How Ottawa Spends, 2013-2014: The Harper Government: Mid-Term Blues and Long-Term Plans 9780773589995

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How Ottawa Spends, 2013–2014

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the school of public policy and administration

at Carleton University is a national centre for the study of public policy and public management. The School’s Centre for Policy and Program Assessment provides research services and courses to interest groups, businesses, unions, and governments in the evaluation of public policies, programs and activities. School of Public Policy and Administration Carleton University 10th Floor Dunton Tower 1125 Colonel By Drive Ottawa, on Canada K1S 5B6 www.carleton.ca/sppa

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How Ottawa Spends, 2013–2014 The Harper Government: Mid-Term Blues and Long-Term Plans Edited by

christopher stoney and g. bruce doern

Published for The School of Public Policy and Administration Carleton University by McGill-Queen’s University Press Montreal & Kingston • London • Ithaca

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© McGill-Queen’s University Press 2013 ISBN 978-0-7735-4271-6 (paper) ISBN 978-0-7735-8999-5 (epdf) ISBN 978-0-7735-9000-7 (epub) Legal deposit fourth quarter 2013 Bibliothèque nationale du Québec Printed in Canada on acid-free paper that is 100% ancient forest free (100% post-consumer recycled), processed chlorine free McGill-Queen’s University Press acknowledges the support of the Canada Council for the Arts for our publishing program. We also acknowledge the financial support of the Government of Canada through the Canada Book Fund for our publishing activities.

Library and Archives has Catalogued this publication as follows How Ottawa spends. 1983– Imprint varies. Includes bibliographical references. Continues: How Ottawa spends your tax dollars, ISSN 0711-4990. ISsN 0822-6482 ISBN 978-0-7735-4271-6 (2013/2014 edition) ISBN 978-0-7735-8999-5 (epdf). – ISBN 978-0-7735-9000-7 (epub) 1. Canada – Appropriations and expenditures – Periodicals.  I. Carleton University. School of Public Policy and Administration

HJ 7663.H 69

354.710072'2

C 84-030303-3

This book was typeset by Interscript in 10 / 12 Minion.

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Contents

Preface vii 1 The Harper Government: Mid-Term Blues and Long-Term Plans 3 Christopher Stoney and G. Bruce Doern pa r t o n e : e c o n o m i c a n d s o c i a l s t r u c t u r a l agenda pl ans and challenges

2 Is the Budget Action Plan and Related Harper Agenda a Coherent Plan for Economic Growth? 19 Peter W.B. Phillips and David Castle 3 The Provinces in the Credit Markets: Market Discipline and the New Classical Federalism 31 Kyle Hanniman 4 The Conservative 10-Year Canada Health Transfer Plan: Another Fix for a Generation? 47 Gregory P. Marchildon and Haizhen Mou 5 Blue Rinse: Harper’s Treatment of Old Age Security and Other Elderly Benefits 64 Michael J. Prince 6 The Politics of the Canada Pension Plan: Private Pensions and Federal-Provincial Parallelism 76 Daniel Béland 7 The Alleged Downsizing of the Federal Public Service under the Harper Conservatives 88 Ian Lee

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vi Contents

8 How Ottawa Controls: Harper Era Strategic Reviews in the Context of the 1993–1996 Liberal Program Review 101 Robert P. Shepherd 9 National Unity through Disengagement: The Harper Government’s One-Off Federalism 114 David McGrane 10 Energy Strategy under the Harper Government: Provincial and Industry-Led 127 Keith Brownsey pa r t t w o : s e l e c t e d p o l i c y a n d d e pa r t m e n ta l issues and realms

11 (Re)Defining the Apprenticeship Problem in Canada: Completion Rate Efficiency versus More Equitable Entry 145 Karine Levasseur 12 Promises to Keep: Federal Spending on Communications and Transportation Infrastructure in the Territorial North 159 Joshua Gladstone, Sheena Kennedy Dalseg, and Frances Abele 13 “Not Good Enough”: Canada’s Stalled Disability Policy 172 Mario Levesque and Peter Graefe 14 Pragmatism and Political Expediency: Housing Policy under the Harper Regime 184 Steve Pomeroy and Nick Falvo 15 Single-Purpose Entities in the Governance of a Multiplex World 196 Ruth Hubbard and Gilles Paquet 16 The Promise and Paradox of Open Government in the Harper Era 209 Jonathan Craft 17 The Policies and Politics of Federal Public Transit Infrastructure Spending 223 Jesse Steinberg 18 The Aboriginal Health Transition Fund: Partnerships to Integrate and Adapt Health Services for Aboriginal Peoples 236 Cheryl Sutherland, Carey Hill, and Hannah Rogers Appendix A: Political Facts and Trends 259 Appendix B: Fiscal Facts and Trends 271 Contributors 283

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Preface

This is the 34th edition of How Ottawa Spends. As always we are greatly indebted to our roster of contributing academic and other expert authors from across Canada and abroad for their research, their insights and for their willingness to contribute to public debate in Canada. Thanks are also owed to Sheena Kennedy and Mary Au at the Carleton University School of Public Policy and Administration for their excellent research and technical support and to Adrian Galwin and his colleagues at McGill-Queen’s University Press for their always professional editorial and publishing services and expertise. We also extend our deep appreciation for the scholarly stimulation and encouragement provided by our colleagues at the School of Public Policy and Administration. Kevin Page, Canada’s first Parliamentary Budget Officer is on this edition’s cover as a fitting tribute to budgetary accountability and democracy. His office was created by the Harper government as a part of its initial 2006–07 accountability agenda. Harper deserves credit for having created this office, but not for how his government treated the office over its first five years. Kevin Page and his colleagues deserve applause and appreciation for a public service job exceedingly well done. To fully appreciate this work, see the pbo ’s website where all of it is publically and openly on view. Christopher Stoney and G. Bruce Doern Ottawa April 2013

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How Ottawa Spends, 2013–2014

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1 The Harper Government: Mid-Term Blues and Long-Term Plans christopher stoney and g. bruce doern

introduction 2013 represents the mid-term of the current Harper government. As such, it provides an opportunity to assess progress so far on its 2011 electoral mandate and a chance to identify potential opportunities, challenges, and signs of an emerging economic and political agenda in the countdown to the next election.1 Typically mid-terms represent a point in the electoral cycle when government popularity is at low ebb, election promises have yet to be fully implemented, and government mandates can appear to drift. In the current deficit context, austerity measures also still endure. Opinion polls show a tight political race nationally as support for the Conservatives falls to the lowest level in three and a half years. An early 2013 Nanos poll indicates that national support for the Conservatives is down to 32%, the lowest support in Nanos tracking since August 2009.2 The Conservatives still lead, with support for the Liberals rising to 29 per cent and the NDP also falling to 27.2 per cent but, according to Nanos, the real story is the trend over the previous few months, which has been slowly eroding since the last election.3 This is by no means alarming news for the Conservatives at this point in their term, particularly as their core support on the prairies and suburban Ontario holds firm and many potential voters remain undecided as they wait to see what the parties have to offer closer to the election. Nevertheless, party strategists will be eager to learn if the dip in support represents mid-term blues or longer-term dissatisfaction and perhaps the allure of two parties with fresh new leaders, in particular with the election of Justin Trudeau as Liberal Party leader. That said, a number of underlying economic trends and shortterm political factors make interpretation of the numbers difficult to assess.

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4  Christopher Stoney and G. Bruce Doern

Economically, Canada remains on course to eliminate the deficit by the time of the next election even with some easing of its projections and fiscal plans in 2012–13. Despite the size of the deficit, energy exports and an improving US economy have allowed Finance Minister James Flaherty to continue with relatively moderate austerity measures. When compared to the draconian measures suffered in other countries Canadians appear to have escaped from the global recession relatively painlessly and this is reflected in the polls that continue to show public confidence in the Conservative’s ability to manage the economy soundly compared to the NDP or the Liberals. To reinforce and capitalize on this advantage, the Conservatives have continued to focus at every opportunity on their mantra of jobs and growth. However, notwithstanding the Dow Jones hitting record highs in March 2013, the global economic recovery remains fragile and, domestically, concerns continue that Canada’s growing dependence on energy and natural resource exports mask longer-term problems; problems that include the continuing loss of manufacturing jobs, declining productivity and weakening innovation and product development. In addition, Canada’s continued reliance on the US markets for the vast majority of its oil and energy exports looks increasingly unsustainable as the US itself moves ever closer to energy self-­ sufficiency. The US position of near monopsony (as a single-customer market) has led to claims of an emerging oil sands “bitumen bubble” whereby Canada has to sell its oil at a discounted rate well below the world market value. Both these factors help explain why the Harper government is eager to find and exploit new markets for its energy exports with China now firmly in its sights and with Harper’s concerns about China’s human rights record very much taking a back seat. However, it does call into question the government’s clamour to expand oil pipelines from the oil sands heading south of the border and regardless of President Obama’s long awaited decision on the Keystone XL pipeline, the signs are that the Harper government has used the delay to rethink its US focused energy strategy, and possibly even its weak environmental strategy given US environmental lobbying against the Keystone XL pipeline. Assessment of the mid-term is further complicated by a political context that is in a state of flux, particularly with Justin Trudeau as the new Liberal leader and his potential to transform party fortunes. His election as party leader some 40 years after his father is expected to revive the ailing Liberal party and could have a significant and lasting impact on Canadian politics. The apparent popularity and voter appeal of Trudeau, if sustained beyond his honeymoon period, could play a major role in determining the outcome of the next election. Previously written off by some, the Liberal party could provide a genuine challenge to the Conservatives at the next election, especially if the NDP vote is as “soft” as some believe, particularly in Quebec. Thomas Mulcair has performed competently since taking up the NDP reigns but maintaining and building on the hard won gains at the last election

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will not be easy if the charismatic Trudeau is able to “connect” with disaffected Canadians as well as he and his supporters predict. The NDP leader’s combative qualities have enabled him to joust effectively with the prime minister but his intense and at times angry demeanor may not present an attractive option compared to a full scale charm offensive from Trudeau. That said, the election of a charismatic and relatively inexperienced leader is not without risks. Trudeau’s popularity and vastly superior funding to his competitors meant that he emerged from the Liberal leadership campaign relatively untested and offered comparatively few clear policy ideas. The Conservative war room will no doubt ensure he comes under much closer scrutiny in the run up to the next general election. In this sense, Trudeau is still very much an unknown quantity and the challenge remains to define himself rather than allow the Conservatives to do it for him; a fate that befell both Stephane Dion and Michael Ignatieff as Liberal Party leaders with disastrous electoral consequences as the Liberals became the third party in national politics. Although Steven Harper will see Trudeau as a potential threat to a second majority term his strategic instincts will quickly reassure him that victory will be his if the Conservatives can secure their core vote while the Liberals and NDP split the opposition vote. Given that the Conservative core is based primarily in Alberta and across the prairies, but also in suburban Ontario, the next election could witness an increasingly regional and divisive campaign, especially if Trudeau attempts to galvanise the anti-Harper vote in Quebec and other provinces outside of the prairies. Moreover, because oil, energy, natural resources, and jobs will be at the centre of the debate it will inevitably polarize Canadians along regional lines and emphasize the widening disparity between the have and have not provinces. The next federal election will also be about philosophical differences concerning the role of the federal government. Harper’s so called open federalism has been effective in diffusing a number of potential conflicts with the provinces but in adopting a laissez – faire position to intergovernmental relations he will need to be careful that his open federalism is not recast as “absentee federalism” as opponents suggest. This presents an opportunity and a challenge for Trudeau: should he advocate a stronger federal role he may well counter Harper’s leadership approach but risks being haunted by his father’s reputation for centralized federalism and, ironically, even the spectre of the 1980–1983 National Energy Program in particular.4 In addition to checking Ottawa’s current economic and political pulse our task in this chapter is to identify the fiscal trends and policies, opportunities and challenges that will shape the political agenda in the lead up to the 2015 national general election. We examine Budget 2013, look at longer-term policy direction and priorities, and set the platform for our chapters to engage with these issues in some depth.

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6  Christopher Stoney and G. Bruce Doern

mid-term blues For governing parties mid-terms are a time when complacency or restlessness can lead to political parties, leaders and MPs letting their guards down with regards to communications and discipline. This can manifest itself in party divisions, disloyalty, leadership challenges, and scandals. And, of course, there are the seemingly inconsequential incidents of the kind that former British Prime Minister Harold McMillan once famously described “events, dear boy, events.” Individual events are often quickly forgotten but what leaders and parties fear most are consistent patterns of action that appear to signal a trend in respect of the party’s mode of governing. Steven Harper’s control over the Conservative party and over information has been impressive although it has come at a price and is now one of the defining characteristics of his ‘autocratic’ leadership style. Once the reputation is established the danger is that subsequent policies, decisions and comments will be used by opponents to feed the narrative of anti-democratic practices. In this context, a source of increasing tension and concern is the budgetary process and the perceived lack of transparency and scrutiny. The main estimates for this year show the federal government is planning to spend about $6.5  billion less than in 2012 with the brunt of the cuts being felt in agencies and offices some of which are being eliminated altogether (e.g. National Roundtable on the Environment; First Nations Statistical Institute, and the Public Appointments Commission Secretariat) and in departmental cuts including the Department of National Defence ($2.7b) and the Office of Infrastructure Canada ($1.3b).5 Although the cuts can be seen as fairly modest given the size of the deficit, critics argue that the process is becoming less transparent and harder to scrutinize in the absence of timely details of departmental plans and priorities also being tabled. While the parliamentary budget officer, Kevin Page, and opposition MPs have criticized the government’s record on this for some time, the recently released analysis and comments of former senior Finance Department officials, Scott Clarke and Peter DeVries, has added significant weight to the debate. They claim that in addition to issuing misleading statements there are serious deficiencies in budgetary oversight: It is now recognized by most observers of the federal budget process, that the integrity and credibility of the process has been seriously eroded in recent years. Less information is now provided to the public in budgets than under previous Liberal and Conservative governments; the authority of Parliament over government spending has been weakened; the understanding of Canadians as to what the government is actually planning to do in the budget have been eroded. Canadians should be concerned not just with the erosion of Parliament’s authority,

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but also ultimately with their own ability to hold the government to account for its actions.6 These concerns were fuelled by a series of reports produced by the Parliamentary Budget Officer (PBO) that call into question the integrity and trustworthiness of the government’s financial accounting and procurement strategies as well as its seriousness about achieving value for money and tighter fiscal control. The constant theme emerging out of the PBO reports is the government’s apparent willingness to mislead the public by hiding the true costs of major defence procurements. The cost of the F-35 is the most controversial example with the plans to buy 65 of the fighter jets mired in controversy concerning the true cost, the procurement process and the technical capabilities. Initial government figures of $9 billion, later revised to $14.5b, proved to be gross underestimates with the Auditor General noting that government officials knew the real cost of the purchase was at least $25 billion and the PBO forecasting that the real price would be even higher.7 In spite of criticism of the PBO from some Conservative MPs and ministers, further analysis revealed that the total cost could exceed $40b and led to the government pushing the “reset” button but not before considerable damage was done to the Harper brand. The PBO also embarrassed the Harper government with reports detailing the full costs of the war in Afghanistan, criticizing government claims about the effectiveness of the Economic Action Plan, challenging government figures regarding the sustainability of social security spending and also calculations concerning the average costs of civil servants. Recently the PBO challenged official projections in ship building projects, his report concluding that the cost of building two Protecteur class supply ships to replace the aging fleet is 60 per cent higher than the $2.6 billion the federal government has budgeted.8 Kevin Page was also embroiled in a dispute with Treasury Board officials after his analysis of cuts in spending contradicted claims by Mr. Flaherty that front-line services would not be affected due to back office efficiencies being realized. For the Conservatives, the danger is that the credibility and fiscal integrity of the Harper government is being undermined by the PBO’s exposure of a serial pattern of financial miscalculations. This strikes at the heart of good public management as it is impossible to hold the Government to account when departmental spending data is inaccurate and unreliable. Conservative Ministers, MPs and supporters have lined up to criticize the PBO’s methods and sometimes his motives, but while his office may not always have followed appropriate communication protocols the fact remains that Kevin Page and his small office of professional staff have carried out important and valuable work in making transparent what would otherwise have remained hidden from the public gaze. Worse still, financial analysis revealing the true costs of

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8  Christopher Stoney and G. Bruce Doern

major projects could have emerged after the fact, as with the Auditor General, which could be far more damaging to the government and the public purse. Having set up the PBO as part of the Federal Accountability Act to address perceived gaps in accountability, the government has to tread carefully appointing a successor to Mr. Page. In spite of backbench calls to dismantle the office altogether it seems unlikely the government would do this before the next election given the negative optics for the government and potential outcry by Canadians. A more cautious approach definitely would be to appoint a less determined successor in an effort to neuter the position. With the interim appointment of chief librarian Sonia L’Heureux and criteria such as “tact and discretion” and “consensus building” being cited in the search for a successor, this appears to be the chosen strategy. Certainly Kevin Page remains convinced that the PBO will be gradually declawed and effectively dismantled through this approach. Given the importance of the position it is a shame that partisan interests rather than the public interest will determine who is appointed and undermine the PBO’s ability to scrutinize government spending in a rigorous and independent manner. The government may also want to consider its strategy with respect to its blanket advertising and promotion of the Economic Action Plan. The amounts being spent on advertising a program that has now all but finished, in addition to the ubiquitous signage and imaging are coming under close scrutiny, raising questions about the fine line between public information and political propaganda. Recent opinion polls suggest the public’s tolerance is approaching saturation point and, increasingly, the ad campaign is seen as an abuse of public funds to promote the Harper government and make Canadians feel better about its impact on the environment. Questions are also being raised about the similarity between government advertising of the EAP and the massive ad campaign being paid for by the oil industry and specifically the Canadian Association of Petroleum Producers (CAPP) who appear to have had some input into NRCan’s advertising program, although the full extent is still not clear. What is clear is that the federal government’s role is partly to ensure sensible energy development it is equally to ensure that it is properly regulated on environmental and other grounds.9 In his final report after five years as the Commissioner for Environment and Sustainable Development, Scott Vaughan, identified clear gaps and raised serious concerns about the government’s capacity to safeguard Canada’s environment.10 This year saw the Senate move firmly from being an opportunity for popular reform to a potentially damaging thorn in the government’s side. In 2006 the Harper Government came to power promising to reform the Senate and make it more representative and accountable. Following his election victory Harper continued to appoint Senators to the Liberal dominated Senate arguing that he needed a Conservative majority to pass reform legislation through the Senate. Having achieved a Conservative majority Harper has shown no

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serious intent to reform the Senate and is backing away from doing so arguing that the consent of the provinces would be needed which would begin constitutional wrangling of the type not seen since the 1980s. Politically this could be interpreted as a U-turn or worse a cynical ploy to stack the Senate with Conservatives. Unfortunately for the prime minister the failure to carry out reform has coincided with a series of controversial actions by several Senators including three of Mr. Harper’s high profile appointments. Senator Patrick Brazeau, an outspoken critic of the Aboriginal “Idle No More” protest campaign and Chief Spence’s hunger strike, was investigated for expense fraud allegations and subsequently suspended from the Senate by his peers following criminal charges and arrest in early 2013. Senator Mike Duffy, and Senator Pamela Wallin, both former journalists, are also being investigated for alleged abuse of expenses. Brazeau’s arrest and the sight of Senator Duffy and other senators sneaking out of buildings dodging media questions focused the public’s and media’s attention on the Senate and highlighted the prime ministers broken promise to reform the Senate. It has also tarnished the Conservatives with the corruption and entitlement brush that they attacked the Liberals for and turned into a political virtue and strength.

