Montreal – Looming costs challenges for provincially run programs like health care and education could have important consequences for the country, according to a new paper from the Institute for Research on Public Policy. The paper, published by the IRPP’s Centre for Excellence on the Canadian Federation highlights how the imbalance between orders of government when it comes to cost pressures, budget-reduction capabilities and revenue generation could reshape Canadian federalism and party politics at the provincial level.

“Many key social safety net programs are the responsibility of Canada’s provinces and territories,” explains the paper’s author, Université de Montréal professor Olivier Jacques.

“These programs are not only costlier, they are also more popular and more visible to the public. That means that reducing spending on these programs is unpopular, making it hard for provinces and territories – which have less power than the feds to generate their own revenues – to balance their budgets by cutting program-related spending.”

Jacques warns that the unequal impact of cost pressures, budget-reduction capabilities and limitations on revenue generation could create a significant fiscal gap between the federal government and the provinces and territories. This could reshape Canadian federalism in profound ways without any formal constitutional changes.

When the Liberal party is in power in Ottawa, these unequal constraints will contribute to centralization through the use the federal spending power in areas that fall under provincial jurisdictions. Conversely, Conservative governments may be more inclined to favour federal tax reductions, potentially impacting federal transfer and exacerbating inequalities between provinces and territories. At the provincial level, these fiscal constraints will also decrease the policy differences between left-leaning and right-leaning parties given how little room to manoeuvre governments will have.

“The ultimate consequence of these divergences could be wide-ranging,” says Jacques. “We need to have a national conversation on the future of Canadian federalism and its impact on the well-being of provinces and territories across the country – ideally before the next federal election.”

An Imbalanced Federation: The Unequal Distribution of Budget Constraints in Canada can be downloaded from the Centre’s website (centre.irpp.org).