Harper’s flat-tire federalism

The PM will spend ever more money on jets and jails, while taxing less than any federal government has since the 1960s

Stephen Harper and some friends signed the so-called firewall letter in 2001 urging Alberta’s premier “to limit the extent to which an aggressive and hostile federal government can encroach upon legitimate provincial jurisdiction.” But there are ways and ways to do that.

If you can’t build a firewall, you can progressively sap any federal government’s ability to encroach upon provincial jurisdiction. You do that by getting money out of Ottawa — by the billion — or by binding it up to other ends — by the billion. It’s hardly a subtle business.

Perhaps you’ve forgotten the Canada First Defence Strategy.

Over the next 20 years, these increases will expand National Defence’s annual budget from approximately $18 billion in 2008-09, to over $30 billion in 2027-28. In total, the Government plans to invest close to $490 billion in defence over this period.

(The 2008-09 recession led to some trims in the defence strategy’s spending projections — I’ll add details in an update — but the prognosis remains, robust spending growth for a long time into the future.)

And the foregone revenues from the GST cuts. I’m actually less interested in echoing the value judgment Stephen Gordon makes here than I am in reminding us all of the scale of the change in Ottawa’s fiscal position:

Unlike, say, corporate income taxes, the effect of the GST on the budget balance is fairly easy to calculate. …it blew a $12b hole in the federal balance that will have to be filled somehow.

What else? Jails. Actually not a huge incremental cost in the scheme of things, but worth throwing in:

When the Conservatives came to power in 2005-06, Canada’s federal corrections system cost nearly $1.6-billion per year, but the projected cost for 2011-12 has increased to $2.98-billion per year.

And now the health-care transfer announcement

Jim Flaherty’s offer was this: Continuing the 6-per-cent annual increase in the Canada Health Transfer and 3-per-cent per annum hike in the Canada Social Transfer until the 2016-17 fiscal year; after that, until at least 2024, increases in the CHT will be tied to economic growth, while the CST will continue at 3 per cent.

The premiers are yelping because the 6% escalator they’ve enjoyed for a decade will end after 2017. Colleague Wherry is pretty sure this reduction in the growth of transfers breaks a campaign promise, or at least moves into the vacuum created by an absence of a promise. One or two longtime advocates of a strong central government are weirdly delighted by the optics of Jim Flaherty laying the spending plan on the table and daring the provinces to take it or leave it. As though this were some kind of macho theatre instead of arithmetic.

No, what’s happening is clear enough. “Health” transfers to the provinces will continue to gallop well ahead of economic growth for a couple of years, and then trot ahead of economic growth after that. Even though Ontario health spending, not atypically among the provinces, has already begun to flatten out. And incidentally, did you hear the finance minister say a syllable about health reforms driven by a federal mandate in return for this money? And can anyone find the health minister? Has she, in fact, given a single interview to a national news organization about health-care transfers since she got the gig? Rhetorical question.

So the provinces, which may find that their health-care spending curve doesn’t match the federal “health” transfer growth curve, needn’t worry because Harper and Flaherty won’t mind if they spend the money on frisbees. The provinces will get over their process-driven huff pretty soon; as a former Harper chief of staff points out, perfectly accurately, the provinces now enjoy far more certainty over their revenues from federal transfers than any federal cabinet minister enjoys about his departmental budget. At the height of the Atawapiskat crisis, the Aboriginal Affairs Minister had to appear before the Strategic Operating Review subcommittee of Cabinet to explain how he will, if asked, cut his departmental budget by 10%. It’s another planet from the one the provinces live on.

The money isn’t rushing out of Ottawa. Taken in isolation, there’s a kind of fiscal responsibility in the reduced-after-2017 rate of “health”-transfer growth. This isn’t a fire sale. Canada’s ninth-longest-serving prime minister, still seven years younger than Jean Chrétien was on the day Chrétien became prime minister, can afford to be patient.

But he will spend ever more money on jets and jails, while taxing less as a fraction of GDP than any federal government has since the 1960s, and sending a constantly-increasing share of money to the provinces, which can spend those dollars as they like. You can hear the air going out of the federal government’s — any federal government’s — ability to “encroach upon legitimate provincial jurisdiction.” From day to day this prime minister zig-zags in ways that would break a snake’s back. From 2001 to 2011 the line is as straight as a ruler.

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