long-term plans While the above mid-term blues are a key reality about the Harper majority government, so also is the considerable emergence of long-term plans. Our chapters in Part One of the book are mainly about such long-term plans and they immediately raise questions about the meaning of temporal budgeting and policy making and about what a “plan” might be. The notion of long-term plans in politics often suggests time periods related to both medium term business cycles and some structural change periods and also electoral cycles of the four year range. More typically, long-term plans evoke periods that cover more than one electoral cycle such as a decade and extend to generational and intergenerational time frames of 20 to 30 years and tied to demographic changes and how to deal with them, often in more than one policy domain.11 The notion of what a “plan” might be also evokes ranges of scope, detail and process as well as what kinds of political discourse and marketing are created both to accompany it and also, in the eyes of opponents, to criticize it in dayto-day media-centred and social media debate. All policies evidently have to be planned to achieve intended results but many policies are smaller in scope and often are more gesture-like to meet short term needs or opportunities. These can frequently result, as Hubbard and Paquet argue in chapter 15 of this book, in the creation of single purpose agencies and entities that distort and even prevent purposeful planning and learning in a complex policy world. And obviously policy and budgetary initiatives do not have to be called a

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“plan.” They can also be labelled as policy strategies or programs. There is also the practical problem of how many plans a government can have at any one time and still maintain governing credibility, democratically and otherwise. The political arts of scheming virtuously are often difficult to plan. The Harper Conservatives best known plan is the Economic Action Plan begun as a minority government plan and likely to end as the 2015 election is fought. It is a medium term plan of both economic stimulus and then also budgetary cuts designed to see Canada and Canadians through the 2008 to 2013 recession and deficit period. For the most part, the Conservatives received decent political and economic grades for the Action Plan. This has been borne out in previous How Ottawa Spends analyses.12 Chapters 2, 7, and 8 in this edition provide further commentary and analysis. Peter Phillips and David Castle in chapter 2 give further credit to the Action Plan itself but then raise questions and concerns about whether it and related Harper agenda items regarding science and technology, innovation, and productivity constitute a “coherent plan” for economic growth per se as balanced budgets return but where new public and private investments are also needed. Chapter 7 by Ian Lee and chapter 3 by Robert Shepherd deal respectively with the downsizing of the public service and the Harper era strategic reviews, both linked empirically with the Action Plan agenda overall. But they also both include comparisons with earlier Chretien-Martin Liberal era actions of a similar kind in the mid-1990s to 2005 period. The Harper actions required separate but also linked plans and controls but the criteria for assessing the plans can be selective. Thus Harper plans might be better than the Liberals because, as Lee points out, the Tory cuts to the civil service were modest or, over the whole Harper era, were not net cuts at all but rather saw the growth of the public service much to the dismay of many core Tory supporters. With regard to strategic reviews of programs, Shepherd sees broadly the same sins of omission and commission under both the Harper era approaches and the earlier Liberal approaches and outcomes under mid1990s Program Review. The sins include large amounts of secrecy and lack of accountability, certainly vis-a vis the Canadian public. In the social policy domain of Harper long term plans, three of our chapters are relevant. The analysis by Gregory Marchildon and Haizhen Mou in chapter 4 examines the Conservatives 10 year health transfer plan. At its core, this health plan sets out planned spending increases to ensure the future of Medicare and related health spending by Ottawa on the federal-provincial health transfer program front. In contrast to earlier Martin and Chretien Liberal government long term health transfer plans, the Harper plan was not negotiated with the provincial premiers but rather was “announced” as a fait accompli. This was because of the Prime Minister’s preference for open federalism and respect for federal-provincial jurisdictions. But given fiscal limits, having an expensive health transfer plan means in practice that one cannot have major plans in other policy fields and program realms.

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The analysis in Chapter 5 by Michael Prince on Old Age Security (OAS) plans and in Chapter 6 by Daniel Beland on the Canada Pension Plan (CPP) reveals different planning strategies even though both are driven by intergenerational forces and demographic realities. Both retirement income programs have to confront but also finesse the underlying fact that Canada’s aging population of former baby boomers is growing quickly but the numbers of middle-aged and young persons who have to be taxed or otherwise pay for the OAS and the CPP is a much smaller proportion of the population. There is also a voter calculus in that seniors tend to vote (and vote Conservative in relative terms) but other payers may vote differently or not at all (in the case of many young persons of voting age). In the old age security and other elderly benefits sphere the Conservatives in the 2012 Budget planned for a gradual phasing in of new costs and eligibility features with all of the above social, economic and voting calculus features in relatively plain view. Regarding the Canada Pension Plan, as Beland shows, the federal plan was to favour the complementary growth of private pension plans but this has faced growing opposition including from the provinces. With regard to both of these social spheres the Harper government has not been inclined to practice much federal-provincial coordination and certainly not to convene or show-up at media covered first minister summits about them. The analysis by David McGrane in chapter 9 tells an empirical story of planning of a different kind by the Harper government. This is the planned practice of what McGrane usefully calls “one-off federalism” and hence the seeking of national unity through disengagement. There is little doubt that this plan or strategy comes from Harper himself and his control of a very controlling government. The “one-off ” feature refers to federal program agreements with individual provinces or smaller groups of provinces to enable the latter to have program features that deal with local/regional realities without breaking overall national standards and conditions. But much of this is also done through secrecy or through simply not making easily public and traceable these side-deals. Finally, we take note of key policy issues and challenges where sublimated “no plan” plans are crafted or indeed hidden. Chapter 10’s analysis by Keith Brownsey of “energy strategy” under the Harper government argues that if there is one, it has emerged largely as a provincial and energy industry-led one, only later and seemingly grudgingly adopted by the federal government. In part this may be a feature of open federalism but it is also due to the Conservatives reluctance to be tarred with the lethal charge of central Canada-imposed unilateral interventionism in energy and natural resources, given the memories, especially in Western Canada, of the highly unpopular 1980 to 1983 Trudeau era National Energy Program (NEP). There are other reasons for the Harper government being publically reluctant because a key part of the de facto federal energy strategy was about new and extended pipelines and the need to curb, restrain and speed-up environmental assessment processes. On this the Harper government undoubtedly has a

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12  Christopher Stoney and G. Bruce Doern

­ etermined plan cast as “responsible regulation” but which now has to confront d both US environmental opposition and also political protests from Canada’s Aboriginal Peoples centred on both treaty rights and environmental concerns.13 In chapter 3, Kyle Hanniman examines provincial debts and raises some future issues about whether Ottawa has any kind of an internal Finance Department-Bank of Canada plan for federal bailouts or rescue measures should the provinces’ large debt build-up require them in the face of any serious lack of market confidence. While the provinces are in debt trouble, including big ones like Ontario and Quebec, thus far both markets and creditrating agencies do not have the jitters in part because of Canada’s overall debt and deficit record in comparison with other countries in the Eurozone and with the US. It is of course difficult to have an open or announced plan due to fears that such plans will themselves induce a form of market contagion. Such concerns are by no means theoretical, given recent European experience but also given Canada’s own history not only in the 1930s but also in the early 1990s when IMF pressure and credit agency angst led Paul Martin as finance minister to launch deep budget cuts and program review.14 Several of the chapters in Part Two of the book also deal with more “below the political radar” plans and failed plans of a smaller scale and uncertain time scale. These include policies and programs involving: health services for Aboriginal Peoples; apprenticeship; northern transport and infrastructure spending; disability policy; housing; open government; and public transit infrastructure.

the 2013 budget Finance Minister James Flaherty’s Budget was presented on March 21, 2013. Titled Jobs, Growth and Long Term Prosperity and also as the latest version of the Conservative’s Economic Action Plan, the budget was clear in ultimately pointing to its main political-economic goal.15 This is to arrive at the run-up to the 2015 election with a balanced budget, a low tax plan, and a return to a fiscal surplus and then gain another Harper majority election victory based on the Conservatives economic management skill and competence and on its strong political base in Western Canada and suburban Ontario. The Budget Speech reiterated that Flaherty’s balanced budget strategy will “continue to restrain the growth of direct program spending without cutting transfers to persons, including those for seniors, children and the unemployed, or transfers to other levels of government in support of health care and social services.”16 Flaherty also promised that by 2017–18, both program expenses as a share of gross domestic product (GDP) and the net debt-to-GDP ratio will fall to pre-recession levels.”17 The Budget Speech stressed that Canada “has had the strongest record of growth and job creation over the economic recovery” and that “Canada is

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alone among G-7 countries to receive the highest possible credit ratings from all major credit rating agencies.”18 While spending is curtailed by the budget cuts strategy from previous budgets, there are a few new or reconfigured initiatives emphasized by the Harper Tories. These initiatives are expressed as: •

•

•

•

•

“Connecting Canadians With Available Jobs by equipping them with the skills and training they require to obtain high quality, well-paying jobs.” The Create the Canada Job Grant is the main recast program here and involves “negotiating the renewal of the $500 million per year Labour Market Agreements with the provinces and territories” and focussing skills training with employers.19 “Helping Manufacturers and Businesses Succeed in the Global Economy” This includes several initiatives, including: tax relief by extending the temporary accelerated capital cost allowance for new investment; $1billion for the Strategic Aerospace and Defence Initiative; and $920 million renewed funding for FedDev Ontario over a five year period.20 “Creating a New Building Canada Plan that adds to the unprecedented investments in public infrastructure since 2006 with a new infrastructure plan”. The $53 billion in investments includes over $47 billion in new funding over 10 years starting in 2014–15 for provincial, territorial and local infrastructure.21 “Investing in World-Class Research and Innovation”. This includes; $225 million to support advanced research infrastructure and the Canada Foundation for Innovation’s long-term operations; $165 million in multiyear support for Genome Canada; and $325 million over eight years for Sustainable Development Technology Canada to support the development and demonstration of new clean technologies.22 “Supporting Families and Communities.” This includes an array of Items including: promote adoption by enhancing the Adoption Expense Tax Credit; $76 million in annual tariff reduction relief on baby clothing and sports and athletic equipment; renewing the Investment in Affordable Housing with $253 million over five years.23

The overriding fiscal-political purpose of the 2013–14 Budget is clear. It is crafted to achieve a balanced budget and to cement a Harper 2015 election strategy centred again on economic management competence. These economic elements may well be joined by major new free trade agreements now being negotiated, including the Canada-EU Trade Agreement (CETA) and the Trans-Pacific Partnership Free Trade Agreement or TPP whose negotiations Canada has lately joined. As other chapters in this edition of How Ottawa Spends demonstrate, the budget contains renewed and reconfigured kinds of distributive expenditure politics crafted through the discourse of “investment” rather than “spending.” Chapter 14 by Pomeroy and Falvo stress pragmatism and political expediency

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14  Christopher Stoney and G. Bruce Doern

as notable features in Harper housing policy. Affordable housing is seemingly not on the Harper agenda, although the current budget sees the above noted renewal of such affordable housing investment. Similarly, the account by Jesse Steinberg in chapter 17 shows federal public transit infrastructure spending never quite emerging in a sustainable development manner, but it is possible that there may be more room for such initiatives in the larger new “Building Canada Plan” in the budget. Then again, this plan is quintessentially about levered money. The big $47 billion numbers arise only when the provinces and cities “bring money to get federal money” but both the provinces and local governments are essentially broke, including Alberta. Mentioning big money in the federal budget may make for good distributive politics but not necessarily accountable budgeting and governance.

conclusions The essence of the combined mid-term blues and long term plans story examined above and in our authors’ chapters provides a mixed and uncertain context for national politics, a 2015 election and for federal-provincial relations. Several forces interact in different possible permutations. The Harper government may well pull off another majority government on the strength of economic competence as federal budgetary deficits end. Yet the political narrative that congeals by 2015 could be one where the Canadian electorate listens more carefully to the arguments and presentation of Harper era excesses as a secretive and unaccountable government and also regarding Harper as a Prime Minister who has garnered some respect but whom many Canadians do not particularly like and do not regard as attending to important issues of social deficits confronting Canadian families and communities.24 Future scenarios turn on how the centrist and left of centre vote splits between the NDP and the Liberals on the one hand and, equally, among them and the Conservatives who also know where the swing seats swing depending on the issues at play and on whose voters can be persuaded to vote. A further interplay may arise out of the old adage that governments defeat themselves and the electorate succumbs to the call of “time for a change.” The Justin Trudeau Liberals might be the main beneficiary with a new more personable leader, even though a yet untested one in harsh parliamentary politics, but who seemingly thrives in social media politics, illustrating the interplay between mid-term and longer-term dynamics. notes 1 We thank Dr. Michael Prince for his very constructive and useful comments on an earlier draft of this chapter.

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15  Mid-Term Blues and Long-Term Plans 2 Nanos national telephone survey of 1,000 Canadians 18 and older conducted Feb. 19 to 24, 2013. Accurate to +/-3.1 percentage points, 19 times out of 20. 3 The Nanos Number: Conservatives losing support, CBC News, Posted: Mar 6, 2013 10:39 PM ET 4 For a captivating account of the politics of regionalism, federal-provincial relations and resource development, see Mary Janigan, Let the Eastern Bastards Freeze in the Dark: The West versus the Rest since Confederation (Toronto: Alfred A. Knopf Canada, 2012). 5 Bea Vongdouangchanh, “Feds plan to spend $6.5–billion less this year: estimates”, The Hill Times, Monday, March 11, 2013 6 S. Clarke, and P. DeVries “Restoring integrity and credibility to the budget process,” Original posted on 3d Policy http://www.3dpolicy.ca/node/231, Posted 05/03/2013. This quote reproduced by Vongdouangchanh (ibid) 7 Office of Parliamentary Budget Officer, Comparing PBO and DND Cost Estimates on Proposed Acquisition of the F-35 Joint Strike Fighter. Office of Parliamentary Budget Officer, March 23, 2011. 8 Ottawa Citizen, “Get shipbuilding right,” March 1, 2013. 9 G. Bruce Doern, Michael J. Prince, and Richard J. Schultz, Rules and Unruliness: Canadian Regulatory Capitalism, Welfarism, Democracy and Governance (McGillQueen’s University Press, 2013 in press). 10 Government of Canada, Office of the Auditor General of Canada, Commissioner of the Environment and Sustainable Development http://www.oag-bvg.gc.ca/internet/ English/parl_cesd_201212_01_e_37710.html 11 See G. Bruce Doern, Allan M. Maslove, and Michael J. Prince, Canadian Public Budgeting in the Age of Crises: Shifting Budget Domains and Temporal Budgeting (McGill-Queen’s University Press, 2013). 12 See Patrice Dutil and B. Park, “How Ontario Was Won: The Harper Economic Action Plan in Ontario, 2009–2011”. In Bruce Doern and Christopher Stoney. Eds. How Ottawa Spends 2012–2013: The Harper Majority, Budget Cuts and the New Opposition. (McGill-Queen’s University Press, 2012), 207–26. 13 See Tony Clark, Diana Gibson, Brendan Haley and Jim Stanford. The Bitumen Cliff. Canadian Centre for Policy Alternatives, 2013. 14 See Doern, Maslove, and Prince, Canadian Public Budgeting in the Age of Crises, chapter 3. 15 Canada, Jobs Growth and Long Term Prosperity: Economic Action Plan 2013 The Budget in Brief. March 21, 2013. 16 Ibid., 12. 17 Ibid., 14. 18 Ibid., 3. 19 Ibid., 4. 20 Ibid., 6. 21 Ibid., 8. 22 Ibid., 10.

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16  Christopher Stoney and G. Bruce Doern 23 Ibid., 11. 24 See James J. Rice and Michael J. Prince, Changing Politics of Canadian Social Policy, Second Edition (University of Toronto Press, 2013).

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part one Economic and Social Structural Agenda Plans and Challenges

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2 Is the Budget Action Plan and the Related Harper Agenda a Coherent Plan for Economic Growth? peter w.b. phillips and david castle

introduction Science, technology, and innovation (STI) policy remains problematic for the federal government. The rhetoric in industry and government, as well that of academics and policy centres, continues to stress the absolute and relative importance of accelerating Canadian productivity growth. Despite the unified chorus, there has been little measurable improvement in Canadian productivity that is directly tied to investments in science and technological innovation. The Conservative government has commissioned and received much advice on what is and is not working, or should be changed or added, but until very recently, the level of responsiveness to the productivity gap demonstrates the federal government is cautious to engage. Prevailing uncertainty about global economic prospects and Canada’s longterm ability to weather the financial crises, rising angst about the cost and long-term economic sustainability of many of Canada’s cherished entitlement programs (but especially the commitment to universal pension coverage at or before 65), and new data that shows Canada’s productivity performance has slipped relative to the US, have galvanized the government to move in a number of directions that should have implications for Canada’s STI policy and for the nation’s long-term economic prosperity and social programming. While the government has engaged and announced some of its choices, it is somewhat unclear whether the advice they have chosen to accept are theoretically grounded and supported by reliable evidence, and whether the implementation measures will ultimately be successful.

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20  Peter W.B. Phillips and David Castle

As we describe in this chapter, the federal government has started to prune various branches and limbs of the tree of federal science and technology support, but the final shape of the tree is unclear. While federal jurisdiction limits the government’s intervention to their direct and indirect supports of STI, it appears the focus of the federal government is limited to the one tree. The forgotten forest, a national STI policy framework the federal government could implement if it chose, is still missing, as we describe in this chapter. Ultimately, we conclude that between the government’s major challenges (social benefits and productivity) and proffered solutions (STI driven productivity) there remains an implementation gap.

the policy conundrum It is hard to imagine why anyone would want to be in power these days. The succession of daily crises and prognostications of doom must be mind-numbing. The policy agenda is overcrowded. The world faced a fifth consecutive year of financial crisis and sub-optimal global economic growth. There is increasing public and institutional pressure to deal with largely unsustainable fiscal imbalances in most OECD countries. Entitlement programs almost universally are under review – and some cherished programs are being changed to lessen the fiscal costs. The environment file – including what to do about climate change – remains alive and well, at least in the media and in people’s minds. Political unrest is expanding, at last count encompassing the Arab Spring, the “Occupiers” in North America, the “Idle No More” Aboriginal protest in Canada and the unemployed and frustrated citizens in financiallydistressed Portugal, Italy, Greece, and Spain (commonly lumped into the derogatory term of PIGS). In some ways Canada is privileged, having recovered from the relatively shallow depths of its recession, albeit with lacklustre growth, undesirable but for the most part sustainable fiscal circumstances, entitlement programs that, while showing stresses, have yet to become overwhelming fiscally unattainable, with environmental pressures but little in the way of immediate threats and a generally concerned but unmotivated electorate. Nevertheless, the general sense of economic, fiscal, social, environmental and political crisis that permeates the global media is having an effect on the national policy agenda, albeit with a distinctly Canadian twist. Canada faces some unique tensions that complicate the policy agenda. While the government faces the perennial challenge of balancing efforts to divide the pie (through a variety of social entitlement programs, such as health, education, welfare and pensions) versus making the pie bigger, both issues are complicated by the regional nature of Canada. The pension issue, for example, is changing structurally – the aging of central Canada relative to

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21  A Coherent Plan for Economic Growth?

Atlantic and Western Canada is placing more of the burden of adjustment in Ontario and Quebec, which are also disproportionately saddled with major fiscal imbalances and economic adjustments. This is complicated by resource booms in the Atlantic and Prairie provinces. Both the Ontario and Quebec premiers and Opposition and NDP Leader Thomas Mulcair, have mused in the past year that Canada faces the Dutch disease, as the booming resource sectors in the Atlantic region and the West can make money without innovating, while the traditional manufacturing sectors, largely in Ontario and Quebec, are faced with the worst of all worlds: weak demand, flat prices, a strong dollar, limited capital and inflexible wages and salaries. During the year this has led to some short, sharp exchanges between leaders in the booming provinces and the rest. Apart from the political rhetoric, this regional disparity complicates both the pension and innovation agendas, as the manufacturing heartland shrinks and many highly paid, older workers retire early. In 2012, the recently empowered majority Conservative government finally had a chance to show how it would respond to the policy pressures. In four years of minority government the Conservatives largely marked time, seeking policy input from a wide range of sources and then making only incremental adjustments in selected, relatively uncontroversial policy arenas. The Budget for 2012–13 was their first opportunity to put a definitive plan in place that would take them into the next election in 2015. Prime Minister Stephen Harper has staked out two key issues to address in the early years of his majority government – rebalancing social entitlements (especially pensions) and reinvigorating the Canadian economy through science, technology, and innovation policy. These issues are linked. While the primary solution to the pension problem revealed in 2012 involves a delayed, modest increase in the age of eligibility for some pension benefits, economic growth is the long-term solution – while not formally linked to the pension issue, it is the most sustainable way to buoy the economy and create an income base to sustain public pensions. (See also Chapter 5 by Michael Prince and Chapter 6 by Daniel Beland which examine these retirement income and pension issues in more detail.) Budget 2012 made good on Harper’s January 26, 2012, speech to the World Economic Forum at Davos that was largely devoted to economic issues and allusions to “major transformations to position Canada for growth over the next generation.”1 The transformations included references to “key investments” in science and technology, encouragements for business “to invest and avoid layoffs” and the cutting of regulatory red tape.2 The speech did not, however, recognise the connections necessary for growth that lie between enabling investments in knowledge-based economic activity, science, technology and productivity and innovation policy and industrial policy.

