CANADA

They also serve who only sit and hammer out agreements

IAN URQUHART December 27 1976
CANADA

They also serve who only sit and hammer out agreements

IAN URQUHART December 27 1976

They also serve who only sit and hammer out agreements

CANADA

While public attention focused on the first meeting between Prime Minister Pierre Trudeau and René Lévesque as premier of Quebec, this month’s federal-provincial conference dealt privately with the issue of revenue sharing between the provinces and Ottawa. At times, the bargaining between the two levels of government was akin to a giant poker game, with tax points instead of chips and millions of dollars at stake.

The horse trading involved a five-year agreement between the provinces and Ottawa that is due to expire March 31. Under the agreement, Ottawa transfers about nine billion dollars annually to provincial treasuries in the form of equalization grants, reimbursements for the federal share of medicare and hospital insurance costs, post-secondary education grants and “revenue guarantees.” Negotiations between Ottawa and the provinces over a new five-year agreement have been underway for more than a year but chances of achieving a new understanding by March 31 appeared slim as the meetings began. Ottawa could always have acted unilaterally, of course, but unilateral action proved unnecessary.

While total revenue transferred to the provinces under the new arrangement virtually the same as the provinces would have received under the old formula,* there are fewer strings attached. Beginning next year, some of the federal government’s taxing authority will be trans-

» Old Formula New Formula Equalization grants $14.5 billion $14.5 billion Health and education $36.4 billion $39.4 billion Revenue guarantees $ 6 billion $ 2.7 billion TOTAL $56.9 billion $56.6 b'lion

ferred to the provinces in the form of tax points. Because the provinces will be using their own tax money to pay for medicare, they won’t have to justify their expenses to Ottawa to get reimbursed.

The hottest conference debate, however, centred on the obscure “revenue guarantees.” Introduced in 1972, these guarantees were designed to protect provincial governments from any loss of revenue resulting from federal tax reform measures that same year. (Since the provinces levy income tax by taking a percentage of the federal income tax, any change in federal taxes affects provincial revenues as well.) The federal government wanted to terminate revenue guarantees March 31. Federal Finance Minister Donald Macdonald argued with justification that the guarantees were only meant to be temporary to give the provinces some breathing space in which to “adjust” (i.eraise) their own taxes. But the provinces, led by Ontario, decided to fight for retention of the guarantees rather than face the politically unpopular move of raising their own taxes. Meeting in Toronto October 20-21, they agreed secretly to demand from Ottawa four tax points, worth about $5.5 billion over five years, if revenue guarantees were to be phased out.

Macdonald’s initial reaction when faced with the provincial demand was a flat “No.” Then he sounded out provincial finance ministers on the transfer of one tax point, worth about $1.37 billion over five years, as a compromise. “A point for peace,” federal negotiators called it. The provincial ministers rejected it. Macdonald and his provincial counterparts then

tossed the ball to Trudeau and the premiers.

On the opening day of their meeting, the premiers caucused and eight of the 10 (all but Quebec and BC) agreed to scale down their demands to three tax points. There was no initial response from Trudeau. Butatdinnerthat evening, he offered to add $1.37 billion, the equivalent of another tax point spread over five years. New Brunswick’s Richard Hatfield was the first to jump at the new öfter and soon the others followed. Said Ontario Premier William Davis: “Half a loaf is better than none.” The next morning, after a 90-minute caucus, all the premiers but BC'S Bill Bennett approved the federal offer. Then Bennett too accepted.

Said Ontario Treasurer Darcy McKeough afterward: “At the end, nobody was very happy with the agreement. At least eight provinces were ready to say, ‘shove it.’ We could afford to bluff. But New Brunswick and Newfoundland couldn’t. We didn’t know how long we could put the smaller provinces through the wringer.”

Both sides surrendered a lot, but the provinces can probably be judged the winners because they started with nothing (on the revenue guarantee question) and ended up with $2.74 billion over five years. The result on the federal treasury may prevent the government from cutting taxes next spring, as it wanted to do, although this year’s surtax on the wealthy will be allowed to expire and family allowances will rise. On the other hand, the provinces may find they do not have to raise their taxes. Thus, the taxpayer is likely to come out even.

IAN URQUHART