Girding for battle with the provinces - Macleans.ca
 

Girding for battle with the provinces

Stephen Harper faces high-stakes fights on many fronts


 

Girding For Battle

Stephen Harper’s admirers and detractors argue over most things about him, but they agree he’s no pushover. To his fans, he’s admirably resolute. To his foes, plain mean. Yet on a key dimension of federal politics that has traditionally brought out the pugnacious side in prime ministers, Harper has seemed to be neither. Five years into the job, and his approach to the provinces has been mostly conflict-adverse and conciliatory. He’s bought peace by boosting transfer payments by billions, defused explosive issues, and avoided policy clashes. Only Newfoundland’s Danny Williams was a persistent source of friction, and he helped smooth the waters late last year by quitting.

But the Prime Minister’s unusual run of relative peace with the premiers might not last much longer. Among close watchers of federal-provincial relations, expectations that the two levels of government are headed for strife are nearly unanimous. The key reason: most of the major deals covering Ottawa’s transfer payments to the provinces are slated to expire in three years. The terms are so contentious, and the money so vital to the provinces, that talks to replace them must ramp up soon. “This could very possibly be the most intense and challenging period in federal-provincial relations since the Charlottetown and Meech Lake period,” says Matthew Mendelsohn, director of the University of Toronto’s Mowat Centre for Policy Innovation, referring to the wrenching constitutional conflicts of the late 1980s and early 1990s.

If that sounds extreme, consider the stakes. The current relationship between Ottawa and the provinces rests on two fiscal arrangements, both of which left little reason for most premiers to do anything but smile broadly. In 2004, then-Liberal prime minister Paul Martin agreed to hike payments to the provinces to fund health care by $41 billion over 10 years. Harper’s 2007 budget injected another $39 billion over seven years into a wide range of provincial transfers, under terms particularly welcomed in Quebec and Ontario. “Spread money around,” says Mendelsohn. “It’s a long-standing federal approach to regional conflict.”

Paying for peace, however, isn’t an approach the feds can easily afford now that they’re back in deficit. And even when the money was flowing, Harper had to cave on hot-button issues, from foreign takeovers to pension reform. The question now is how parsimonious Ottawa will have to be, no matter what party is in power.

Harper and Finance Minister Jim Flaherty both declare they won’t resort to the deep cuts to transfers that the Liberals relied on for a few years during their deficit-busting push in the mid-1990s. Indeed, Harvey Lazar, a public administration professor at the University of Victoria, says that period was a “running battle” only settled by the 2004 health accord “peace treaty.” That treaty’s expiration date now preoccupies both levels of government. Not only are the health transfers up for renegotiation, so are social assistance, training programs, and equalization. The rethink comes against a radically changed backdrop: Ontario will collect equalization this year, along with traditional “have-nots” Manitoba, Quebec and the Maritimes, while the “haves” include B.C. and oil-rich Alberta, Saskatchewan and Newfoundland.

Yet Harper and Flaherty rarely breathe a word about the possibility of a wholesale reworking of the deals, which must be finalized sometime in the fiscal year that starts April 1, 2013. To a minority government facing the likelihood of an election well before then—possibly even one triggered by a budget next month—that’s eons into the political future.

To provinces that rely heavily on the transfers, though, that’s tomorrow. They need certainty to plan for basic services like running hospitals and universities. “Clearly the provinces can’t wait until 2014, or even 2013, to find out where this central piece of funding for health, education and social programs is going to come from,” says Canadian Auto Workers economist Jim Stanford. If Flaherty isn’t expected to offer any detailed outlook next month, “It sure better be in the next budget,” Stanford contends.

Girding For BattleStraight talk on the future of transfers is more likely after the next election. Any upbeat, campaign-friendly message about keeping up the pace of growth in transfers would sound suspiciously unrealistic. When Harper won his first election in 2006, Ottawa was sending $42 billion a year to the provinces. This year, those major transfers are forecast to total nearly $55 billion, close to 20 per cent of provincial revenues. Health transfers alone have risen by six per cent a year under Martin’s 2004 deal with the premiers. If Harper has enjoyed an unusual degree of tranquility on the federal-provincial front, that quiet would surely end at his first clear signal that large annual increases were coming to an end.