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22  Peter W.B. Phillips and David Castle

the productivity and innovation challenge After a nine year stretch of generally depressed performance indicators and the better part of a decade of investigation, the time was ripe for a policy response in early 2012. The OECD reports that over the past few decades, multifactor productivity (MFP) in Canada has been generally stagnant, and actually fell between 2002 and 2011.3 Performance relative to the US has been particularly poor according to OECD calculations. Average hourly labour productivity in Canada has declined by more than 11% relative to the US since 1998 and MFP in constant dollar terms, which trended flat to down in Canada, jumped about 35% since the late 1980s in the US. It is worth nothing, however, that Statistics Canada’s calculation of MFP between 1969 and 2011 of 0.28% per year has recently been challenged in a report that suggests the rate was 1.03% per year in the same period,4 an upward revision that would put absolute Canadian MFP, one of many productivity indicators, in more positive light. Performance relative to other countries like the US remains a concern, however. This poor performance has not caused the angst that it might in other economies because of a number of offsetting factors in Canada. Per capita income has grown throughout this period due to increased factor utilisation (especially higher labour force participation by women and moderately higher capital intensity) and, since 2003, robust international terms-of-trade as the prices for the resources Canada is endowed with have run up relative to other prices.5 The OECD reported that “weak productivity appears to be spread widely across sectors” – while some might try to explain it due to the composition of the economy, they assert that “still leaves most of the puzzle to be explained.”6 Both the OECD and the federal expert panel on business innovation (the Jenkins committee) assert that while MFP is a “black box” residual it probably captures the main sources of rising living standards over the long term. The OECD suggests that Canada possesses many of the key assets for innovation – notably macroeconomic stability, a good regulatory framework and a well-educated workforce – but has relatively uneven (albeit relatively low) capital taxation, inadequate venture capital markets, limited competition in a number of important sectors and weak “connective tissue” to translate research into commercial innovation.7 The structure of federal STI institutions, programs and spending is mostly a holdover from the Chretien-Martin Liberal governments, and it is beginning to show its age. The Conservatives as a minority government set up a range of expert advisory groups, including the Science and Technology Innovation Council (STIC) in 2007, the Competition Policy Review Panel (the Williams committee) in 2008 and the Expert Review Panel on Research and Development (the Jenkins panel)8 in 2011 and made a number of special

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23  A Coherent Plan for Economic Growth?

r­ eferences to the Council of Canadian Academies to review the state of science and technology in Canada.9 While they got advice that things can and should be changed, they seemed to be indifferent to the policy issue until after they secured their majority in 2011. The Council of Canadian Academies report on the State of Science and Technology in Canada in 2012 summed up what is now the predominant view. Canadian scholarly output “is healthy and growing” but with limited economic effect. From 2005 to 2010, Canada produced more than 4% of the world’s scientific papers and almost 5% of the most cited papers (with less than 0.5% of the world’s population), and output rose by almost 60% over the previous five years, the only G7 country posting an above average increase. The Council also noted that using Average Relative Citations (ARC) (a measure of the citation frequency for papers) Canada is ranked overall sixth in the world and places in the top 10 countries on a field‑by‑field basis in 17 out of 22 subject areas. This contributes to a strong reputation – in a survey of top-cited authors worldwide, 37% viewed Canada as a top-five country, most saw Canadian work in their field as strong internationally and many identified world-leading research facilities and programs in Canada. The challenge comes in translating that into use. While Canada has a high number of wellcited patents, overall Canada files a relatively low number of patents, which is judged to be one of the causes of a net $5 billion outflow of royalties in 2010.10 The federal government stated the basis for its new approach in the 2007 federal science and technology strategy, which identified four areas of public research focus (energy, environment, health sciences and ICT) and called for an expansion of human capital in STEM subjects (science, technology, engineering and mathematics), backed up by increased funding to public research. To increase the effectiveness of public research, the strategy targeted to expand public-private partnerships, notably using the long-standing networks of centres of excellence. The federal government has also signalled it intends to refocus the National Research Council (NRC) towards business-oriented research and technology transfer.11 The OECD supported the advice and directions proposed by the various reviews and by the federal government. The 2012 report on Canada expressed concern that the Scientific Research and Experimental Development (SR&ED) tax credit, which combined with provincial credits totalled more than $5.1 billion and contributes to the highest R&D tax subsidy rate in the OECD, is poorly targeted. The use of grants is very low. The OECD notes that policy research on the merits of targeting is mixed: while there is some evidence that tax credits stimulate R&D spending, there is concern that much of the resulting investment may not be incremental, at least partly because large firms are likely doing the work anyway. Moreover, the allocation of resources through tax credits may not always generate the highest social spill-overs. The OECD concluded that “these considerations suggest that innovation might be encouraged more

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24  Peter W.B. Phillips and David Castle

effectively, and risks better balanced, by reducing the importance of tax expenditures and relying more on grants.”12 Against that backdrop, the federal government began preparing the federal budget for 2012, the first where it would be able to put its stamp on the policy agenda without undue worry about whether the corresponding budgetary ways-and-means motions would pass the House.

the budget for 2012–2013 and beyond While not the main message of the 2012 budget speech, changes in the national pension system were one of the top items commented on in the aftermath of the budget. After Davos one might have expected major surgery on the three parts of the system – the Old Age Security (OAS) program, the Canada Pension Plan and voluntary, tax-assisted plans. The budget limited its efforts to a range of stop-gap measures to fix the OAS Program, which in 2011 provided approximately $38 billion in benefits to 4.9 million individuals and was forecast by some to reach $48 billion by 2015 and up to $109 billion in 2030, when the number of seniors is forecast to climb to 9.3 million. The key response was to tweak the rules of the program, with a rise in the age of eligibility for benefits to be phased in gradually starting in 2023. The CPP was deemed sustainable in its current form and the tax assisted plans were only adjusted modestly to increase incentives. In some ways, the more substantive message, that was for the most part largely lost in the post-budget debate, was the shift in the overall government messaging. The budget – or as the Harper government styled it, the “Action Plan” – was entitled “Jobs, Growth and Long-Term Prosperity” and the first set of substantive measures in the plan related to supporting entrepreneurs, innovators and world-class research. Compared to past budgets, this is a dramatic shift in focus that seemed to be lost in the formulaic rhetoric around the budget and its unusually controversial enabling legislation (discussed below). In this case, however, part of the challenge may be that the message is not fully discernible in the related measures in the budget. There were 17 specific measures the government announced in the budget details, ranging from $6.5 million over three years for research at McMaster University into health care delivery to $500 million over five years to sustain the Canadian Foundation for Innovation. A scan of the 17 highlighted items suggests the government is seriously taking the advice it was given. The key message of most of the expert advisory groups in recent years is that Canada’s significant investments in science in the past decade have led to research excellence, but that too little of the results have been translated into use. In short the economic returns on the investment are inadequate. The budget Action Plan starts to address that. First, core funding for science infrastructure – the Canadian Foundation for Innovation, the three national

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25  A Coherent Plan for Economic Growth?

granting councils (the Natural Science and Engineering Research Council, the Social Sciences and Humanities Research Council and the Canadian Institutes for Health Research), Genome Canada, Canada’s Advanced Research and Innovation Network (CANARIE) and the Canadian Institute for Advanced Research (CIAR) – was sustained. But somewhat surprisingly, given significant concerns raised in many sectors, the rumoured changes at the National Research Council (NRC) appear to be proceeding, with $67 million allocated to refocus the institutes to become business-led and industryrelevant, along the lines of the German Fraunhofer Institutes. Given that the NRC is Canada’s single largest R&D organization, this will have a significant long-term impact on Canada’s performance – while some are enthusiastic many are sceptical about the new direction. Looking back months later, one shouldn’t be surprised that this transformational process has been extremely slow to be realized – in spite of rumours of quick and major changes, only one of the institutes had by late fall 2012 announced definitive plans to develop a new ‘platform’ project. Other anticipated platform programs have stalled as they seek matching private sector funding. Second, the budget statement indicated that the government intends to invest heavily in translating research results into use. The government announced $400 million to spur creation of large-scale venture capital funds, another $100 million for the Business Development Bank of Canada, a federal agency, to support venture capital and $110 million to double resources for the NRC Industrial Research Assistance Program (IRAP), which offers support for small and medium sized businesses to adapt and adopt technology. A half dozen other extended, renewed or new programs will spend $226 million to accelerate commercialization of science. In aggregate, the budget identifies almost $1.6 billion of changes or revisions in discrete, targeted spending, compared with a federal budgetary base of $10 billion annually on researchrelated investments. Third, it announced a set of changes to the Scientific Research and Exp­er­ imental Development (SRED) program, including revising some of the rules and lowering the tax credit rate, with the plan to reduce the tax expenditure by about $1.3 billion, about one-third of the federal outlays on this in 2011. The main point is that consultant fees, which at times are reputed to exceed 60% of the benefits, have been capped, some expenditure categories are removed (e.g. capital costs) and the overall tax credit rate has been reduced somewhat. While some companies may be unhappy, there is significant support in the research and business community for the intent behind the changes, if not the specific measures or expected impact. Larger firms are probably not going to be significantly adversely affected, but smaller firms have indicated that the end of the allowance for capital outlays will disproportionately hurt them. A number of commentators have suggested that while this may be unpopular, it may not have much impact on research

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26  Peter W.B. Phillips and David Castle

activity in these firms or on the potential for adoption of new innovations. The biggest effect may be in the industrial heartland in Ontario and Quebec, where economic adjustment is being precipitated in many of the export-dependent firms in response to the recent run-up on the dollar. The double whammy of lower revenues may compound the anticipated small tail-off due to marginally lower incentives, causing a larger than expected drop in R&D effort. Fourth, the government has signalled explicitly with its Action Plan that it wants to generally accelerate regulatory decision-making and specifically accelerate resource development under the rubric of “responsible regulation.” The immediate concern signalled in the budget was that the expected $500 billion, expected to be invested in over 500 major resource projects across Canada over the next 10 years, are jeopardized by “a maze of overlapping and complex regulatory requirements and red tape … [which] leads to delays in investment and job creation that do not contribute to better environmental outcomes.”13 Generally, the government has accepted what many regulated sectors have been saying for some time now, that regulators are slow and tentative in their decision making, partly due to opaque processes, unspecified performance criteria and at times overlapping jurisdictions. In response, the government announced in the budget plans to introduce legislation to streamline the federal regulatory process. The budget explicitly linked regulatory reform to the STI and economic agenda. The budget legislation and more recent announcements seek to change the system in three specific ways. First, the government has implemented a one-project, onereview model, whereby the system will streamline the system to ensure that any aspect of each project will be reviewed only once, by the most competent and appropriate authority. In this context, subsequent federal announcements revealed that more than 300 projects currently under pre-review assessment would not be subject to federal oversight because the proposed developments fell entirely within provincial jurisdiction. In addition, the government announced that it would be introducing mandated timelines for reviews and creating a burden test to balance the costs of new regulations with the existing regulatory burden. This may become the most important new measure both for the resource sector and for firms seeking to innovate in areas that trigger federal regulatory oversight. There is a risk, however, that the operation of this system could bog down in more red-tape than the existing process. Meanwhile, strong opposition is being voiced from environmental groups and First Nations that these streamlining measures are a step too far and too fast. If there is one take-home message, it would be that science, technology and innovation policy and programming is now at the core of the government’s fiscal plans and changes are happening. While the changes may be slow and small at the start, they could be the most important measures in the budget that will define the future of Canada and our ability to sustain our pension system.

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27  A Coherent Plan for Economic Growth?

implementation As the plans became clearer through the budget and related subsequent Harper agenda announcements, the focus shifted to implementation, which has raised questions and concerns both about the legislative implementation of the measures and about the longer-term effects on the economy. In the first instance, the government, the opposition and many media commentators focused on the nature of the enabling legislation. The government took the somewhat unusual stance of creating one omnibus piece of legislation to implement both the measures announced in the budget (many, such as the regulatory changes, which would not traditionally be viewed as ways and means motions) and some elements left over from the previous budget and from some other legislation not enacted in the previous session of the House. In total, Bill C-38, the Jobs, Growth and Long-term Prosperity Act, introduced to implement provisions of the 2012 budget, spanned more than 400 pages and amended more than 70 pieces of legislation, including environmental regulations, the Fisheries Act, Employment Insurance, the Fair Wages and Hours of Labour Act and CSIS legislation.14 The opposition took exception to the bundling of such diverse matters, and first worked to slow its passage and then introduced more than 300 amendments that, after a marathon voting session, were voted down. The Act was ultimately passed in its entirety, approved by the senate and signed into law in late June. Then, in October, the government introduced Bill C-45, a second omnibus budget bill with more than 450 pages of legislative measures, that if passed in its entirety would make what some view as profound changes in environmental regulation and First Nations policy.15 While that legislation passed before the Christmas recess, the public response continued in 2013 with the Idle No More movement. Thus far most of the post-budget debate has focused on the means and not the content of the Bills. The transition to the new plan may become quite interesting soon. One challenge is that the system has limited capacity to make changes in the current year, as research and capacity locked into multi-year projects are largely immune to change (and some projects appear to go to 2015). This could mean larger cuts in some other areas which in the long-run are more important. Even a full review of the estimates, involving a line-byline analysis of key changes in spending for key research-intensive agencies, would not likely show the actual changes. Our review of departmental business plans in How Ottawa Spends, 2012–2013 showed that cash expenditures (especially for IRAP and in the research centres supported by AAFC and NRC) were being cut while the institutions were preserving their core staff (PYs).16 At some point this is going to have to give way or there will be a serious mismatch between the staff complement and the resources available to them. Unravelling this will take some time.

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28  Peter W.B. Phillips and David Castle

Soon one might expect federal cutbacks and changes in the science, technology and innovation space to generate provincial or industrial responses. Most of the provincial budgetary changes in coming years are likely to amplify and not offset the federal cutbacks. In 2012 provincial budgets, BC held the portion of post-secondary expenditures funded directly through transfers from the Ministry of Advanced Education constant at the level of 2009/10, Ontario froze salaries over $100,000, on top of a $65 million cut from the HEI allocations in January 2012, and the new Quebec government rolled back the proposed university tuition increases without providing further funds to the universities from the provincial treasury. Meanwhile, Alberta and Saskatchewan, two of the more fiscally secure provinces, in 2012 announced modest increases for universities and technical schools and allocated some resources to strategically exploit the mobility of federal research labs. But given that Ontario, Quebec, British Columbia, and Alberta are the powerhouses of Canadian S&T, together accounting for 97% of the total Canadian output in terms of scientific papers, the pending squeeze on resources in the higher education sector in those jurisdictions could have profound negative effects on Canada’s performance. Ontario alone produces 46% of Canada’s bibliometric output and generates 45% of Canada’s gross domestic expenditure on research and development. If efforts there to balance the fiscal accounts are realized, there is potential that Canada’s one underlying strength – our science community – may be destabilized without any offsetting improvements in our technology commercialization.

conclusions While the new federal plans to focus on innovation and growth as the main means to address the looming pressures in entitlement programs (especially pensions) seems to make sense on paper, circumstances beyond the control of the federal government could lead to perverse outcomes. New policy potholes could very possibly emerge at a time when the federal government needs to make the strongest case possible to pave the road to prosperity – arguably the only sustainable route to stability in our national pension system and other entitlement programs, such as public health and education. Somewhat surprising given the significant re-profiling of federal resources and policy effort towards the economy, much of the debate to date has focused on other matters. As in recent years, it is hard to get politicians, the media and public debate to centre on economic matters, especially when any measurable effect may be years or even decades down the road – a recent study in the US showed that the peak economic effect of R&D spending can be a distant as 24 years.17 One unremarked development in 2013 may have a profound effect on how far and how fast this proposed agenda is implemented. While there has clearly

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29  A Coherent Plan for Economic Growth?

been increasing support for change from a few senior federal officials (such as Mark Carney, the former governor of the Bank of Canada), support from a number of former officials (such as Kevin Lynch, now vice-chair of BMO), and support from some research institutes – especially the Centre for the Study of Living Standards (CSLS) and the Conference Board of Canada – the previously mentioned CSLS study by Diewert and Yu offers an opening to redirect opinion and effort. Diewert and Yu conclude that Statistics Canada may have underestimated long-term business productivity growth, so much so that the putative gap between Canada and the US may not have widened as reported but may actually have narrowed.18 This “good news” story may yet get traction and be used by many to justify delays and changes to the relatively aggressive program of change laid out in Budget 2012. In politics it is always tempting to back off disruptive change and declare a moral victory, especially if there is external evidence that could be used to justify such a position.

notes 1 Stephen Harper, Statement by the Prime Minister of Canada at the World Economic Forum. Prime Minister’s Office, 26 January, 2012. Available at: http://pm.gc.ca/eng/ media.asp?id=4604 (accessed 22 October 2012). 2 Ibid. 3 Organization for Economic Cooperation and Development (OECD). 2012. OECD Economic Surveys: CANADA (Overview). Paris: OECD, 2012. Available at: http://www. oecd.org/eco/50543310.pdf (accessed 17 October 2012). 4 W.E. Diewertand and E. Yu. 2012. “New Estimates of Real Income and Multifactor Productivity Growth for the Canadian Business Sector, 1961–2011.” International Productivity Monitor 24 (Fall), 2012, 27–48. Available at: http://www.csls.ca/ipm/24/ IPM-24-Diewert-Yu.pdf (accessed 3 January 2013). 5 Organization for Economic Cooperation and Development (OECD), OECD Economic Surveys: CANADA. 6 Ibid. 7 Ibid. 8 Independent Panel on Federal Support to Research and Development (IPFSRD), Innovation Canada: A Call to Action. Industry Canada, 2011. Available at: http:// rd-review.ca/eic/site/033.nsf/vwapj/R-D_InnovationCanada_Final-eng.pdf/$FILE/ R-D_InnovationCanada_Final-eng.pdf (accessed 22 October 2012). 9 Council of Canadian Academies (CCA). 2009. Innovation and Business Strategy: Why Canada Falls Short. (The Expert Panel on Business Innovation, 2009) Available at: http://www.scienceadvice.ca/uploads/eng/assessments%20and%20publications%20 and%20news%20releases/inno/%282009-06-11%29%20innovation%20report.pdf (accessed 22 October 2012), and Council of Canadian Academies (CCA). The State

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30  Peter W.B. Phillips and David Castle of Science and Technology in Canada, 2012. (The Expert Panel on the State of science and Technology in Canada, 2012) Available at: http://www.scienceadvice.ca/uploads/ eng/assessments%20and%20publications%20and%20news%20releases/sandt_ii/ stateofst2012_fullreporten.pdf (accessed 22 October 2012). 10 Organization for Economic Cooperation and Development (OECD). OECD Economic Surveys: CANADA, 2012. 11 See Phillips, P. and D. Castle, “Science and Technology in Canada: Government Investment at the Crossroad?” In Bruce Doern and Christopher Stoney, eds., How Ottawa Spends, 2012–2013: The Harper Majority, Budget Cuts, and the New Opposition. Montreal: McGill-Queen’s University Press, 2012): 89–105. 12 Organization for Economic Cooperation and Development (OECD), OECD Economic Surveys: CANADA, 2012, 21. 13 Government of Canada, Jobs, Growth and Long-term Prosperity: Economic Action Plan 2012, the Budget Speech. Finance Canada: 29 March 2012. Available at: http:// www.budget.gc.ca/2012/rd-dc/speech-eng.pdf (accessed 22 October 2012). 14 Openparliament.ca., Bill C-38: Jobs, Growth and Long-term Prosperity Act, an Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures. Available at: http://openparliament.ca/bills/41-1/C-38/ (accessed 22 October 2012). 15 Openparliament.ca. 2012b. Bill C-45: Jobs and Growth Act, 2012, a second Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures. Available at: http://openparliament.ca/bills/41-1/C-45/ (accessed 22 October 2012). 16 P. Phillips and D. Castle, “Science and Technology in Canada: Government Investment at the Crossroad?” 17. 17 J.M. Alston, M.A. Andersen, J.S. James, and P.G. Pardey. Persistence Pays: U.S. Agricultural Productivity Growth and the Benefits from Public R&D Spending. (New York: Springer.2010). Available at: http://www.springerlink.com/content/978-1-44190657-1#section=622468&page=5&locus=16 (accessed 15 October 2012). 18 W.E. Diewert and E. Yu, “New Estimates of Real Income and Multifactor Productivity Growth for the Canadian Business Sector, 1961–2011.”

