinces. This has been represented by the spin doctors as a great innovation and attacked by some people as paving the way to the demise of national government. In truth it is a triviality. Far more mean- ingful asymmetry has always been with us. A good deal of it is now inher- ent in the operation of federalism. Asymmetry is formalized in arrange- ments for areas of concurrent jurisdic- tion, such as pensions and immigration, as well as in the consti- tutional blessing for equalization. Without asymmetry there could be no federal projects for regional develop- ment, no opting-out provisions for shared programs.

The question about asymmetry, therefore, is not whether to have it, but how much, for what purposes, on what terms. It is open to misunderstanding. A notable example was provided by the federal cabinet minister who welcomed the September side deal as meaning that Quebec could substitute for Canada in international meetings. Such nonsense apart, the danger is con- fusion about the finan- cial terms appropriate in different cases.

Those are clear, known by experience and formulated in the Social Union Framework Agreement, for a provincial program; if Alberta, say, rejects available federal assistance because it dislikes the conditions attached, then any due compensation is payable to the Alberta government. A federally operated program, such as national pharmacare, is different. If a province stands aside, it is the resi- dents of (say) Quebec who are being denied a federal service financed by their federal taxes. In that case com- pensation is due not to the govern- ment but to the people of Quebec directly. They should be entitled to a remission of federal taxes equivalent to the money the federal treasury saves because the program is not operating in Quebec.

This distinction between financial compensation for provincial and for fed- eral programs is crucial. Asymmetry would indeed undermine national gov- ernment if provincial treasuries could benefit by standing aside from federal programs. The richer provinces, at least, would do just that. National programs would be replaced by a jumble of provin- cial programs. The social union would disappear and federal politics would matter less than ever to the electorate.

That, however, is the danger only if asymmetry is misunderstood and misused by politicians ignoring the nature of federalism. Our diversities make asymmetry, properly used on appropriate financial terms, necessary for the good government of Canada.

It is equally necessary, however, to counter the political imbalance creat- ed, for government as it has been since the 1940s, by sections 91 and 92 of the BNA Act. The way to do so is equally established by experience. Sixty years ago Ottawa used its spending power to introduce a program of direct pay- ments to individual Canadians. Next only to public schooling, family allowances were the first social pro- gram " a federal program " that sig- nificantly bettered the lives of millions of Canadians everywhere.

In the 1960s and since, such direct payments have been refined by relat- ing them, through the tax system, to personal income. Hence the Guaran- teed Income Supplement and the Canada Child Tax Benefit. The most impor- tant further step would be a wider tax benefit, replacing the basic personal allowance by a refundable credit. This means, of course, that if a person’s income is too small to be taxed, the full amount of the credit becomes a nega- tive tax, a payment from the treasury tohimorher;ifsometaxisduebutis less than the credit, the difference becomes a reverse payment to the individual. A general tax credit of this kind is by far the fairest and most effi- cient way to supplement low incomes. If over time, as public finances permitted, it was steadily increased, the call on clumsy and intrusive welfare programs would be much reduced.

More immediately, targeted refundable credits could be applied to the two new measures to which the Martin government is committed by its election platform, for children and for cities. Insofar as there are any defi- nite plans to implement the promises, they seem to be in the same sugar- daddy style as the medicare accord. In both cases, Ottawa will fix an amount of money for a number of years. For early childhood care and education, the money will go to the provinces, with some conditions about what they do with it. In the case of municipali- ties, including cities, provinces are entitled to insist that the money be passed through them, for onward dis- tribution on terms they approve.

In both cases, there is a better, direct way. (It was previously outlined in the March 2002 and August 2004 issues of Policy Options.) For the first program, there would be a targeted refundable credit available to parents using early childhood care and education. They would be reimbursed, to an extent dependent on income, for the fees they pay. The federal government would thus help, equitably, to finance the demand for child centres providing early care and education. On that sound basis, fed- eral-provincial negotiations could establish standards and flexible fees for a variety of certified facilities capable of meeting the wishes of parents and the needs of their children.

Cities are a different problem. Their needs are important and urgent. But they are the creations of provincial legislation. In all of public affairs, no responsibility is more fully provincial. Federal donations for municipal purposes, necessarily made through the provinces, will be a diversion of responsibility. They may, in practice, ease provincial finances more than they increase what Vancouver, say, could get by concentrating its lobbying on provin- cial politicians in British Columbia.

Again, there is a more effective way that is also politically rewarding for the federal government. Of all the deficiencies of big cities, none needs more urgent correction than the short- age of affordable housing close to jobs. Provincial housing allowances within welfare are highly discriminatory while barely touching the need. Refundable tax credits for the rents of social housing would be broader and fairer, especially for the working poor. As with childhood care, the federal government would, in effect, finance the demand, on a scale related to income, and negotiate with the provinces, and cities through the provinces, agreed terms for the cre- ation of appropriate housing. In both cases, the federal role would be a serv- ice directly to people. It would counter the political imbalance of federalism.

There are other social needs to be addressed, but this government has enough already committed. It would be foolish indeed not to concentrate on those priorities. Other social pro- grams of a major kind are business for another term, or another government.

It will then be even more impor- tant that policy makers understand the nature and history of Canada’s social union. When it was established in the 1960s, refundable credits through the tax system were not a practicable instrument; their fairness and efficiency for major programs depend on more recent computerization. Consistent social programs across Canada were therefore started by fed- eral cost-sharing of provincial pro- grams. It worked. But success destroyed it. Once the social union was firmly established, cost-sharing became politically unstable. It did not counter the federal-provincial imbal- ance that sections 91 and 92 create for government as it has been since 1945.

Federal politicians, remote from delivering services to people, got too little political return for the taxes they raised. The partnership of coop- erative federalism eroded. The social union nevertheless sur- vived, impaired but far from broken, thanks to the strength of public opinion in its support. But the public interest will be served, the social union will be rejuvenated to fit a changing society and economy, only if committed federal-provincial partnership is renewed. The policies required now are not the same as those of forty years ago, but they are known and again they will work.

The need is urgent. The growing interdependence of nations is not going to make governments as subordinate to global markets as neo-conser- vatives wishfully predict, but undoubtedly the economic independence of national states will be diminished. The distinctiveness that holds a people together will lie more than ever in their society and its institutions rather than in the economy. The pop- ular will for a Canada-wide social union is now stronger, not weaker, than before. The federal government has the means to give effective leader- ship. It needs the ability to fit its poli- cies to the times.