And the Prime Minister has shown that he’s willing to go to remarkable lengths to prolong the peace. For instance, his decision last year to block an Australian company’s proposed acquisition of Saskatchewan-based Potash Corp. clearly cut against the economic grain of his ostensibly pro-foreign-investment Conservative government. Saskatchewan Premier Brad Wall’s high-profile campaign against the takeover reminded federal Tories that they hold 13 of 14 ridings in the province­. They had learned the hard way how a popular premier’s disapproval could sting when they failed to win a Newfoundland seat in 2008, as Williams waged war against Conservative candidates over Harper’s treatment of the province’s offshore energy revenues in the equalization transfers formula.

Beyond short-term election calculations, though, Harper harbours a philosophical sympathy for the provinces in their perennial tension with Ottawa. He came to office in 2006 promising what he called “open federalism.” The slogan basically meant that his government would respect provincial jurisdiction and end what was called the “fiscal imbalance,” which saw Ottawa racking up surpluses while many provinces struggled to pay for basic services. The gusher of money for the provinces in his 2007 budget seemed to largely make good on Harper’s pledge to foster federal-provincial harmony.

If he hoped the cash would also buy Ottawa some manoeuvring room on its own priorities, however, it didn’t work. Although Harper has avoided intruding on areas of mainly provincial jurisdiction, his government has tried to advance files where the federal claim to a leadership role seems clear—and met with fierce provincial resistance anyway.

Flaherty faces a tough fight, for example, on his signature bid to create a single national securities regulator. It’s an attempt to streamline the current hodgepodge of provincial stock market oversight. Although the concept was opposed from the start by Alberta and Quebec, he appeared to be supported by Ontario and British Columbia. But B.C. Finance Minister Colin Hansen told Maclean’s that even though the province still supports the idea of a national regulator, it will likely oppose the federal government’s constitutional arguments for creating one when the Supreme Court of Canada hears the case on the issue this spring. B.C. fears a court ruling might give Ottawa broad economic power, not just narrow approval for the securities regulator.

Another Flaherty initiative, reforming pensions, is also at risk of foundering. Last spring, he announced his support for expanding the Canada Pension Plan. But at the end of 2010, he backed off when then-Alberta finance minister Ted Morton (who has since resigned to run for leader of the province’s ruling Conservatives) mounted stiff opposition to CPP reform. The future of that initiative now looks doubtful at best. “Flaherty could have punched pension reform through against Ted Morton’s objections,” says University of Western Ontario political science professor Robert Young.

“He had enough provinces on board. A lot of it comes down to the messiness of these issues.”

So messy, in fact, that Harper has largely eschewed face-to-face talks where premiers might gang up on him. (Young regards the PM as more at ease among G8 leaders.) Aside from calling the premiers to Ottawa twice to deal with the economic crisis in late 2008 and early 2009, Harper hasn’t held the set-piece first ministers’ meetings that have often defined previous prime ministers’ relations with their provincial counterparts. “The first ministers’ meetings and other processes of consultation, dialogue and management have certainly fallen into disuse,” says Mendelsohn.

Before founding the Mowat Centre, Mendelsohn was the top bureaucrat on federal-provincial affairs in the Ontario government. Under his former boss, Liberal Premier Dalton McGuinty, he expects the most populous province to turn up the heat on Ottawa in the coming months. Among the key issues is one particular to Ontario—the uncertain future of federally owned Atomic Energy Corporation of Canada Ltd. The Harper government put AECL up for sale, only to find no eager buyers. Ontario’s desire to expand its nuclear power generating capacity is closely bound up with somehow setting AECL on a new course.

Ano

ther sensitive issue—possible reform of federal Employment Insurance—could pit Ontario against other provinces. The EI system has long benefited seasonal workers in Quebec and the Maritimes more than many manufacturing and part-time workers in Ontario’s industrial heartland. “I think Ontario is going to start pushing them so hard on EI,” says Young, “that they are going to have to bend.”

When it comes to the provinces, Harper’s track record suggests that he’s not really averse to bending. But in many cases, that involves spending. With his government entering a new period of deficit-shrinking austerity, he won’t able to afford to do all that the premiers ask. If there’s a next act in the Harper government, federal-provincial relations is bidding to resume its old prominence in adding unwelcome tension to the nation’s political drama.