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3 The Provinces in the Credit Markets: Market Discipline and the New Classical Federalism1 kyle hanniman The U.S. states and Canadian provinces are the clearest examples of market discipline. The states and provinces have wide-ranging fiscal autonomy; most of their revenues come from broad-based taxes for which the bases and rates are determined locally. Moreover, they borrow in competitive capital markets, and their respective central governments place no constraints on their spending and borrowing. State and provincial politicians and their constituents have few reasons to expect bailouts; there is no history of bailouts, no clear mechanism through which local obligations might be assumed by other jurisdictions, and attempted bailouts by the federal government would risk being challenged on constitutional grounds. Persistent deficits are assumed to lower credit ratings and raise borrowing costs, resulting in political pressure to adjust when faced with adverse fiscal shocks. Rodden and Eskeland2 Any “serious [investor] knows that the federal government is not going to let a province go into default.” Bond Underwriter, major Canadian bank3

introduction Canadian provinces have experienced a marked deterioration in their fiscal performance. Like many other regional governments, they have been forced to turn to credit markets to address their fiscal shortfalls. But unlike most other subnational governments, provinces borrow without national constraint. And like only a handful of their closest peers, they borrow to finance aggressive counter-cyclical fiscal policies and nearly every aspect of the modern welfare state. Not surprisingly, the scale of provincial borrowing has been considerable. In recent years, we have seen numerous headlines warning of defaults by American states and Spanish regions and yet compared to ­provinces, the debts of these ­governments

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range from comparable to trifling. The net debt-to-GDP ratios of most states are lower than those of most provinces4 and no state, not even the much-maligned California, rivals the per capita or absolute liabilities of Ontario. The provinces’ growing reliance on credit markets raises an important question. Have creditors been punishing provinces by raising borrowing costs and limiting credit? Or have the provinces been able to sustain favorable credit conditions despite shouldering heavy debt burdens? The prediction from recent comparative research is strong and clear. Provinces, along with American states and Swiss cantons, belong to a select group of subnational borrowers that tax, spend, and borrow with minimal national interference or oversight.5 This sharp division of intergovernmental authority is supposed to send credit markets a clear signal: Provinces approach credit markets as “miniature sovereigns”6 or the ultimate guarantors of their own debts. There is little expectation, in other words, that Ottawa will protect provinces or their creditors from default. Theoretically, this message should have only grown louder, in recent years, with the Conservatives’ “open federalism” agenda, which seeks to reinforce provincial sovereignty by disentangling intergovernmental finances even further. This implicit no-bailout policy should make it costly for Ontario, Quebec, and other heavily indebted provinces to borrow. And yet, provincial credit markets remain a sea of calm compared to the stormy conditions of other regional borrowers. Provinces have not been locked out of bond markets for long stretches as Spanish regions have. Nor have they provoked panicked losses of investor confidence like American states. Yields on provincial bonds are low, interprovincial spreads are tight, credit ratings are relatively stable and elevated, and foreign investors are eagerly buying provincial bonds. This chapter addresses three questions. First, what explains the surprisingly favorable credit conditions of provincial governments? Second, how have these conditions been affected by the open or classical turn in Canadian federalism? And third, what are the prospects for provincial credit conditions going forward? Several factors support provincial credit conditions currently, including provinces’ deep domestic investor base, transparent accounting practices, sophisticated treasuries, and unusually high capacity to raise taxes. But one of the principal reasons provinces borrow on better terms than the literature predicts is that contrary to prevailing expectations, markets do not regard provinces as sovereign. Most investors assume provincial debts are implicitly guaranteed, a view that reflects, first and foremost, Ottawa’s presumed interest in protecting the national economy from provincial default. However, it also reflects the provinces’ fiscal ties to Ottawa. The federal transfer system in general and its equalization component in particular signal Ottawa’s implicit support. The classical turn in Canadian federalism does not appear to threaten these beliefs. Most investors believe Ottawa’s bailout commitments transcend the partisanship and policies of the government of the day.

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I also comment on the prospects of market discipline going forward. I conclude that today’s implicit bailout guarantee will not insulate provinces from market pressure unconditionally. Irrespective of investors’ current expectations, provincial credit conditions are, by and large, as strong as investors’ confidence in the national government and currently, Ottawa instills much confidence. But a sharp deterioration in Canada’s fiscal performance relative to other countries would undermine its safe-haven status, raising interest rates across the economy, damaging provinces’ credit reputations, and undermining confidence in Ottawa’s implicit guarantee. These developments would create a more challenging environment for provincial borrowers, particularly if they were to coincide with a sharp rise in global interest rates. The arguments are supported by two pieces of evidence. The first is data on recent developments in provincial borrowing costs. The second is a measure of bailout expectations taken from interviews with investors in Canadian provincial debt. The remainder of the chapter is organized as follows. First, I provide an overview of provinces’ fiscal performance. Second, I draw on existing literature to predict market reactions to these conditions. Section three shows that these predictions do not bear out and section four explains why. Section five explores the implications of open federalism for provincial borrowing. Finally, I reflect on provincial credit conditions going forward.

provincial debts Scholars and popular commentators regularly describe Canada as a model of fiscal discipline.7 However, Canada’s fiscal record looks less impressive if one looks beyond federal accounts to aggregate government debt, a significant portion of which is owed by Canadian provinces. The provinces are big borrowers, both in recent historical and in international terms. Figure  3.1 compares total subnational debt as a percentage of total subnational revenues for federal regions in selected OECD countries. The figures should be interpreted with caution; total debt is a crude indicator of debt sustainability (it does not, for example, adjust for sinking funds dedicated to debt retirement). Nevertheless, the figures clearly indicate that provinces borrow heavily in relative terms.8 Figure 3.2 shows the recent rise in individual provinces’ net debt as percentage of annual operating revenues. The simple provincial average (115%) increased by roughly 18 percentage points and only 2 provinces (Saskatchewan and Newfoundland and Labrador) saw their ratios decline from 2007 to 2011. Differences among provinces also widened, with the gap between the least and most indebted provinces (Alberta and Ontario, respectively) increasing from 178 to 198 percentage points. Ontario, the largest provincial debtor, ranks among the most indebted federal regions in the world. Its 2011 share of net debt to operating revenues was

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ic o M ex

us tri a A

Be lg iu m

Sp ai n

itz er la nd Sw

St at es *

y U

ni te d

er m an G

Ca n

ad a

0

Total Debt to Total Revenues (%) 50 100 150 200

250

Figure 3.1 Total subnational government debt as a percentage of total subnational revenues, first-tier regions, selected oecd federations, 2010

Source: OECD National Accounts. These data appear in the following report: OECD, “Restoring Public Finances, 2012 Update,” 2012, 259.

0

Debt to Operating Revenues (%) 50 100 150

200

Figure 3.2 Net direct and indirect debt as a percentage of annual operating revenues

ONT

QE

PEI

NS

MB 2011

NB

BC

NFLD

SASK

AB

2007

Source: Moody’s Investors Services. Moody’s calculates net direct and indirect debt by “subtracting, from total direct and indirect debt, financial assets dedicated to debt retirement.”

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significantly lower than North-Rhine Westphalia’s and Berlin’s. However, it was comparable to Catalonia’s and Valencia’s,9 two regions currently dependent on national bailouts (but whose debt ratios are, admittedly, increasing much more rapidly than Ontario’s). Finally, Ontario’s debt ratios are considerably higher than California’s, a state whose fiscal woes have garnered considerable media attention. Indeed, according to data collected by the Fraser Institute, Ontario’s bonded debt-to-revenue ratio (222%) in 2011–12 was roughly three times California’s (73%) in 2010–11. Not surprisingly, Ontario devotes a considerably larger share of its annual revenues to interest payments: 8.9% compared to California’s 2.8%.10 Debts in many provinces continue to grow. Several provinces have begun raising taxes, restraining spending, and taking other measures to reduce their deficits and most continued to progress towards balanced-budget targets in 2011–12. However, the appetite for spending restraint may be difficult to sustain while weak long-term growth forecasts imply sluggish revenue growth for years to come.11 The provinces, like other government borrowers, also have to contend with a highly volatile and fragile global economy, a constant threat to their deficit-reduction plans.

market reactions: theoretical predictions What are the implications of these patterns for provincial borrowing? Have provinces seen a sharp increase in borrowing costs? Are the disparities in provincial debt loads reflected in meaningful differences in provincial credit ratings and risk premia? The answer depends on market expectations of which level of government – federal or provincial – is ultimately responsible for provincial debt. If it is the latter, then provinces can expect a harsh market response. If it is the former, creditors will lend at lower rates than provincial finances dictate, as lending decisions become less about provinces’ repayment capacities and more about the (inherently superior) creditworthiness of the federal government. Of course, there is no formal policy indicating Ottawa’s intentions. But as recent developments in the Eurozone indicate, official policies are largely irrelevant. What matters is how markets expect Ottawa to behave in an imminent default scenario. Would it come to a province’s rescue or would it let a province fail? Scholars have linked bailouts and bailout expectations to a range of factors, including the size of subnational jurisdictions, the nature of subnational representation in the legislature, and vertical party linkages between national and subnational politicians. However, the most prominent work traces expectations to fiscal federal factors or the distribution of intergovernmental fiscal authority between higher and lower levels of government. One of the most common claims is that ­market discipline thrives in divided or dualist systems of intergovernmental finance in which different levels of government are uniquely responsible for

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their own policies and fund these responsibilities through own-source revenues.12 Market discipline suffers, by contrast, where shared responsibility for service provision, national regulation of subnational finances, and national transfers signal a national incentive in bailing out distressed regions.13 Of the various forms of central meddling, none is accorded more importance than dependence on transfers and shared revenue schemes.14 When local services are funded by central transfers, subnational voters and politicians are less likely to internalize the consequences of their spending and more likely to blame central officials for fiscal crises. With expectations and blame focused squarely on central officials, the pressure for bailouts mounts and lenders, cognizant of these pressures, conclude that subnational debts are centrally guaranteed.15 What do these arguments imply for Canadian provinces? No federal system conforms to the dualist model perfectly, but many comparative scholars believe Canada comes closer than most. Provinces borrow in domestic and international capital markets free of national constraint, are solely responsible (in strict constitutional terms) for their core policy fields, and most importantly of all, rely heavily on own-source taxation.16 The have-not provinces are more transfer dependent than the haves, but even they are less dependent than the majority of their international peers, a fact acknowledged by the major credit rating agencies.17 Not all scholars cast Canadian federalism in a dualist light, however. McKinnon and Nechbya claim equalization signals an implicit guarantee,18 an intuition supported by Rodden’s cross-national analysis of the bailout expectations of international credit rating agencies. Rodden finds that agencies infer the most support from stable, non-discretionary, and general-purpose equalization grants.19 But this qualification notwithstanding, his analysis still reveals a broad cross-national correlation between transfer dependence and bailout expectations. What is more, he insists that the provinces are some of the closest approximations to independent units we are likely to find. Their borrowing costs and credit ratings should closely reflect their fiscal performance as a result. A cursory look at the historical evidence suggests that markets do, in fact, discipline provinces in this way. Provinces experienced a sharp rise (fall) in borrowing costs (credit ratings) during the fiscal crisis of the 1990s and some claim Newfoundland and Saskatchewan were nearly shut out of credit markets.20

market reactions: recent reality Recently, however, market discipline has been more muted. Provincial debts are high and yet provinces have had little difficulty borrowing. Figure  3.3 tracks yields on 10-year bonds for the government of Canada, Prince Edward

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2

Interest Rate 3 4

5

Figure 3.3 Yields on 10-year bonds for Canada and selected provinces

01jan2006

01jan2008 Alberta Canada

Date

01jan2010

01jan2012

Prince Edward Island

Source: Government of Canada Yields from Bloomberg. Provincial spreads from c i b c World Markets. Spreads are constant-maturity estimates of what bonds would yield on primary markets were a province to issue that day. The vertical line indicates the Lehman Brother’s default.

Island (the province that generally pays the highest rates) and Alberta (the province that generally pays the lowest rates). Spreads (or the difference between national and provincial borrowing costs) widened significantly at the height of the global financial crisis, quickly contracted beyond the crisis peak (the vertical line indicates the Lehman Brothers default) and widened somewhat again thereafter. Does this widening imply that markets are punishing provincial indiscipline, perhaps because of a lack of implicit federal support? It is difficult to say, as several other factors are at play. The most notable is growing risk aversion among domestic and international investors. The global financial crisis has raised the prospect of government default considerably, inducing investors to seek haven in the safest and most liquid assets. Sovereign governments (e.g. the government of Canada) have been the biggest beneficiaries of this trend. Thus, we would expect some degree of spread widening, even if bailout expectations are relatively high. A second and related factor is the sharp increase in safe-haven flows into the Canadian bond market. These flows favor government of Canada over other Canadian bonds and not merely because sovereign bonds are safer, but also because international investors are less familiar with sub-sovereign borrowers (e.g. provinces and federal agencies) and their credit characteristics. This deters investments in provincial relative to federal debt. This does not imply that provinces have not benefited

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38  Kyle Hanniman

Spreads (Basis Points) 20 30

40

50

Figure 3.4 Interprovincial spreads (basis points) on 10-year provincial bonds against provincial debt loads, 2011

PE

NB

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NL

ON

10

MB BC

0

SK AB

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100 150 Net Debt to Operating Revenues (%)

200

Sources: Spread data from CIBC. Debt data from Moody’s Investors Services.

from safe-haven flows; in fact, foreign investors, including central banks, have been flocking to provincial securities in droves. But Ottawa has been the biggest beneficiary of this influx. Finally, spread widening also reflects the fact that yields on government of Canada bonds have fallen so low that liabilitydriven investors (e.g. pension and insurance funds) are no longer willing to invest in provincial bonds at traditional spread levels, as these levels no longer adequately match their liabilities. These factors appear to be responsible for spread widening in other federations as well, including ones with strong implicit guarantees (i.e. Germany and Australia).21 Note also that spread widening has corresponded with a significant drop in government of Canada yields, the benchmark for pricing provincial rates (see figure 3.3). Thus, although spreads have widened, borrowing costs have actually fallen. This drop has corresponded with a notable rise in provincial debts. These complex developments make it difficult to infer bailout expectations from national-provincial spreads. A better approach is comparing differences in interprovincial rates. Interestingly, despite marked differences in provincial debt loads, these spreads remain narrow, usually within .30%, throughout the time series (see figure 3.3). Figure 3.4 plots the average difference in rates paid on 10-year provincial bonds in 2011 against provinces’ 2011 debt-to-annual operating revenue ratios. Spreads are measured in basis points where 1 point

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refers to .01%. The slope of the line is .095, implying that a 100 percentage point increase in debt to operating revenues increases the yield on a provincial bond by less than 10 basis points. This is hardly a punishing differential. Might it be evidence of an implicit guarantee?

an alternative account and measure of bailout expectations A recent report by the Macdonald-Laurier Institute (aptly entitled Provincial Solvency and Federal Obligations) suggests it does.22 But spread compression is not strictly a function of investors’ bailout beliefs. Several factors plausibly enhance provinces’ creditworthiness in the theoretical absence of bailout guarantees, including their transparent accounting practices; sophisticated debt management policies; track records of fiscal adjustment;23unusually high capacity to raise own-source revenues; and Westminster-style parliaments that preclude the legislative gridlock that plagues fiscal policymaking in California and other US states. Finally, provinces also benefit from a deep and liquid domestic capital market, replete with a healthy and sophisticated contingent of dealer banks.24 But recent research suggests that bailout expectations do, in fact, help compress spreads. In a cross-national study, I argue that contrary to conventional expectations, transfer dependence does not send positive bailout signals, but that other aspects of transfer systems do. Chief among these are formal national commitments to equalizing fiscal resources across territorial units (i.e. national equalization systems). These mechanisms provide all governments with access to basic minimum revenues and insurance against fiscal shocks. They do not necessarily obligate national officials to roll over subnational debts, but they signal something similar: a national commitment to protecting vulnerable regions and their residents. These arrangements do not need to be highly redistributive to send compelling cues. They merely need to be stable and visible and one of the surest ways of ensuring visibility is redistributing non-trivial resources across politically salient (i.e. federal or constitutionally recognized) units. The latter point is critical for the Canadian case. Canada’s equalization program does not seek to fully equalize fiscal capacity like, for example, the Australian or German systems. It also employs a narrower definition of fiscal capacity. Nonetheless, it redistributes non-trivial resources across high-profile units, making it a regular and publicized source of intergovernmental conflict. Its effects are unlikely, therefore, to go unnoticed by domestic lenders. I investigated these claims using data from interviews with investors in provinces’ domestic currency markets, the principal source of provinces’ financing. Investors were asked to rate, on a scale of 1 to 5, the likelihood of a bailout for a province on the “verge of default,” where 1 and 5 referred to very

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40  Kyle Hanniman

0

Frequency 5

10

Figure 3.5 Investors’ bailout expectations, distribution of responses, 2012

1

2

3 Small Provinces

4

5

Big Provinces

N=18. Responses to the question: “How likely, in your view, is Ottawa to bail out a province on the verge of default, where 5 refers to very likely and 1 to very unlikely.”

unlikely and very likely, respectively. I also asked investors to assign separate scores to big and small provinces. Finally, I asked investors to consider the impact of a variety of political and economic variables. The interviews, which focused disproportionately on large institutional investors, yielded several interesting results. First, the vast majority (nearly 90%) of respondents claimed the federal government is likely or highly likely to provide a bailout and only three differentiated between big and small provinces. Figure  5 displays the distribution of responses. The most common justification of bailout beliefs concerned the economic consequences of default. Respondents highlighted threats to national employment, growth, the Canadian currency, and Canada’s reputation in international and domestic bond markets. Over 90% considered one or more of these factors salient. No doubt this figure reflects provinces’ massive presence in capital markets. Economic factors were not, however, the only concerns on investors’ minds. Markets also took cues from the transfer system. Fifteen of 18 respondents inferred positive signals from the transfer system and two thirds (or three quarters if the sample is restricted to domestic investors) linked these signals to equalization.25 The bases of these associations were mixed. Some said equalization indicated Canada’s commitment to placing all provinces on “equal footing.” Others characterized it as a “permanent” or “perpetual” pattern of bailouts that

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basically precludes a legitimate default threat. The latter comments stretch the definition of a bailout as I defined it (I asked about bailouts for provinces on the “verge of default,” not patterns of ongoing support). Investors’ usage was, however, consistent with definitions commonly employed in the literature.26 I do not wish to exaggerate equalization’s importance. The economic and financial implications of default were clearly foremost on interviewees’ minds. And equalization plays a bigger role in countries like Germany where its effects are more explicit and pronounced. Nonetheless, it is notable, in light of conventional wisdom, that Canada’s transfer system exerts a positive effect at all.

