Article Summary
Tax Cuts and the “Fiscal Imbalance”
Research Report by Marc LeeMarc Lee examines the proposal to shift responsibilities to the provinces in areas where national interests preside. The “fiscal imbalance” debate, for instance, has the possibility to turn into a downsizing exercise. However, the actual notion of a “fiscal imbalance” in Canada is questionable. For Lee, it is not abundantly obvious that an imbalance exists, or that giving the provinces more power is an appropriate response.
The imbalance, Lee contends, is really a result of the normal state of affairs in a federal system. Canada has traditionally used federal taxes to fund transfers to the provinces under a national banner. While the federal government cut these transfers in the mid-1990s, Lee suggests they have since been recovered, for the most part. The real blame in provincial finances, then, revolves around some other issue; namely, according to Lee on the provinces themselves, who placed too much emphasis on provincial tax cuts in the midst of reduction in federal transfers. The provinces are extremely powerful: they hold taxation powers identical to the federal government, have exclusive rights to royalties from natural resources and a strong revenue base including lottery and liquor profits. The author suggests that the provinces could have offset the cuts at the federal level.
However, Lee also recognizes that federal tax cuts are not a viable option, as they force provinces to increase their tax base in an age of tax cuts and deficit cutting. Further, raising provincial taxes to compensate would worsen regional inequality in Canada, as smaller provinces would be unable to raise as much revenue as the richer provinces. Instead, Lee recommends uploading some provincial responsibilities, such as Pharmacare and labour market training, to the federal government that would benefit the national approach. This would also allow a greater proportion of federal transfers (to the provinces) to be allotted to investment in provincial programs.
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Policy Publication Details
| Author(s): | Marc Lee; | ||
| Publisher: | Canadian Centre for Policy Alternatives [ Visit Website ] | ||
| Year Published: | 2006; | Publisher Type: | Research Institute |
| Publicly Available: | Yes | Research Focus: | National; Provincial; |
| Registration Required: | No | Language: | English |
| Payment Required: | No | Publication Format: | Adobe PDF |
Subjects / Categories:
Policy Articles / Fiscal & Budgetary / Tax Policy
Policy Articles / Fiscal & Budgetary / Federal & Provincial Budget
Policy Articles / Fiscal & Budgetary / Fiscal Federalism
Policy Articles / Fiscal & Budgetary
Policy Articles / Fiscal & Budgetary / Federal & Provincial Budget / 2006
Policy Articles / Fiscal & Budgetary / Fiscal Federalism / 2006
Policy Articles / Fiscal & Budgetary / Tax Policy / 2006
Keywords / Tags:
fiscal imbalance; tax cuts; federalism; Conservatives; Canada Health Transfer; Canada Social Transfer; royalties; equalization; C.D. Howe; advisory panel; vertical imbalance;