 

Girding for battle with the provinces

  1. Great article, great preview of what should be a very interesting period in the next few months.

    • As I suggested in my comments. Its far too early to talk about this subject. There are elections and new party leaders that are about to take place in several key provinces. Officials will work around the edges but nothing much is going to happen until the political landscape is more clear including on the federal scene.

      • Fair enough… although these issues will have to be dealt with by somebody. They're not going to go away. It's nice that the issues have been brought to the fore.

  2. hey pay attention Harper haters out there and before you thumb me down ask yourself an intriguing question … who do you really want to have sitting in the PM's chair when these negotiations are going to begin …. remember now that here in Canada we have 2 types of PM's = boneheads or bast*rds (we re-elect the latter and quickly get rid of the former) and to which all the latest leadership polls clearly reflect who is what of late :) – so the former obviously being Iggy and rightly acclaimed as such and the latter Mr Harper to you haters well – hmmmmm think about it .. what would Iggy do = I SHUDDER at the thought and according to the latest EKOS (Frank Graves poll yet) so do most Canadians

    • Not sure I follow your reason… So we should not elect Ignatieff because he is a bonehead, and he is a bonehead because an EKOS poll has the Liberals behind?

      Instead of regurgitating tautologies, why don't you explain to fence sitters in detail why the Liberals and Ignatieff would be that much worse.

      • You right he is a bonehead. Read my comments to Mike T below. You have no idea how Ignatieff would perform when dealing with the provinces and you know it. He can't stand up to his own party. What makes you think he wll do any better with 6 or 7 feisty Premiers?

        • Why is necessarily bad if the PM is weak in dealing with the provinces? Its not like there is any money to run out of.

    • Iggy has flaws but I expect he would be an improvement over Harper.

      Especially in negotiations. Harper's credibility is pretty much in tatters.

      • There is no evidence that Ignatieff can negotiate his way out of a paper bag. Where is your evidence? In dealing with his own party he has failed to sway. He abandoned Coderre in the riding fight about the nomination of Cauchon and of course pulled the rug out from under Bevilacqua when it came to immigration reforms which he had already agreed to support. Of course he supported corporate tax cuts back in 07 (by hiding behind the curtain), So there is no evidence he has any ability to negotiate anything. As usual just the usual anti Harper and pro Liberal comment.

        • I assume Iggy is at least average.

          Since no one will believe Harper after h is lying, he will have trouble making promises, and he will therefore be below average. therefore, by definition, Iggy > Harper.

    • I did what you asked.

      Still, you got a thumbs down.

      Harper, for all his vaunted 'long game' doesn't seem to have any strategy for this, a real issue of governing. I guess its just so much more a better fit for him to play political games than to actually govern. He's proven quite adept at giving it away, but falls seriously short as a manager of the federal purse (and that includes his sidekicks like Jim Flaherty).

  3. This will not be as contentious an issue as Geddes makes out!

    Why, because Harper will simply transfer more tax points to the provincial governments to make up for any cuts in transfer payments and holding the line on equalization grants.

    Harper's vision of the federation is a classical watertight compartments federal system, one that prevailed in Canada from 1890 until 1/940.

    Harper is moving to cut all the fiscal ties with the provinces by transferring to them more federal taxing power. Harper is determined that each province should go its own way. Most of the Premiers, their Parties, and their governments will grab the increasing taxing power because they will have no choice. It will Harper's way or the doorway. Premiers will then the additional taxing power in ways that will enrich their supporters while weakening their political opponents. In short, the ongoing process of province-building by the provincial political and economic élites will continue apace.

    In short, when Harper is finished dealing with the provincial governments Canada will become a collection of segregated, fire-walled provinces, Joe Clark's infamous 'community of communities' stretching from British Columbia to Newfoundland and Labrador and as far as the Arctic Circle.

    Canadians seeking better quality government services will be forced, as in the United States, to find a job in the province that provides the best services. The same goes for early childhood education and post secondary education. Every citizen will be left to fend for himself or herself in a scramble to the bottom environment for working people. Meanwhile the super rich will continue their scramble to the top of the Mount Everest of financial bonuses on Bay Street, Wall Street, and now the London Stock exchange.