market discipline and the new classic federalism The message thus far is that provincial borrowers are not, in the minds of creditors, alone. They borrow in the shadow of an implicit guarantor. But an interesting question is whether expectations vary with shifts in the partisanship or policies of the federal government. Recent developments in fiscal federal relations provide an opportunity to explore this possibility. The Harper Conservatives have pursued a policy of “open federalism” aimed at limiting the federal spending power, clarifying the roles and responsibilities of each level of government, and respecting provinces’ constitutionally defined jurisdictions. These measures represent a clear shift, in rhetoric at least,27 towards a classical or market-preserving model of federalism,28 a key feature of which is an implicit no-bailout guarantee. Have these developments dampened bailout expectations? Remarkably, only one of the investors interviewed said they had. The remaining 17 considered them largely irrelevant. Several investors suggested the Conservatives might insist on stiffer conditions for bailout recipients, but the consensus, if only implicit, was that bailout commitments transcend party lines: The Conservatives “might impose more restrictions or more austerity, but ultimately I think they would still have to bail them out,” argued one asset manager.29 “In my opinion, a bailout is just [not an] option and it’s irrelevant who the current political party [is] ... All parties would agree that it [is]...their role to step in and stabilize ... [that] kind of economic turmoil,” said another.30 One investor, who remarked upon Canada’s fundamentally “centrist” and “narrow political spectrum,” suggested the Conservatives might be more willing to play “hardball,” allowing provinces to go to the brink in order to exact political demands, but that a deal would nonetheless get struck.31 According to another, “The federal government has ... been a lot more hard line” in terms of giving provinces “extra funds ... But ... that’s a significant ways away from ... a province defaulting and shutting down schools and hospitals.”32 One of two American investors interviewed said the only conceivable threat to a bailout was the rise of the Canadian equivalent of the Tea Party.33

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The Conservatives’ potential willingness to play “hardball,” as one investor puts it, is not necessarily inconsequential. Late bailouts undermine provincial finances in the short term, inducing investors to sell provincial bonds to avoid mark-to-market losses.34 This selling occurs even if all investors assign zero probability of default, because they worry about other investors, whose beliefs they cannot know for certain, selling (and thereby devaluing) provincial securities. The result may be significant spread widening. But these concerns are less likely to affect spreads in the current environment. I briefly touch on other issues raised by interview participants. Not all of these were addressed systematically. The following comments should not, therefore, be interpreted as systematic causes of beliefs. They are interesting, however, and may serve as inspiration for future research. One investor said bailouts were less likely to encounter resistance in Canada’s Parliament than in the fragmented US Congress.35 References to legislative institutions were rare, but it is possible that Canada’s lack of American- or Eurozone-style gridlock helps preserve investors’ bailouts expectations. But obstacles could, acknowl­ edged some, come from extra-Parliamentary or intergovernmental sources: Western provinces might, for example, object to saving certain provinces, particularly Quebec. Other provinces might challenge the terms of their bailout deals. But judging from figure 3.5, few saw these tensions as meaningful obstacles. At most, they might delay (rather than prevent) federal support. A graver threat, suggested one astute observer, is bailout fatigue from a succession of hard-fought bailout deals.36 External aid seldom comes unconditionally: Guarantors usually demand austerity measures (i.e. spending cuts and tax increases) in return. In some cases, subnationals will have little choice but to comply. In others, they may be willing and able to resist, even if it resistance results in default. The latter behaviour seems plausible, at least, in a country like Canada, where bargaining falls to the executives of autonomous and in some cases, culturally distinct, territorial units. Undisciplined by nationally integrated party systems, legislative bargaining, or strong national identities, leaders of certain provinces may resist incursions into their fiscal sovereignty. This resistance may seem unlikely for governments on the verge of default. Yet examples of it are not difficult to find. It has been on full display in the Eurozone, where Greece has fiercely resisted the core’s fiscal dictates. It is also apparent in Spain, where Catalonia and other regions have struggled mightily with Madrid over the conditions of the country’s new regional liquidity fund. Canada also has a history of a stubborn province on the brink. In 1936, Alberta refused assistance necessary to roll over its debts when Ottawa conditioned any additional support on the establishment of a Loan Council responsible for supervising provincial borrowing. The result was Canada’s first and only example of a provincial default.37 But the circumstances leading to Alberta’s default were extreme. The interview results suggest that, perhaps barring depression-like conditions, most investors expect deals to get struck.

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conclusions: the calm before the storm? The goal of this chapter has been to determine the basis of investors’ bailout expectations, not whether these beliefs are correct (it is expectations, and not their correctness, that determine the price of credit.) Nonetheless, it is worth pondering whether lenders’ instincts are sound. The closest recent example of a provincial default came in 1993, when the Saskatchewan NDP struggled to pass an austerity budget that, if blocked, may have severed the province’s access to credit markets.38 Ottawa helped avert a crisis by changing a potash royalty clawback in the equalization formula.39 The deal, struck in secret by the federal and Saskatchewan finance ministers, gave the NDP leadership the added cash it needed to secure the budget’s passage. Some will question whether the event suggests a firm and generalized bailout commitment (the equalization reform had been under discussion for some time), but the decision’s timing is certainly suggestive. However, the Saskatchewan bailout raises an important question. If investors expected it, why did Saskatchewan and other provinces struggle to borrow? It is possible that the political and economic incentives for bailouts were weaker in the 1990s than they are today. But this conclusion is far from obvious. I propose a simpler explanation: Subnational credit conditions depend, in large measure, upon markets’ faith in the national government and currently, Canada’s instills much confidence. This has not always been so. In the mid-1990s, Ottawa ranked among the worst fiscal performers in the developed world. Its debt to GDP skyrocketed and its triple-A credit rating was lost. This had profound implications for bailout expectations, benchmark interest rates, and provincial deficits. Spanish regions face a similar, albeit much graver, predicament today. They also borrow in the shadow of an implicit guarantee, but are unable, on account of the country’s damaged credit standing, to borrow at affordable rates. Today, all is calm on the provincial credit front. Canada is in good standing with international investors and is the only G7 country with stable t­riple-A ratings with each of the major international credit rating agencies. But Ottawa’s ‘halo effect’ may be tenuous, protected as much by the (reliably?) poor performance of other countries as its own fundamentals. The national economy has grown increasingly dependent on volatile commodities, productivity levels are low, the exchange rate is uncompetitive, household debt exceeds pre-crisis American levels, and rating agencies are beginning to raise concerns about the health of the country’s banks. With a deeper domestic investor base and more sophisticated treasuries, provinces are better equipped to weather a national shock than in years past. And given Canada’s structural advantages (e.g. lack of policy gridlock, a flexible exchange rate, and control over its own currency), it is possible that any such shock will be averted. But if Canada’s relative performance does falter, it will undermine provincial credit

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conditions through multiple channels. It will increase provincial debt levels, frighten international investors, trigger transfer cuts, fuel risk aversion, raise benchmark rates, and potentially destabilize bailout beliefs. Combined with a rise in global interest rates, these conditions could give rise to a much harsher provincial credit environment.

notes 1 This research was funded by US National Science Foundation Dissertation Improvement Grant SES-1124261. Thank you to Moody’s Investors Services and CIBC World Markets for providing data; Bob Ascah and Gary Smith and the debt capital markets teams at BMO Capital Markets, CIBC World Markets, and NBF for helping to arrange interviews with institutional investors; the Ontario Financing Authority for arranging interviews with underwriters; Nicole Kalupa for research assistance; and Nils Ringe, Mark Copelovitch, Doug Brown, Tracy Beck Fenwick, Keith Banting, Richard Bird, Bob Ascah, Tom Bateman, Gerald Baier, Robert Young, and Travis Shaw for comments on previous drafts. Any errors are my own. 2 J. Rodden and G. Eskeland, “Lessons and Conclusions.” In J. Rodden, G. Eskeland, and J. Litvack, eds, The Challenge of Hard Budget Constraints (MIT Press, 2003), 13. 3 Interview 19. 4 Cross-national comparisons of subnational debt levels are complicated by variations in national accounting standards, but for rough comparisons of individual provincial and state net tax-supported debt-to-GDP ratios, see recent editions of Moody’s annual State Debt Medians Report and Moody’s Statistical Handbook: Non-U.S. Regional and Local Governments. For ratios that incorporate states’ unfunded pension liabilities, see Combining Debt and Pension Liabilities of U.S. States Enhances Comparability, also by Moody’s. 5 J. Rodden, Hamilton’s Paradox: The Promise and Peril of Fiscal Federalism (Cambridge University Press, 2006). 6 Ibid. 7 C. Sancak, L. Liu, and T. Nakata, “Canada: A Success Story.” In P. Mauro, ed., Chipping Away at Public Debt: Sources of Failure and Keys to Success in Fiscal Adjustment (John Wiley and Sons Inc., 2011). 8 The wide ranging variability in subnational taxing authority makes subnational revenue a better denominator for assessing debt sustainability than GDP. 9 Moody’s Investors Services, “Moody’s Statistical Handbook: Non-U.S. Regional and Local Governments,” 2012. 10 J. J. Clemens, N. Veldhuis, and M. Joffe. “Ontario and California: A Fiscal Comparison,” in J. Clemens and N. Veldhuis (eds.), The State of Ontario’s Indebtedness: Warning Signs to Act (The Fraser Institute, 2013). 11 Dominion Bond Rating Service, “Headed in the Right Direction, But It Could Be a Bumpy Ride: 2012 Federal and Provincial Government Overview,” 2012.

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45  The Provinces in the Credit Markets 12 R. McKinnon, “Market-Preserving Fiscal Federalism in the American Monetary Union.” In M. Blejer and T. Ter-Minassian, eds, Macroeconomic Dimensions of Public Finance (Routledge, 1997). Rodden, Hamilton’s Paradox, 2006. 13 For a recent literature review, see K. Hanniman, “Fiscal Federalism and Market Discipline: The Political Foundations of Subnational Default Risk,” Working paper 2013. 14 McKinnon, “Market-Preserving Fiscal Federalism” 1997. Rodden, Hamilton’s Paradox 2006. 15 Rodden, Hamilton’s Paradox 2006 16 R. Bird and A. Tassonyi. “Constraining Subnational Fiscal Behavior in Canada: Different Approaches, Similar Results?” in J. Rodden, G. Eskeland and J. Litvack (eds.), The Challenge of Hard Budget Constraints (MIT Press, 2003), 4. 17 Hanniman, Working paper, 2013 18 R. McKinnon and T. Nechbya. “Competition in Federal Systems: The Role of Political and Financial Constraints,” in J. Ferejohn, and B. Weingast (eds.), The New Federalism: Can the States be Trusted? (Hoover Institution Press, 1997), 3. 19 Rodden, Hamilton’s Paradox 2006 20 J. MacKinnon, Minding the Public Purse (McGill-Queen’s University Press, 2003). 21 Kyle Hanniman, Booms, Busts, and Bailouts: Fiscal Federalism, Sovereign Risk, and Subnational Credit. PhD Dissertation, University of Wisconsin-Madison, 2013. 22 M. Joffe, “Provincial Solvency and Federal Obligations,” MacDonald-Laurier Institute, 2012. [available online] http://www.macdonaldlaurier.ca/. Other recent empirical studies have also suggested this possibility: S. Landon and C. Smith, “Government Debt Spillovers in a Monetary Union.” North American Journal of Economics and Finance, 18, (2), 2007: 135–54. V. Galvani and A. Behnamian, “A Comparative Analysis of the Returns on Federal and Provincial Bonds.” University of Alberta, Department of Economics Working Paper 2009–7. 23 R. Kneebone and K. McKenzie, Past In(Discretions): Canadian Federal and Provincial Fiscal Policy (University of Toronto Press, 1999). 24 Provinces’ dependence on domestic finance is considerably higher than in the 1990s, when a much larger share came from New York. 25 Equalization and economic externalities were not the only factors on investors’ minds. Several, for example, highlighted provinces’ provision of sensitive social services, including education and healthcare (see Hanniman, Booms, Busts, and Bailouts). 26 See Hanniman, Working Paper, 2013 for further details. 27 Not all scholars consider these developments significant and some claim intergovernmental relations have become more (not less) entangled in recent years. For a review of competing perspectives, see J. Bickerton, “Deconstructing the New Federalism.” Canadian Political Science Review, 4, (2–3), 2010: 56–72. 28 A. Harmes, “The Political Economy of Open Federalism.” Canadian Journal of Political Science, 40 (2), 2007: 417–37. 29 Interview 15.

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46  Kyle Hanniman 30 31 32 33 34 35 36 37

Interview 8. Interview 6. Interview 13. Interview 4. Market-to-market value refers to value based on prevailing market prices. Interview 9. Interview 8. R. Ascah, Politics and Public Debt: The Dominion, the Banks and Alberta’s Social Credit (University of Alberta Press, 1999). 38 MacKinnon, Minding the Public Purse. 39 Ibid., 122

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4 The Conservative 10-Year Canada Health Transfer Plan: Another Fix for a Generation? gregory p. marchildon and haizhen mou

introduction In 2003, just months after the delivery of the Royal Commission on the Future of Health Care in Canada under the direction of Roy Romanow, and a Senate Committee on the federal role in health care chaired by Michael Kirby, the Prime Minister and thirteen provincial and territorial ministers signed the Accord on Health Care Renewal. Following this Accord, the federal government divided the Canada Health and Social Transfer (CHST) into two transfers: the Canada Health Transfer (CHT) and the Canada Social Transfer (CST), effective April 1, 2004.1 Despite Romanow’s recommendation in favour of a redesigned transfer that would increase federal-provincial accountability in the financing of Medicare and strengthen the conditionality of the Canada Health Act, the design of the two new transfers achieved neither goal. Beyond the token change of earmarking a transfer to provincial health expenditures, the CHT was no more accountable to governments and the general public than the CHST. In particular, no explicit connection was made between the federal health transfer and the sub-category of provincial health spending governed by the five criteria of the Canada Health Act, a linkage that was also missing in the CHST. What was not discussed at the time was the linkage between the CHT and one other key federal transfer that a number of provincial governments rely upon to fund their health expenditures – Equalization. As the Constitution Act (1982) makes clear, provinces are not only expected to deliver universal hospital and medical care services according to the five criteria of the Canada Health Act, it is also assumed that they will be able to deliver reasonably c­ omparable

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48  Gregory P. Marchildon and Haizhen Mou

health services at reasonably comparable tax levels, an objective only made possible by federal equalization payments to less prosperous provinces. The 2003 Accord was quickly followed up by yet another agreement on health care. During the federal election in 2004, Liberal Prime Minister Paul Martin announced a health care plan that would address public concerns and reduce both fiscal and political uncertainty. It was called “A Fix for a Generation,” a phrase that would endure well beyond the election.2 Shortly after the election, Martin called for a First Ministers’ Meeting with the premiers that he hoped would finally bring to an end to years of federalprovincial wrangling on federal health transfers. On September 16, 2004, following an intense period of intergovernmental negotiations, A 10-Year Plan to Strengthen Health Care was produced.3 In response to years of complaints about insufficient and unpredictable federal health transfers, the federal government committed itself to increase the cash portion of the CHT by 6% annually from 2006–07 to 2013–14. This change restored long-term predictability in terms of annual increases – albeit at a level costly to the federal treasury. At the same time, to achieve some pan-Canadian direction on health reform, the federal government created a temporary (five-year) Health Reform Transfer of $16 billion to accelerate changes in priority areas, including primary care, home care and catastrophic drug coverage.4 Although it received virtually no attention when the 10-Year Plan was announced, an element of equalization was built into the CHT, a carryover from the predecessor block transfers. The cash portion was adjusted according to provincial tax capacity such that lower-income provinces with less tax capacity received a larger cash portion relative to higher-income provinces with greater tax capacity. As a consequence, “have-not” provinces were entitled to receive their “normal” cash transfer based on the national average of tax capacity, while wealthy provinces, most notably Alberta and Ontario, received far less than the “normal” cash transfer because of their robust tax capacity. As the anniversary date for the 10-Year Plan approached, there was much discussion in the media, the general public and provincial governments about when a first ministers’ meeting would be held. Many questions were asked. How would the federal Conservative government under Stephen Harper, finally with a majority government as of the election of May 2, 2011, put its distinctive stamp on health care? Would the escalator formula be changed? Might the linkage between the transfer and certain health reform directions be strengthened or weakened? Would these changes in aggregate constitute the new Conservative fix for a generation? In December 2011, the federal government surprised the country with a unilateral decision to change the CHT. The decision was made without calling a First Ministers’ Meeting and without consultation with the premiers. Much

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49  The Conservative 10-Year Canada Health Transfer Plan

of the subsequent commentary has focused on process but the purpose of this chapter is to address the substance of the changes made by the Harper government. In particular, this chapter addresses the underlying policy nature of the Harper CHT, the distributional impact on the provinces of the Harper CHT compared to the Martin CHT, and the relationship between the CHT and Equalization (see also Appendix 1).

the harper cht: what does it change? In 2006, following the election defeat of the Martin Liberals, the Conservative minority government introduced its policy of “open federalism” and expressed its desire to have the provinces take more responsibility and accountability for health care. Although the terms of the 10-Year Plan were respected, the Harper government chafed at the continuing fiscal obligation imposed by the 6% escalator in the agreement. In addition, there were behind the scenes arguments by a few provincial governments, most notably Alberta, that equalization should be eliminated from the CHT. On December 19, 2011, the minister of finance announced unilateral changes to the cht’s residual equalization at the expiry of the Martin 10-year Plan and reduce the annual escalator. At the time, the change that received most attention was the decision to replace the 6% annual escalator with a formula linked to economic growth. In particular, the federal government linked increases in the CHT to a three-year moving average of nominal gross domestic product (GDP) growth rate, with a floor of 3% per year. However, this change will only be introduced in 2017–18, until which time the 6% annual escalator remains in place. A potentially more important change is the replacement of the previously “equalized” CHT formula with a pure per capita formula, a change that fundamentally alters the distribution of the transfer among provinces. Moreover, this new CHT allocation formula will be introduced in 2014–15, three years before the 3% escalator is implemented. The Harper CHT itself is not slated for review until 2024. Do these two long-term changes, the linkage of the escalator to economic growth beginning in 2017–18 and the introduction of a pure per capita formula in 2014–15, constitute the real Conservative fix for a generation? Do these adjustments herald a rebalancing of fiscal resources in the federation, both between the federal and provincial governments, and among the provincial governments? To address these questions, we will discuss the distributional impact of the per capita formula, the fiscal impact of the new formula for CHT on the fiscal positions of both the federal and provincial governments, and the implication of the new CHT for Equalization. Based on these findings, we will then speculate on the direction of future health care reforms in the provinces, within the new federal-provincial relationship defined by the CHT and the other federal transfer programs.

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50  Gregory P. Marchildon and Haizhen Mou Figure 4.1 Total amount of major federal transfers (millions of dollars), 2005–2012

Source: Department of Finance, “Federal Support to Provinces and Territories”. See http://www.fin.gc.ca/ fedprov/mtp-eng.asp.

The CHT in the Context of the CST and Equalization Although the CHT is the single largest transfer to the provinces from the Government of Canada, what really matters to provincial decision-makers is the total amount of federal transfers they receive to supplement their ownsource revenues. All three major transfers flow into the general revenue funds (GRF) of the provincial governments. While on a theoretical level, the CHT is earmarked for provincial health spending, in reality CHT funds are pooled with, and treated the same as, provincial own-source revenues before they are finally allocated to provincial expenditures, including health. Before moving to the analysis of the new formula for CHT, we describe both of the other major federal transfers, the Canada Social Transfer (CST) and Equalization, and their relationship to the CHT. In 2012–13, Finance Canada estimates, the provinces will receive $56  billion cash through major federal transfers, of which CHT accounts for 51.15% of the total major transfers, CST for 21.24%, and equalization for 27.61%. Therefore, the CHT accounts for just over one-half of federal transfers to the provinces, a proportion that is greater than the amount contributed by the two other transfers combined and a share that has grown since the 10-Year Plan was implemented (see Figures 4.1 and 4.2). The CST supports specific policy areas such as post-secondary education, social assistance and social services, early childhood development and childcare. In 2007, the CST discontinued providing equalized payments, and moved to a pure per capita cash formula, with a 3% legislated annual escalator to 2024. In return, the provinces have to meet two conditions: (1) spend the CST transfer on eligible policy areas; and (2) not impose residential requirements for social assistance.

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51  The Conservative 10-Year Canada Health Transfer Plan Figure 4.2 Share of major federal transfer in total federal transfer, 2005–2012

Source: Department of Finance, “Federal Support to Provinces and Territories”. See http://www.fin.gc.ca/ fedprov/mtp-eng.asp.

In contrast, the program of Equalization (with a capitalized E so that it is distinguished from other “equalization” policies such as the one previously embedded in the CHT) provides unconditional transfers to the provinces. The purpose of Equalization, which was given constitutional status in 1982, is to enable less prosperous provinces to provide their residents with public services that are reasonably comparable to those in other provinces, at reasonably comparable levels of taxation. Equalization will continue to grow at a threeyear moving average of nominal GDP growth rate with a five-year review of the program coming due in 2014. While the medium-term future of the CHT and CST are now known, the future of Equalization, at least in terms of the formula and quantum, is unknown. This question of Equalization’s renewal in 2014 is important because of the Harper government’s decision to remove any equalizing effect from the CST and the CHT. As a consequence, the full weight of compensating provinces with low fiscal capacity to deliver social programs, the most expensive of which are health care, falls solely on one transfer program – Equalization. From the perspective of the current Harper Government, the benefit of restricting equalization to the Equalization program is that this change allows provinces greater responsibility for deciding their own tax and expenditure policy, and minimizes the federal government’s influence in shaping provincial health spending, cost containment and reform priorities.5 However, under the new CHT, lower-income provinces will have less fiscal resources with which to fund health care programs and services, a result that can now only be countervailed by modifications to Equalization.

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52  Gregory P. Marchildon and Haizhen Mou

the distributional impact of the harper cht Without a doubt, the new pure per capita CHT formula will increase total health transfers to wealthy provinces like Alberta and decrease total health transfers to lower-income provinces such as Nova Scotia. Our purpose here is to quantify the extent of this distributional shift for all provinces. We also ask whether this change will produce a shift in the fiscal position of the provinces, in aggregate, relative to the federal government. Aside from the issues raised in the introduction, the Martin CHT suffered from two problems that have been addressed, at least in part, by the Harper CHT. First, although there is no way to be certain, the 6% automatic escalator legislated in the “10-Year Plan” may have encouraged inflationary health spending by provincial governments.6 If the Martin CHT formula had continued, it would have outpaced the projected annual nominal growth rate of provincial health expenditures (around 5.2% from 2014–15 to 2024–25), producing a fiscal burden on the federal government unwarranted by provincial spending needs in this one area. By linking the CHT’s automatic escalator to a three-year moving average of nominal GDP growth rate (3.9% on average from 2017–18 to 2024–25), the new CHT corrects for the excessive transfer problem associated with the Martin CHT. A second less noticeable problem with the Martin CHT was the redistribution pattern created by continuing to embed an element of equalization in the formula. While the basic idea of some kind of redistribution mechanism from “have” to “have-not” provinces under the CHT can certainly be justified in policy terms, the manner in which this was actually done produced anomalies. Under the Martin formula, provinces and territories received equal per capita total CHT transfer, which included a tax point transfer and a cash transfer. The CHT tax point transfer is a fixed portion of the income tax capacity of a province subjected to equalization, while the CHT cash transfer is calculated as the difference between the total CHT transfer and the equalized tax point transfer of the province. Given an equal per capita total CHT ($1,355 in 2014–15), the higher the equalized tax point transfer of a province, the lower its CHT cash transfer. Consequently, there was a redistributional component in the Martin formula for CHT; wealthier provinces subsidized the poorer provinces through a redistributive CHT: wealthier provinces received lower per capita payout while poorer provinces received higher per capita payouts. However, under the Martin formula, the cash transfer received by a province depends not only on its income tax point transfer, but also the province’s status as “have” or “have-not” province under Equalization, with “have-not” provinces defined as those that have a lower than national average total tax capacity. For example, based on existing forecasts for 2014–15 (the first year in which the equalization component is to be dropped from the CHT), the “havenot” provinces will include Manitoba, Ontario, Quebec, New Brunswick,

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53  The Conservative 10-Year Canada Health Transfer Plan

Nova Scotia, and Prince Edward Island. When computing CHT cash transfer, the income tax point transfers of these provinces are firstly equalized up or down (in the case of Ontario) to the national average, and CHT cash transfers are then calculated as a residual of the equalized tax point transfers. Under this formula, all the have-not provinces receive a CHT cash transfer of $923 per capita (see Figure 4.3). In contrast, the income tax point transfers of “have” provinces are left intact in the calculation, irrespective of how high or how low these income tax point transfers are relative to the national average. As a result, Alberta would receive a reduced CHT per capita ($664) relative to the “normal” rate, whereas British Columbia and Newfoundland and Labrador would become the largest winners. This shift is a consequence of the fact that these two provinces have higher than national average levels of total tax capacity but lower than national average levels of income tax capacity and income tax point transfer ($400 and $349 per capita respectively versus a national average of $432). Interestingly, because these low income tax point transfers are not equalized up, British Columbia and Newfoundland and Labrador would receive the highest level of per capita cash transfer in the country, even higher than the “normal” rate applied to a “have-not” province ($955 and $1006 per capita respectively versus a “normal” $923). This is a “windfall” that provinces such as British Columbia and Newfoundland and Labrador will no longer receive under the Harper formulation. However, the solution chosen to address this anomaly – a straight per capita payment – also generates a windfall for Alberta. Figure 4.4 illustrates the distributional impact of the change in CHT for fiscal year 2014–15.7 As can be seen in Figure 4.4, under the Harper CHT, all provinces are losers except for Alberta, which will gain almost $954 million, or an increase of $235 per resident. In absolute terms, the most significant loser is Ontario, which loses $335 million ($24 per capita) followed by British Columbia, which drops $272 million ($56 per capita). However, on a per capita basis, Newfoundland and Labrador loses the most, at $107 per resident. We will now present two extreme but nonetheless plausible policy scenarios to determine the total amount of transfer cash that all provinces will receive from the first year that equalization is eliminated in the CHT to the year that the Harper CHT is up for review. In both scenarios, an increase or a decrease to Equalization by 3% is hypothesized, a recognition that the federal government can choose to increase or decrease Equalization in 2014. The 3% increase to Equalization in the first scenario could reflect an effort by the federal government to compensate the majority of provincial governments for their losses in eliminating equalization from the CHT in an environment of higher than anticipated economic growth. The 3% reduction to Equalization in the second scenario reflects the possibility of a major recession in Canada, perhaps triggered by a worsening global recession, and with

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Figure 4.3 The redistribution impact of Martin formula for cht, 2014–15

Source: Based on author’s calculations and data obtained from the Department of Finance’s Federal-Provincial Relations Division on May 7, 2012.

Figure 4.4 The distributional impact of the Harper and Martin formula for CHT, 2014–15

Source: Based on author’s calculations and data obtained from the Department of Finance’s Federal-Provincial Relations Division on May 7, 2012.

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55  The Conservative 10-Year Canada Health Transfer Plan Figure 4.5 Share of federal transfer in federal program expenses, 2014–15 to 2024–25

Note: “EQ” means the Equalization program. The projected federal program expenses are from Office of the Parliamentary Budget Officer, private communication. In its federal budget 2012, the Harper government promised to introduce “legislation to ensure that the transition (to the new cht formula) is fiscally responsible by providing protection so that no province or territory will receive less than its 2013–14 cht cash allocation in subsequent years as a result of the move to equal per capita cash”. This protection payment, the off-shore accords, and other protection payments were not taken into account in the projection for cht.

it a sudden d ­ ecline in federal revenues. We will compare these two scenarios to the Harper CHT formula (the status quo) where the growth in Equalization is pegged to the historical three-year moving average of nominal GDP, and the previous Martin CHT formula with the original annual escalator of 6% (the status quo ex ante). Figure  4.5 shows that total federal transfers under both the Harper CHT and scenario #2 produce a decreasing fiscal burden on the federal government over time – the former because of a lower escalator for CHT after 2016–17, and the latter because of the decrease in Equalization combined with the lowered CHT escalator. The federal transfers under the old Martin CHT and scenario #1, however, imply an increasing overall fiscal burden on Ottawa over time. Compared with the old Martin CHT, the Harper CHT in the second scenario leads to respective savings of 2.1% and 3.8% of federal program expense by 2024–25, a fiscal burden that is shifted to the provincial governments. During the ten-year period, the program expenses for the ten provincial governments as a whole are projected to grow at a nominal rate of 4.32% annually, due to a combination of factors such as income growth, population aging, and enrichment of the programs (please see the Appendix A for the scope and projection of program expenses). However, total federal transfers proposed by the Harper government are projected to grow at 3.95% annually, resulting in a fiscal gap that the provinces will have to meet. In particular,

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56  Gregory P. Marchildon and Haizhen Mou Figure 4.6 Share of federal transfer in provincial program expenses, 2014–15 to 2024–25

Source: Based on author’s calculations. See Appendix 1 for projection methodology and assumptions.

health spending is forecast to grow at an average nominal rate of 5.20%, outpacing the growth of the new CHT by almost 1% annually. Figure 4.6 shows that due to this unevenness the federal contribution to provincial program expenses under the Harper CHT will be 1.5% ($8.6 billion) lower than under the old Martin CHT by 2024–25. If Equalization payment is decreased after 2014–15, the difference will reach 2.7% of provincial program expenses in 2024–25, the equivalent of $15.6 billion. A comparison of Figure 4.5 and Figure 4.6 suggests that if no change occurs to Equalization in 2014–15, some of the fiscal burden of funding health care and other social programs will inevitably shift from Ottawa to the provinces. The fiscal position of Ottawa will improve while the fiscal position of the provincial governments (as a whole) will deteriorate. Thus, provincial governments will likely put some pressure on the federal government to revise the Equalization escalator in 2014–15 in order to restore the federal contribution level and to ensure comparable services to be provided at comparable tax rates across the ten provinces. As shown in Figures 4.5 and 4.6, if the quantum of Equalization is increased by 3% on top of the nominal GDP growth rate, then by 2024–25, the federal contribution to provincial program expense will approximate the contribution ratio under the old Martin CHT in 2024–25 (17.7% vs. 17.6%).8 How will this change in CHT and the possible changes to Equalization affect the fiscal position of each province? Table 4.1 shows the average share of total federal transfers received by a province in its total program expenditure, under the two Equalization scenarios compared to the the Harper and Martin CHT formulas for 2014–15.

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57  The Conservative 10-Year Canada Health Transfer Plan Table 4.1 Share of federal transfers in provincial program expenses by province, 2014–15 to 2024–25 Province Martin Harper Difference Scenario #1: ­between Increase EQ Harper and Martin BC AB SK MB ON QC NB NS PE NL

20.5% 16.2% 14.7% 30.2% 26.5% 25.8% 32.3% 30.2% 36.0% 12.4%

19.1% 17.5% 14.1% 29.4% 25.5% 25.1% 31.6% 29.4% 35.3% 11.3%

-1.4% 1.3% -0.6% -0.8% -1.0% -0.8% -0.7% -0.8% -0.7% -1.1%

19.1% 17.5% 14.1% 30.6% 27.0% 26.2% 32.7% 30.6% 36.4% 11.3%

Difference Scenario #2: Difference between Decrease EQ between Scenario #1 Scenario #2 and Harper and Harper 0.0% 0.0% 0.0% 1.2% 1.5% 1.2% 1.1% 1.2% 1.1% 0.0%

19.1% 17.5% 14.1% 28.3% 24.3% 24.1% 30.7% 28.4% 34.4% 11.3%

0.0% 0.0% 0.0% -1.0% -1.2% -1.0% -0.9% -1.0% -0.9% 0.0%

As shown in Table 4.1, federal transfers under the Harper CHT will contribute an additional 1.3% to the Alberta government’s program expenses compared to the old Martin CHT, while federal contribution to all the other provinces will decrease. The fiscal positions of the “have” provinces do not change under the two proposed Equalization scenarios, but the fiscal positions of the “have-not” provinces depend to a great deal on changes to Equalization. If no change occurs to Equalization after 2014–15, the “have-not” provinces will either have to raise more own-source revenues, cut spending, deficit finance or do some combination of the three, in order to make up for the reduction in federal contributions to provincial program expenses. However, if Equalization should increase by 3% to compensate for the reductions under the Harper CHT, the federal share of provincial program expenses for “have-not” provinces would increase by 1.1–1.5%, an amount that would compensate, and more, for the reductions under the Harper CHT. While this scenario may not seem likely under the current federal administration, it could become part of an opposition party’s agenda to address regional inequities in the next federal election, an agenda that would likely be supported by a significant number of provincial governments. In contrast, if Equalization should decrease by 3% in response to a major recession in Canada, then the federal share of provincial program expenses for “have-not” provinces would fall by 0.9–1.2%. This scenario reflects the real possibility of a worsening global economic crisis. If it were to occur, any federal government, irrespective of its ideological preferences, would face more difficult tradeoffs in its budget decisions. As the CHST experience of the mid-1990s

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58  Gregory P. Marchildon and Haizhen Mou Table 4.2 Evaluation of policy alternatives on federal transfers Martin Ex Ante Criteria

S

Policy Clarity Policy Transparency Degree of Redistribution Administration Ease

Harper Status Quo W

S

 

 







W



Scenario #1: Increase EQ S

   

W

Scenario #2: Decrease EQ S

W

   

Note: “S” represents strength and “W” represents weakness.

demonstrates, it is often easier for a government to reduce transfers to other governments and third parties than to cut direct program expenditures. In such a scenario, the revision of Equalization (slated for 2014) would be the first major decision to face the federal government thereby opening the door for a downward revision.

evaluation of the policy options Having carried out an impact analysis, we now want to evaluate the policy options against the criteria of policy clarity, transparency, degree of redistribution, and administrative ease. These are all factors that governments in Canada should consider as the federal transfer system is reshaped in the future although the relative weight provincial governments may place on individual factors will vary depending on ideological orientation, existing tax capacity, and the relative benefits derived (or not) from redistribution. Comparing the two existing formulas for the CHT, the Harper CHT has the greater policy clarity, policy transparency, and is easier to administer. On the other hand, the Martin CHT formula is more redistributive. In one sense, the Harper CHT formula is preferred to the Martin CHT because it serves the main purpose of CHT better. The historical policy objective of the CHT and previous health care transfers is to ensure the provinces and territories comply with the five principles laid out by the Canada Health Act, something that all federal administrations have been lax in ensuring since at least the mid-1990s. Martin’s CHT gets this policy purpose confused with a redistributive component, one which, we would argue, is more ably achieved through Equalization. At the same time, the de facto reduction in equalization through the Harper CHT implies that Equalization can be increased to compensate for its loss in the CHT. There should be more rather than less emphasis on the original policy purpose of the health transfer, and the federal government

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59  The Conservative 10-Year Canada Health Transfer Plan Table 4.3 Assumptions for Components of equation (2) GDP t/GDP t-1

weights ωi

Age groups to be included for Popi

Health

Provincial nominal GDP growth rate

Per capita health expenditure of age-group i / the population average

All age groups

Education

Provincial nominal GDP growth rate Provincial nominal GDP growth rate

Social

Enrichment Factor

+0.4% Age 5-24

1

0 Age 15-64

1

0

Note: Heath expenditure per capita by age group is from Figure 2-2 in Canadian Institute for Health Information, “National Health Expenditure Trends, 1975 to 2010.” 2010. http://secure.cihi.ca/cihiweb/ products/NHEX_Trends_Report_2010_final_ENG_web.pdf Other program spending is assumed to grow in line with provincial nominal GDP.

should be held to account by Canadians for achieving (or not achieving) this main policy objective. Using the CHT to achieve other policy purposes only serves to confuse matters, while the equalization objective should be achieved through the main policy tool – Equalization. However, the Martin CHT did provide more cash to low-income provinces relative to high-income provinces, thereby helping ensure comparable health services were provided at comparable tax rates across Canada. Given the Conservative government’s elimination of a degree of equalization in the CHT, the federal government – either this administration or a future administration – should seriously consider increasing Equalization to compensate for the loss of equalization in the CHT. In one sense, with the changes to the CHT and the impending revision of Equalization in 2014, the table has been set for a clarification of the policy purposes of CHT and Equalization. While most provincial governments seem to welcome the Harper government’s decision to leave health care in the hands of the provinces, they will nonetheless be unhappy about the Harper CHT since all (except for Alberta) are losers under the new formula.9 In addition to a lower CHT automatic escalator leaving a fiscal gap for all provinces, the fiscal gaps are uneven across provinces (see Table 4.1). This result alone should create some momentum for a recalibration of federal transfers. Our own preference is to keep the Harper CHT but increase the growth rate of Equalization by 3%. As shown in Figure 4.6, this scenario maintains the same level of federal contribution to provincial program expenses as a whole (as if under the old Martin formula), but achieves more regional equity by enhancing the redistributive role of Equalization. This result also preserves a higher degree of policy transparency and clarity, in terms of the policy

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60  Gregory P. Marchildon and Haizhen Mou

­ urpose. From an administrative standpoint, it is relatively easy to implement p and administer. While it involves a slightly higher fiscal burden on the federal government in the short run, it will also generate the least provincial opposition due to its redistributive impact.

conclusions This analysis has set out, in the starkest terms possible, the policy options open to this and future federal governments. Transfers are about more than money. They should reflect some of the deepest held values of any national community. In a federation, central government transfers should be used to balance the diversity that is the real advantage of a federal structure, with the necessary unity required to remain a country with a common citizenship. We think the Conservative government’s elimination of a degree of equalization in the CHT is on the right track to reinstall the policy purpose of CHT but the federal government should seriously consider increasing Equalization to compensate for the loss of equalization in the CHT when the opportunity comes in 2014. Our proposed transfer package, including the Harper CHT formula and the Equalization increased by 3%, should have popular support. This transfer package as a whole reflects a commitment to equity and a set of national principles – from the universality and portability criteria in the Canada Health Act to the policy objective of Equalization in the Constitution Act, 1982 – that are consistent with the history of Canada and the still current values of a majority of Canadians.

appendix 1 summary of data sources, projection methodologies and assumptions The baseline amounts for major transfers and tax bases are from Department of Finance’s first estimate for major transfers for 2012-13. Most of the projection methodology and assumptions are from Chapter 2 in Office of the Parliamentary Budget Officer (pbo), Fiscal Sustainability Report 2011. 29  September 2011: http://www.parl.gc.ca/PBO-DPB/documents/FSR_2011.pdf The main projection methodology and assumptions are listed below. 1.  Demographic Assumptions Projected population for each province and for the country is from Statistics Canada cansim Table 052-0005 Projected population, by projection scenario, sex and age group as of July 1, Canada, provinces and territories, annual. We used estimated population under projection scenario M2: medium-growth, 2006 to 2008 trends.