    The gap between the super rich and the increasingly struggle Canadian middle class will grow over the next twenty years much as it has over the past twenty years.

    Welcome to Harperland! A very loose Confederation of provincial fiefdoms. Peace will settle over the land as Canada's role on the international stage sinks ever deeper into a black hole of no return.

    • I agree with your thesis but not with the argument. I think the provinces will very likely dispute a tax point transfer because Provincial Premiers don't want to be the ones raising the taxes, even if the numbers balance out for people afterward. (Witness the HST).

      What I expect will happen is Harper will become a veritable Santa Claus, loosening the restrictions on the money handed over to the provinces while at the same time increasing the amounts. All the while bemoaning how minority government has forced him into this position.

      You see, the thing that I think both you and Geddes have missed is the starve the beast idea of Mr. Harper. And while a transfer of tax points would work toward that goal at one end, forcing a future federal government to have to massively cut back on services or raise taxes suits his purpose.. especially because if he sets up the situation properly, it will be Liberals attempting to fix the mess that get the blame. (see Rae)

      • I agree with your analysis, although i think your interpretation of the starve the beast idea is a bit novel!

        • Indeed, it's more of a "Make the beast bulemic" means of going about it. Have it puke out everything it takes in before it can use it.

          For Mr. Harper though, it has the added advantage in that it doesn't lessen his clout with the provinces, and can work as a hedge against future opposition governments. After all, if they get into power based on the idea of cutting the conservative deficit, then it's up to them to.. well.. figure out how to cut the deficit without sinking their electoral ship almost immediately. Something CPC folk tend to think isn't an easy task.

          (Personally, I think they overestimate just how much people hate being taxed provided decent services come from it.. but that may be just me)

    • In addition to the optics of raising taxes, each province will make its own calculation wrt how it would do relative to the current transfers. Therefore to please a majority of the premiers, Harper would have to release significantly more tax points than would balance the drop in transfers across the country. Even then, he would likely need ad hoc arrangements to assist the weakest provinces during a lengthy transition.

      I suspect most of the premiers will have noted what happened in Ontario and BC, where premiers were induced to push through tax changes at the federal government's urging. No-one will forget how Stephen Harper and the little guy stood should to should with those premiers to explain the benefits of tax harperization harmonization.

  4. Nice column Geddes. However, a little premature. Why would the PM decide to begin negotiations with the provinces when provincial elections and/or a change in leadership is taking place in Ontario, B.C. and Alberta and Nfld. The approach will be different I am sure if new leaders and parties are elected. So we shall see but it definitely is too early to start negotiating these agreements seriously.

    • Sometimes you need to drive the agenda, surely you as an admirer of Stephen Harper can appreciate that. And, as is abundantly evident in the article, this will be a whopper of an issue – If Harper is to be PM for those negotiations he'd best prepare himself, as he may not have anything to give away when the time comes. For the times I've heard mention of 'difficult choices' from CPC talking points, you ain't seen nuthin' yet!

  5. In 2004, then-Liberal prime minister Paul Martin agreed to hike payments to the provinces to fund health care by $41 billion over 10 years… That treaty's expiration date now preoccupies both levels of government.

    Hey, Paul Martin! You said this mess was fixed FOR A GENERATION! Just how young do they start making babies in your family? A generation sure ain't what it used to be, eh?

  6. What Liberals & Conservatives Generally Do in Certain Situations:

    If a conservative doesn't like guns, he doesn't buy one.
    If a liberal doesn't like guns, he wants all guns outlawed.

    If a conservative is a vegetarian, he doesn't` eat meat.
    If a liberal is a vegetarian, he wants all meat products banned for everyone.

    If a conservative sees a foreign threat, he thinks about how to defeat his enemy.
    If a liberal sees a foreign threat, he wonders how to surrender gracefully and still look good.

    If a conservative reads this, he'll forward it so his friends can have a good laugh.
    A liberal will delete it because he's "offended".
    AND …
    Two liberal politicians are having lunch together; all of a sudden one stands up and shouts, "You're lying,” and the other politician responses with, "I know but just hear me out."

  7. I will never vote for Harper again. His policies are ridiculous. Jobs are declining and nothing is getting better. I just hope we do not end up like U.S dental hygienist