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61  The Conservative 10-Year Canada Health Transfer Plan

2.  Economic Assumptions Nominal gdp growth rates of Canada for 2012 to 2016 are from “Table 2.1 Average Private Sector Forecasts” in federal budget 2012: 4.6% for 2012–13, 4.4% for 2013–14, 4.6% for 2014–15, 4.4% for 2015–16, and 4.2% for 2016–17. Nominal gdp growth rates of Canada for 2017–18 to 2024–25 are assumed to be 3.7%, the same as in pbo “Renewing the Canada Health Transfer: Implications for Federal and Provincial-Territorial Fiscal Sustainability,” 12  January 2012. http://www.parl.gc.ca/PBO-DPB/documents/Renewing_ CHT.pdf. These annual gdp growth rate are used to calculate past three-year moving average of gdp growth rate. Provincial nominal gdp growth rates are the growth rates of gdp at market price (current $) for each province. These data are from Table 2 to Table 11 of The Conference Board of Canada, “Provincial Outlook Spring 2012 – LongTerm Economic Forecast,” published in May 2012. http://www.conference board.ca/e-library/abstract.aspx?did=4835 3.  Provincial Revenue Projection Assumptions For the purpose of calculating cht and Equalization, the tax bases of a province are assumed to grow with the annual nominal gdp growth rate of the province. Total own-source revenue of a province is also assumed to grow with annual nominal gdp growth rate of the province. 4.  Provincial Expenditure Projection Assumptions The projected federal total program expenses are from pbo. The projected provincial program expense is the sum of health, education, social service, and other program spending. The baseline data for total expenditure, health expenditure, education expenditure, and social service expenditure are from cansim Table 385–0002 Federal, provincial and territorial general government revenue and expenditures, for fiscal year ending March 31, annual (dollars × 1,000,000), 2009–2010. Baseline “provincial program expense” in 2009–2010 = total expenditure – debt charges; Baseline “other program spending” in 2009–2010 = program expense – health – education -social service. Projected provincial health, education and social service spending are calculated according to the formula on Page 8 of pbo’s Fiscal Sustainability Report 2011. ⎛ GDPt ⎞ ⎛ Aget ⎞ Expendituret = Expendituret −1 × ⎜ ⎟× ⎜ ⎟ × (1 + EnrichmentFactor ) ⎝ GDPt −1 ⎠ ⎝ Aget −1 ⎠

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(1)

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62  Gregory P. Marchildon and Haizhen Mou

where Age is constructed as an index of the weighted (with weights ωi) shares of age groups (Popi) in the total population (Pop).

⎡ ⎛ Popi ,t ⎞⎤ Aget = ∑⎢ωi × ⎜ ⎟⎥ ⎝ Popt ⎠⎦ i ⎣



(2)

Table 4.3 lists the assumptions for the components of equation (2), which are also pbo’s assumptions.

notes 1 Tom McIntosh, “Intergovernmental Relations, Social Policy and Federal Transfers after Romanow,” Canadian Public Administration, 47(2004), 27–51. 2 Liberal Party of Canada. “A Fix for a Generation: The Paul Martin Plan for Better Health Care,” 2004. http://www.cbc.ca/canadavotes2004/pdfplatforms/ healthcare_en.pdf 3 CICS, A 10-Year Plan to Strengthen Health Care. Ottawa, Canadian Intergovernmental Conference Secretariat. 16 September 2004. 4 Starting in 2005–2006, the Health Reform Transfer was integrated into the CHT. See Shahrzad Mobasher Fard, “The Canada Health Transfer”. Social Affairs Division, Library of Parliament. 15 January 2009. http://www.parl.gc.ca/content/ LOP/ResearchPublications/prb0852-e.htm Accessed on April 16, 2012. 5 See Alex S. MacNevin, The Canadian Federal-Provincial Equalization Regime: An Assessment, Canadian Tax Paper, No. 109. 2004. Toronto: Canadian Tax Foundation, and Ken Boessenkool, “Equalization and the Fiscal Imbalance: Options for Moving Forward,” Canada West Foundation, February 2007. http:// cwf.ca/pdf-docs/publications/February2007-Equalization-and-the-FiscalImbalance-Options-for-Moving-Forward.pdf 6 See Ronald Kneebone, “How You Pay Determines What You Get: Alternative Financing Options as A Determinant of Publicly Funded Health Care in Canada.” The School of Public Policy SPP Research Papers, University of Calgary, 5(21), June 2012. http://policyschool.ucalgary.ca/sites/default/files/research/rkneebone-althealthpayfinal.pdf 7 For a similar and very useful analysis of the distributional effect of the new CHT, see James Gauthier, “The Canada Health Transfer: Changes to Provincial Allocations.” Social Affairs Division, Parliament of Canada. 25 February 2011. http://www.parl.gc.ca/Content/LOP/ResearchPublications/2011-02-e.htm 8 Figure 4.6 shows that the gap between scenario #1 and the Martin scenario becomes smaller over time after 2016–17. This is because projected nominal GDP growth rate of Canada decreases from 4.4% to 3.7% from 2017–18 to 2024–25, leading to a smaller increase in Equalization under scenario #1.

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63  The Conservative 10-Year Canada Health Transfer Plan 9 While the Harper government still pays lip service to the Canada Health Act, it seems to put far more emphasis on provincial jurisdiction: “This growth path demonstrates the Government’s commitment to a publicly funded, universally accessible health care system that respects the principles of the Canada Health Act and recognizes that health care is an area of provincial jurisdiction … This health care funding will provide certainty and stability to the provinces and territories as they take action to put their respective health care systems on sustainable spending paths.” See page 191 in the federal government’s budget 2012. Department of Finance, “Jobs Growth and Long-Term Prosperity – Economic Action Plan 2012.” 29 March 2012. http://www.budget.gc.ca/2012/plan/pdf/ Plan2012-eng.pdf.

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5 Blue Rinse: Harper’s Treatment of Old Age Security and Other Elderly Benefits michael j. prince

introduction This chapter assesses the Conservatives’ policy record on elderly tax and transfer benefits over the Stephen Harper years cast in terms of blue rinse politics.1 It focuses particularly on recently announced changes to the Old Age Security (OAS), Guaranteed Income Supplement (GIS), and the Allowance and Allowance for Survivor programs which account for $42 billion in expenditures in 2013–14. As well the chapter considers changes on the tax side to credits on old age, pension income, retirement plans and savings. The Harper treatment of elderly benefits involves not just fiscal measures but also a recalibration of the standard retirement age, a reframing of the ­image of seniors as a group in Canadian society, and thus an alteration to the social rights of citizenship of older Canadians. The debate over OAS is also  a debate over the kind of political community in which we live and want  to live. Like aging and being elderly, senior citizenship is not a universal identity nor is it an experience similarly shared by all older people. The argument of this chapter is that recent changes to federal elderly benefits are further fragmenting the status of senior citizenship in Canada and stratifying current pensioners from future seniors. The Harper treatment of  OAS program benefits also reveals an exercise of executive dominance where policy making was driven by the prime minister and central agencies and noticeably less so by the social department responsible for these programs.

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65  Harper, Old Age Security, and Other Elderly Benefits

blue rinse politics and policy making As a sphere of public affairs, blue rinse politics concerns, firstly, past and current seniors, population aging and future seniors and thus intergenerational relationships; secondly, the actuarial and gender reality that most seniors are women, many of whom live alone; and, thirdly, ideas and beliefs in public provision commonly associated with conservatism and liberalism and occasionally with social democratic values.2 One notable feature of blue rinse politics is “grey power” – the apocryphal, the tangible and the potential clout politically of pensioners, retirees and older people more generally in regards to public policy issues. Grey power is expressed through organized groups and focused campaigns as well as electoral participation by older people who, as a group, are more likely to vote in Canadian elections than are younger people. Blue rinse politics encompass grey power with its constituency of current seniors as well as a wider array of age groups and accompanying socioeconomic interests. As a form of governance, blue rinse policy making includes tactics for shaping issues, managing conflicts, avoiding blame, claiming political credit and deploying relations of power – practices common in other types of governance of course – applied in this area specifically both within and across generational cohorts. Blue rinse politics is not linked to a specific era in social policy, such as the golden decades of welfare state expansion or the darker years of austerity and welfare state retrenchment. Given notions of a social contract rooted in the interrelationships of generations, as well as established programs and the presence of policy legacies and political memories by constituencies, blue rinse politics traverses specific prime ministerial eras, and involves temporal budgeting over long periods.3 Indeed, in OAS policy discourse and policy reforms, the organizing frame used by the Harper government is population aging and associated economic challenges; a demographic reductionism to justify pension retrenchment. With “the problem of the OAS” and related elderly benefits presented by Prime Minister Harper as rooted in population shifts and new demographic realities, the apparent solution was therefore constructed to be located in the age eligibility of the program.4 However, in other areas of federal elderly benefit policy, the Conservatives have operated under an inconsistent policy paradigm and have adopted a melange of program reforms with conflicting and confusing outcomes of pension winners and losers. Under the blue rinse politics practised by the Harper Conservatives the public policy image of seniors appears to be shifting. Traditionally, the image of the elderly in Canada was of low-to modest income individuals and couples; a dependent if not disadvantaged social group deserving of an array of public programs and services. Other ideas included a generally sympathetic

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66  Michael J. Prince

picture of this population group, with programs like the OAS based in part on what has been called a societal recognition argument; namely that “the elderly deserve special treatment in recognition of their long contribution to society and the economy.”5 A related image regarded seniors as an active and growing electoral constituency to be taken seriously by political parties and governments even if, for the most part, seniors were a genteel political force.6 Under the Harper Conservatives, the prime minister’s own discourse and that of other government officials on reforming the OAS present the near future elderly as a problem, a threat to the financial sustainability of income security programs and most likely to other public services. From this perspective, the increased longevity of seniors poses a risk to the public treasury for which the solution is to retrench access to federal elderly benefit programs. The recognition at work here is of a social trend not a social group; the emphasis is on population aging and the argument is now framed as the need for the elderly of the near future to contribute longer to society and the economy in order to sustain and thus deserve the OAS. Blue rinse policy making is about introducing new programs and, more likely, in a developed welfare state, formulating changes to existing programs for seniors. In the case of OAS and GIS, recent changes implemented by the Harper government were done to make elderly benefit programs appear more fiscally robust and, at the same time, the changes tend to favour those current and future seniors who are relatively better-off with middle and upperincomes at the expense of lower-income groups. In such kinds of social policy reforms, regressive effects are significant with Canadians of lower incomes bearing a proportionately larger share of the costs of reforming the OAS and GIS than well-to-do Canadians.

the harper record on elderly income and tax benefits Income maintenance for seniors and pensioners at the federal government level include a number of measures of which the focus in this chapter is on direct transfer programs of Old Age Security (OAS), Guaranteed Income Supplement (GIS), the Allowance, and the Allowance for the Survivor. The OAS is available for all but high-income Canadians 65 and older; the GIS is for low-income OAS pensioners; the Allowance is for persons aged 60 to 64 who are spouses or common-law partners of GIS pensioners; and the Allowance for the Survivor is for low-income Canadians aged 60 to 64 old who are widowed spouses or common law partners of pensioners. Collectively these transfer programs comprise the OAS system, also referred to as elderly benefits. The analysis here also looks at federal tax benefits to older persons, specifically, the personal income tax expenditures of the Age Credit, Pension Income Credit, Pension Income Splitting, and tax deductions for Registered Pension Plans

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67  Harper, Old Age Security, and Other Elderly Benefits

(RPPs) and Registered Retirement Savings Plans (RRSPs).7 Targeted tax relief to seniors has been a notable feature of Conservative policy making for the elderly, the implications of which are discussed later. The Harper government’s general preferences on retirement income policy have been to promote, through tax and regulatory measures, the role of personal savings; the private financial sector and the place of workplaces as a supplier of pensions; and, to assure the solvency and transparency of private pension plans under federal jurisdiction. In addition, on the expenditure side of this policy field, the Harper government has sought, amidst confusing mixed signals, to forestall an expansion of the Canada Pension Plan; advantageously introduced two increases to the GIS for some low-income seniors; and, while as a minority government, strategically excluded the elderly benefit transfer programs from the government’s review of departmental spending. In these respects, the Conservatives are not unlike Liberal governments of recent decades suggesting that Canada is a liberal welfare regime certainly in this policy sector. Elderly benefit policy changes introduced by minority and majority Harper governments over the years 2006 to 2013 are presented in Table 5.1. Changes have taken place both in tax expenditure measures and direct transfer programs. On the tax side, the 2006 budget doubled the Pension Income Credit’s maximum amount; increases to the Age Credit were announced in the 2007 and 2009 federal budgets, removing a number of low-income seniors from the federal tax rolls; and Pension Income Splitting was announced in the 2007 budget, allowing taxpayers to allocate up to one-half of eligible pension income to their resident spouse or common-law partner. This new measure has increased the number of seniors claiming the Pension Income Credit and consequently increased the amount of federal revenues foregone by several hundred million each taxation year.8 On the transfer side, there are two patterns of changes. One is taking away OAS program benefits from particular groups of seniors: in 2007 from a small group of immigrant seniors; in 2010 from incarcerated seniors; and, in the decision in the Budget of 2012, from future seniors aged 65 and 66. In the short-run, while these actions are more symbolic than substantive expenditure decisions, the Harper Conservatives are conveying a message of tightening the OAS program and of elaborating upon a distinction between deserving and not deserving seniors. The second pattern of change in elderly benefits is selective increases to low-income seniors through changes to the GIS: in 2008 allowing seniors with low incomes in receipt of the GIS who are in gainful employment to retain more of their benefits; and in 2011 adding a significant top-up of benefit to some GIS pensioners. The Harper government’s intended outcomes on reforms to the OAS programs is a mix of political, labour market and public finance objectives. An immediate objective was to minimize as much as possible any political backlash to restricting eligibility to the OAS, GIS and Allowance programs. In

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68  Michael J. Prince Table 5.1 Elderly benefit policy changes by Harper governments, 2006–2013 Year

Elderly Tax Measures

2006

Age Credit amount increased from maximum $3,979 in 2005 to $5,066 in 2006

2006

Pension Income Credit maximum amount doubled to $2,000

2007

Pension Income Splitting introduced Age limit for maturing rpps and rrsps raised from age 69 to 71

2008

2009

Elderly Transfer Benefits

Older immigrants subject to a sponsorship agreement who become citizens no longer entitled to receive gis or other income tested benefits until agreements end Increase in gis earnings exemption to $3,500 from $500, allowing pensioners to keep more in gis benefits while they earn income

Age Credit increased from maximum $5,276 in 2008 to $6,408 in 2009

2010

Payment of oas benefits eliminated for persons incarcerated in federal institutions for two years or more. Once agreements are ­negotiated, oas benefits will also be suspended for persons incarcerated in provincial and territorial institutions on a sentence exceeding 90 days

2011

gis increased by up to $600 for single seniors and $840 for couples

2012

Age of eligibility for oas and gis benefits to gradually increase from 65 to 67 starting in 2023, affecting anyone who is 54 years of age or older as of March 31, 2012; the age at which the Allowance and the Allowance for the Survivor to gradually increase from 60– 4 to 62–66, staring in 2023 affecting anyone who is 49 years or older as of March 31, 2012

2013

Individuals allowed to voluntarily defer oas pension beyond age 65, for up to five years, resulting in a higher annual pension

other words, how to wash out grey power, so that the Harper government would not face intense opposition and retreat on planned changes to elderly benefits, as had the Mulroney and Chretien governments. The solution was to exempt current seniors and near seniors from any changes to eligibility and to cloak the changes as a response to inevitable challenges of emerging population aging realties instead of in terms of fiscal restraint.9 Other tactics

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69  Harper, Old Age Security, and Other Elderly Benefits

the Harper government deployed for minimizing opposition and containing blame included limiting information in the 2012 Budget on the negative effects of the changes to the OAS and GIS and the Allowance programs and accentuating the positives of other elderly-related reforms like the increase to GIS in 2011 and the new flexibility in OAS to begin in 2013.Another short term goal is to preclude expansion of the CPP, to downgrade that idea on the policy agendas of provinces and social groups, by emphasizing the problem of increasing fiscal pressures and economic challenges associated with population aging and by pointing out such reform measures as introducing Pooled Registered Pension Plans and Tax-Free Savings Accounts and extending the age limit for RRSPs. A medium term objective is to encourage longer labour force attachment among older Canadians and thus raise the overall level of participation in the coming decades. In 1995 the labour force participation rate of Canadians aged 65 and higher was 6.2 per cent; in 2011 it was 11.9 per cent, and the Department of Finance projects that in 2050 it could be 16.3 per cent.10 By changing the eligibility age, a fourth and longer term objective is to slow down the annual growth rate of elderly benefit expenditures, from an average 5.6 per cent today to 3.5 percent in the late 2020s (when the youngest baby boomers will be reaching their retirement years) as well as to reduce OAS program spending as a share of GDP from 3.0 to 2.7 per cent by the late 2020s and gradually declining thereafter to 2.4 per cent by 2050.11 To cast light on who gains and who loses from the Harper reforms in this policy field , Table 5.2 identifies in qualitative terms the likely general distributional effects of changes to particular elderly income and tax benefits for lower- to moderate- and higher-income groups. Fiscally equitable or progressive reforms to elderly benefits made by the Conservatives are the increase to the Age Credit which helps elderly low-income tax filers by removing a number from the federal income tax roll as well as the changes to the GIS which helped lower-income pensioners, although the GIS top-up does not adequately assist all seniors living in poverty across the country. Single poor seniors are still thousands of dollars below the poverty line, whereas low-income couples are above the poverty line. The new federal spending on these initiatives when introduced totals $685 million. Over the same period, however, the Conservatives have introduced several regressive measures in elderly benefits or, more accurately, have aggravated ­already existing regressive programs in this policy sector of stratified economic circumstances.12 Increasing the Pension Income Credit and i­ntroducing Pension Income Splitting reduce taxable income in a way that offers the greatest benefit to upper-income tax filers, that is well-off seniors, provides modest tax savings to moderate income elderly couples, and offers absolutely no assistance to seniors living alone and to those elderly couples with no taxable income. As well as being regressive these measures are costly to the federal treasury. These inequitable tax measures when introduced totals at least $1.545 billion, far

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70  Michael J. Prince Table 5.2 Budgetary costs and distributional effects of conservative elderly benefit reforms Policy measure

Annual cost to federal treasury

Fiscal implications for seniors

Increased Age Credit

$ 2.260 billion

Progressive: Non-refundable income-tested tax credit reduces federal and provincial/territorial income taxes for seniors with low to modest incomes removes many from the income tax roll No financial assistance to poorest seniors with no taxable income

Increased Pension Income Credit

$975 million

Modestly regressive: Non-refundable tax credit for private pension incomes, helps middle- and upperincome seniors

Introduced Pension Income Splitting

$925 million

Highly regressive: significant reduction of tax liability for well-off seniors and modest tax savings for moderate income couples No help to seniors living alone or to elderly couples with no taxable income

Raised age limit for maturing RPPs and RRSPs

$130 million

Regressive: predominantly assists middle- and upper-income seniors No financial assistance to seniors with no taxable income

Increased GIS earnings exemption

$60 million

Marginally progressive: will allow a small number of low-income seniors who work to retain more of the GIS benefit

GIS top-up

$300 million

Selectively progressive: will assist some low-income pensioners No help to other low-income seniors in comparable need

Raising age of eligibility of OAS, GIS and Allowances

Future savings

Considerably regressive: will hurt low-income Canadians aged 65 and 66 in the case of OAS and GIS, and low-income Canadians aged 60 and 61 in the case of the Allowance and the Allowance for the Survivor, reducing their income and thus raising their poverty rate

Sources: Budget Plan various years; Finance Canada, Tax Expenditures and Evaluations 2011. Unless otherwise noted, for the tax measures the costs to the federal treasury are projections for the 2011 taxation year. Incremental cost for increasing the Age Credit was $325 million in 2009–10; for the Pension Income Credit the net new cost was $490 million in 2006–07; and for the RPP and RRSP age limit change the incremental additional revenue cost was $130 million in 2007–08.

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71  Harper, Old Age Security, and Other Elderly Benefits

­ utweighing the progressive new spending on seniors brought in by the o Harper Conservatives. In addition, as social policy specialist John Stapleton has noted: the move to raise the age limit for eligibility to OAS and GIS would be disproportionately borne by provincial social assistance programs and in particular, by poor women, persons with disabilities, immigrants and newcomers. Women pay less into CPP – which may become their only form of retirement income – while immigrants and newcomers are eligible for reduced OAS and GIS for which they would be forced to wait longer for reduced amounts. Persons with disabilities must often rely on reduced income. Contrast that with the promised tax break that would disproportionately funnel billions to those upper-income Canadians who can afford the choice of a non-working spouse.13 If the age threshold for OAS and GIS is raised to age 67, Stapleton calculates that almost 50,000 persons who depend on provincial social assistance will be forced to live in poverty for up to an additional two years, a majority of which across Canada are persons with significant disabilities. Other social groups and think tanks make similar warnings that the effect of raising OAS and GIS to age 67 will be of keeping people on welfare and thus in deep poverty longer, and offer other options to sustaining elderly benefit programs and improving the retirement income system more generally.14 The scenario is of serious financial costs to many vulnerable people as well as significant fiscal challenges to public finance for provincial governments. Among other things, this tells us that in this age of open federalism, the OAS and GIS are much more intergovernmental in reality than first appreciated as exclusively federal programs in constitutional terms. Indeed, the Harper Conservatives acknowl­ edge as much in budget documents stating that the government will compensate provincial and territorial governments for the net additional costs to them as a result of the increase in the age of eligibility for OAS benefits. A related issue concerns the impact of changes to the OAS on CPP disability and survivor benefits. In practical terms, however, this is a promise for another federal government, some 10 or 15 years in the future to accept and to negotiate with provinces and territories. By then, the Harper Conservatives will be in retirement themselves. It is possible that their planned changes to eligibility to the OAS may not last, being rinsed out after a change in governing parties.

conclusions The Harper Conservatives have applied a decidedly blue tint to the federal elderly benefits system. Despite a legacy of failures by previous federal governments in retrenching elderly benefits, despite current public opinion critical

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72  Michael J. Prince

of delaying eligibility for OAS, and despite widespread opposition by political parties, think tanks and interest groups, the Harper government’s effort to restructure elderly income benefit programs has had considerable success. The Conservative’s achievement at retrenching the OAS results from a favourable combination of political context, constitutional arrangements, the financial crisis and the artful deployment of several tactics, all of which served to limit the political costs associated with cutbacks of a major social program.15 In terms of process, the legacy from this program reform is a form of stealth and federal unilateralism, with no public consultations by federal departments, no meaningful role by Parliament to hear from Canadians, and no dialogue with provincial and territorial governments. In making policy decisions on old age income, the Harper government’s policy instrument repertoire consisted of clear constitutional responsibility and federal legislation, major transfer program expenditures and tax expenditures, demographic and financial forecasts, and the use of rhetorical persuasion. The reform process was extremely rapid, especially for such a large program, and driven by central agencies and the prime minister. Stirred by a desire to reduce future pension costs and to increase labour force participation among older Canadians, the Harper government presented a narrow frame of the issue and the solution. The change was explicit and visible and entailed costs, yet information was not provided on the extent of savings to the federal treasury nor was information readily provided on the extent of losses for future seniors, gender implications or consequences for the provinces with respect to health and social services for older residents. The most notable feature from a political standpoint was that current retirees were exempted and the change in age eligibility to the OAS and GIS does not occur for several years and then is phased-in over time. In terms of policy outcomes, the Harper record on elderly income and tax benefits includes a contradictory mix of progressive and regressive changes. Social policy making is not always about benevolent responses to problems. The analysis in this chapter shows that elderly benefit policy making by the Harper Conservatives has resulted in the aggravation of problematic circumstances, the perpetuation of inequalities, and provocation of discontents. Blue rinse policy reform favours the better-off among the current and near-term seniors through various tax measures presented as offering tax relief to all older Canadians; changes to the Pension Income Credit and the Pension Income Splitting, for example, do offer tax relief, although in a distinctly inequitable manner by offering assistance proportionately more for better-off seniors than for lower-income seniors. To improve the progressivity of the federal elderly benefit system, it is time to consider making all tax credits refundable. The progressive reforms, most notably through the GIS, have been selective in focus and modest in scale. While enacting changes to the age eligibility of the OAS and GIS may be a political success for the Conservatives, the

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73  Harper, Old Age Security, and Other Elderly Benefits

changes themselves were financially unnecessary, socially unfair, intergovernmentally complicated, and intergenerationally troubling. What it means to be a senior citizen and an old age pensioner is changing as a concept as well as fragmenting as a constituency. Federal elderly benefit programs are associated with varied rights and privileges, and produce divergent gains and losses. Recent events over the OAS suggest that increasingly seniors as a group in Canadian society will be discursively portrayed as problematic for how Ottawa spends. Moreover, seniors are programmatically divided and stratified by the non-refundability of tax measures and the multiple eligibility rules of the transfer benefits. It is highly questionable whether we can say that these programs create a common social citizenship or represent a shared status of equality which, in turn, contributes to social cohesion within and across generations in Canadian society. The production of pension reforms too often involves the reproduction of social inequalities. Overall the Harper record on elderly benefits further fragments people within and across generations, raising questions about the future of poverty and income inequality and a sense of equity and community in Canada.

notes I wish to thank Chris Stoney for his editorial advice and Ken Battle for his insightful comments and detailed knowledge of elderly benefit policies. 1 Blue rinse is a term that arises from the blue rinse dye applied by hairdressers to disguise the often yellow tones of greying hair. There is also an allusion in the term to the political symbolism of blue to describe elderly middle-class ladies usually of a conservative socio-political persuasion. 2 See Kenneth Bryden, Old Age Pensions and Policy-Making in Canada (McGillQueen’s University Press, 1974); and Dalton Camp, Points of Departure (Deneau and Greenberg Publishers, 1979). On a campaign visit by Pierre Trudeau, to a senior citizens centre during the 1979 federal general election, Camp writes of “an auditorium which, at first glance, provides a vista of blue rinse; most of these senior citizens are women, mute confirmation of hard actuarial realties.” Camp goes on to describe these seniors as “the true benefactors of the ultimate triumph of the welfare state, the conscience of society nicely institutionalized” (62). 3 On time periods and government budgets, see G. Bruce Doern, Allan M. Maslove, and Michael J. Prince, Canadian Public Budgeting in the Age of Crises: Shifting Fiscal Domains and Temporal Budgeting (McGill-Queen’s University Press, 2013). 4 For a valuable discussion of aging as a policy paradigm, see Susan A. McDaniel, “Demographic Aging as a Guiding Paradigm in Canada’s Welfare State,” Canadian Public Policy, 1987, 13(3): 330–6. A more dramatic, recent example of exploring the meaning of population aging is Ted C. Fishman, Shock of Gray: The aging of the

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74  Michael J. Prince world’s population and how it pits young against old, child against parent, worker against boss, company against rival, and nation against nation ( Scribner, 2010). For further details on federal elderly income benefits, see Human Resources and Skills Development Canada, Summative Evaluation of the Old Age Security Program, Final Report, Evaluation Directorate, Strategic Policy and Research, April 2012, available at: http://www.hrsdc.gc.ca/eng/publications_resources/ evaluation/2012/sp_1023_02_12-eng/page05.shtml 5 Ken Battle, “A New Old Age Pension,” in Keith G. Banting and Robin Boadway, eds, Reform of Retirement Income Policy: International and Canadian Perspectives (McGill-Queen’s University Press, 1997), 140. 6 Thus, the Raging Grannies, a non-partisan social movement of active older women across the country, purposefully juxtaposes traditional images of sweet, little old ladies with overtones of fury, power, and intensity. See: http://www.vcn. bc.ca/ragigran/. See also Andrea L. Campbell, How Policies Make Citizens: Senior Political Activism and the American Welfare State (Princeton University Press, 2003). 7 Other elderly related programs and initiatives at the federal government level include the New Horizons for Seniors program funding ($10 million in 2012–13) and, as part of the Harper government’s Economic Action Plan, funding for the construction of social housing units for low income seniors ($400 million over 2009–10 and 2010–11). Other elderly related tax expenditure measures include the non-taxation of GIS and Allowance benefits. At times, the Harper government includes the Tax-Free Savings Account (TFSAs) which encourage people to save over their lifetime as a retirement income policy measure. An important conceptual point is at play here for social policy analysts: direct transfer programs are commonly described in expert discourse as forming the first pillar of the retirement income system in Canada, while the tax measures are labeled as forming a third pillar of the system (with occupational plans, such as the Canada and Quebec Pension Plans and other work-based schemes constituting the second pillar). This metaphorical image of retirement income policy therefore separates the transfer and tax measures both of which are under the responsibility of the federal government and bear on the state of federal finances and which therefore ought to be considered together in determining the interactions and distributional outcomes of any reforms. The so-called three pillars of retirement income policy are not so solid and separate as the imagery suggest but rather programs interrelate in asymmetrical patterns and unequal structures of opportunities. 8 Finance Canada, Tax Expenditures and Evaluations 2011 (Public Works and Government Services, 2012). 9 Over the period from 2012–13 to 2016–17 the population of seniors in Canada is projected to increase from 4.8 million to 6.0 million. On the theme of needing to adapt social policies to population aging, see, for example, Speaking Points for the Honourable Diane Finley, Minister of Human Resources and

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10 11 12

13

14

15

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Skills Development Canada, to the Canadian Club of Toronto, Royal York Hotel, February 23, 2012, available at: http://news.gc.ca/web/article-eng.do;jsessionid= ac1b105430d8362c7746c294be1bd51a6 Finance Canada, Economic and Fiscal Implications of Canada’s Aging Population (Public Works and Government Services, 2012), 55 Ibid., 62. As Raghubar D. Sharma comments in Poverty in Canada (Oxford University Press, 2012), “a person’s economic condition in old age is related to the economic position during that person’s working life. We know that every society is economically stratified because people perform different roles during their working years and earn different incomes and, hence, accumulate different levels of assets” (41). Moreover, as the analysis in this chapter argues, public policies can amplify or abate these stratified economic opportunities and outcomes in incomes and assets for people across the life course. John Stapleton, “PM’s new policy would force up to 50,000 to live in poverty for two more years,” CARP in the News, February 12, 2012, 1, available at: http:// www.carp.ca/2012/02/10/pm%e2%80%99s-new-policy-would-force-up-to50000-t. See also Rebecca Lindell, “Delaying OAS could cost seniors, provinces thousands in spinoffs,” Global News, February 1, 2012, available at: http://www. globalnews.ca/retirement/6442571861/stroy.html On an array of other reform options, see, for example, Andrew Coyne, “Raising retirement age isn’t the only option for pension reform,” National Post, February 27, 2012, available at: www.fullcomment.nationalpost.com; Canadian Labour Congress, Implications of Raising the Age of Eligibility for Old Age Security, 2012, available at: http://www.canadianlabour.ca; Michael J. Prince, “Retirement (in) Security for Canadians,” Transition, Ottawa: The Vanier Institute of the Family, 2009, 39 (2): 6–9; and Ken Battle, Sherri Torjman and Michael Mendelson, Old Age Insecurity? Ottawa: Caledon Institute of Social Policy, February 2012, available at: www.caledoninst.org. For further details, see Michael J. Prince, “Avoiding Blame, Doing Good, and Claiming Credit: Reforming Canadian Income Security,” Canadian Public Administration, 2010, 53 (3): 1–30.

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6 The Politics of the Canada Pension Plan: Private Pensions and FederalProvincial Parallelism daniel béland 1

introduction Retirement pensions involve long-term commitments on the part of employers, individuals, and governments. Canada’s pension system has a number of outstanding qualities, including its capacity to reduce elderly poverty. However, in other countries, there are lingering concerns about the future of retirement security. Considering trends like demographic aging, the recent financial crisis, and the decline in defined-benefit pensions, these concerns are legitimate. But this does not mean that there is a consensus about the changes that could be needed to address them. In reality, at the broadest level, pension reform is a tough business, as it involves powerful vested interests, complex policy trade-offs and, in the case of the Canada Pension Plan (CPP), discussions between Ottawa and the provinces. In the context of the global financial crisis, CPP reform gradually moved onto the policy agenda, as prominent political actors like the New Democratic Party (NDP) and the Canadian Labour Congress (CLC) pushed for an increase in the CPP replacement rate. The financial crisis and the perceived crisis in private pensions legitimized these proposals, as well as the Liberal Party’s call for the establishment of a new supplementary pension program. In the end, however, no substantial CPP reform was launched during the Harper minority government years, or after the May 2011 federal election, which led to the present majority Harper Conservative government. Instead, the government adopted the long debated Pooled Registered Pension Plans (PRPPs) and, as part of the 2012 federal budget, pledged to gradually increase the age of eligibility for Old Age Security (OAS), an issue that had not been raised at all

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­ uring the 2011 federal campaign (see Michael Prince’s chapter 5 in this vold ume). At the time the chapter went to press, discussions between the federal and provincial finance ministers over potential changes to CPP continued. This chapter explores the politics of CPP since 2008. Its purpose is to place the debate about the future of CPP in its historical context and to explore the policy alternatives debated during the Harper years. It also examines the reason why substantial CPP reform did not materialize. As suggested, to understand CPP politics, close attention should be paid not only to partisan politics but to the behavior of provincial governments, who have a “veto point” over CCP reform. More specifically, the chapter shows that the fact that Quebec was already contemplating changes to the Quebec Pension Plan (QPP) at the same time as CPP expansion moved onto the federal agenda made CPP reform less likely. This is true largely because changes to QPP focused on the longterm financial sustainability of the program, an issue that had been solved in 1998, as far as CPP is concerned. Overall, this chapter draws attention to the institutional and political interactions between CPP and QPP, as well as on the more general issue of timing and sequence in policy development.2 Two main sections comprise this chapter. The first section focuses on the institutional legacies of CPP and QPP, especially on the veto point of the provinces in CPP reform. This section concludes with a brief discussion of the 1998 CPP reform, which has been described as a successful form of cooperative policymaking in Canada.3 The second section examines the debate over the CPP replacement rate, as the post-2008 debate is not the first push, and possibly not the last, to increase it and thus improve CPP retirement benefits. The section explains why substantial CPP reform did not materialize during the Harper years before discussing the creation of the PRPPs. Because this modest program is unlikely to solve the problem that proponents of CPP reform sought to address, the idea of increasing the replacement rate of CPP is likely to re-emerge, as it has in the past. This is the case because CPP’s low replacement rate for CPP and the inherent flaws of voluntary private pensions compel the periodic return of CPP expansion on the federal policy agenda.

the institutional legacies of cpp and qpp In Canada, the idea of creating an old-age insurance program became a widely debated issue in the early 1960s, about a decade after the establishment of Old Age Security (OAS) in 1952. The rationale behind the push for what became the CPP was the modest level of the OAS flat benefit and, especially, the intrinsic limitations of voluntary private pensions and personal savings.4 The push for the enactment of the CPP began after the election of the Pearson Liberal minority government in April 1963. One year later, Quebec’s Lesage Liberal government convinced the Pearson government and the other provinces to support amendments to the federal CPP proposal that included the

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creation of the QPP in the Belle Province.5 The rationale behind the creation of QPP as a separate provincial program was economic in nature: using pension surpluses to feed the Caisse de dépôt et placement, a provincial investment body aimed at promoting economic development and French-Canada entrepreneurship in Quebec.6 In 1966, CPP and QPP came in to existence, with the exact same contribution and replacement rates. Modest by international standards, the 25 percent replacement rate adopted in the mid-1960s has remained the same to this day.7 The decision to set the CPP/QPP replacement rate at 25 percent was related to the belief that, despite their limitations, private pensions and savings should remain a key source of retirement security for most Canadians.8 Thus, we see from the outset the enduring relationship between the CPP replacement rate and the debate about the limitations of private pensions and savings. Another key feature of CPP is the formal role that provinces play in pension reform. According to Keith Banting, CPP is a prime example of “joint decision federalism,” as the federal government cannot enact changes to the program without the formal backing of at least two thirds of the provinces representing two thirds of the country’s population.9 There is strong evidence that this type of policymaking, which does create a provincial “veto point” over CPP reform, is not always an obstacle to policy change. This is true because the need for Ottawa to seek provincial approval creates an opportunity for the federal government to work with the provinces to create a broad consensus about specific policy changes and reform imperatives. From this perspective, CPP’s “joint decision federalism” creates both potential obstacles and opportunities for reform.10 In the mid-1990s, as a consequence of economic downturn and a significant increase in disability benefits, it became clear that, in the long run, payroll contributions would have to dramatically increase to preserve the program’s long-term actuarial balance.11 This assessment pushed the Chrétien government to consult with the ten provinces and, in February 1996, to outline a policy blueprint that became the basis of the broad CPP public consultations held that year.12 Then months later, in November, the federal and the provincial governments issued a joint statement formulating the principles that would guide the elaboration of a CPP legislation aimed at restoring the program’s long-term fiscal solvency. In February 1997, Finance Minister Paul Martin unveiled the draft of the proposed federal CPP legislation, which proposed to increase the combined CPP contribution rate from 5.6 to 9.9% by 2003. The objective here was to build up a large reserve fund and avoid even greater contribution hikes in the future. Although it featured painful measures, including benefit cuts and contribution increases, only two (NDP-led) provinces representing less than 15 percent of the Canadian population (British Columbia and Saskatchewan) did not back the plan, mainly for ideological reasons.13 Enacted in January

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1998, the final legislation (Bill C-2) also brought about benefit cuts and the creation of the Canada Pension Plan Investment Board (CPPIB), which would invest part of CPP surpluses in equity. The creation of the CPPIB was the result of “policy learning” involving an assessment of existing pension investment boards, including Quebec’s Caisse de dépôt et placement.14 Simultaneously, in Quebec City, the National Assembly adopted a parallel QPP legislation that featured similar provisions as Bill C-2, including the exact same increases in contribution rates. Again, “parallelism” is in evidence between CPP and QPP.15 As shown below, the role of the provinces in CPP reform and the relationship between CPP and QPP sheds light on the politics of CPP during the Harper years.

from potential cpp expansion to the pooled registered pension plans The 1998 CPP legislation helped improve CPP’s long-term fiscal standing, which is currently sound. As stated in the most recent (25th) Actuarial Report of the Canada Pension Plan, for instance, “despite the projected substantial increase in benefits paid as a result of an aging population, the Plan is expected to be able to meet its obligations throughout the projection period and to remain financially sustainable over the long term.”16 This means that, for the predictable future, the CPP should be able to pay full benefits without the need to increase its 9.9 percent contribution rate, which is low by international standards. From this perspective there is no strong concern about the long-term fiscal sustainability of CPP, a popular program that has never faced a direct political challenge like its counterpart in the United States (Social Security), a program that has been the target of a “privatization” campaign since the mid-1990s. Even if that campaign failed, it is interesting to note that it existed in the first place, while CPP privatization has never been seriously considered in Canada, despite the support it has received on the right.17 If anything, the global financial crisis further reduced support for the transformation of the CPP into a system of personal savings accounts (what is known as “privatization” in the United States). In fact, the global financial crisis gave ammunition to political actors, mainly located on the left of the political spectrum, who support the expansion of CPP benefits. This is the case largely because the crisis further undermined confidence in private pensions (Registered Pension Plans) and personal savings (including RRSPs) as a genuine source of old-age security. Importantly, problems with private pensions predated the crisis, as the decline in coverage and the gradual shift from defined benefit to defined contribution schemes have long raised concerns about the future of retirement security.18 As suggested above, the decision made in the mid-1960s to set the CpP replacement rate at only 25 percent was related to the enduring belief that private benefits

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and savings would remain a major complementary source of old-age security for most Canadians.19 As the confidence in private pensions and savings erodes, calls for CPP expansion are more likely to be voiced. These fears legitimized the formulation of new proposals to improve the CPP replacement rate.20 Before exploring this recent debate, it is crucial to note that it was not the first time CPP expansion had moved on to the federal agenda since its creation. For instance, from the mid-1970s to the mid-1980s, a Great Pension Debate over CPP expansion took place. This debate was triggered by the CLC, which supported a bold increase in CPP benefits. Yet, beyond the labour movement, this debate involved other key actors, including business interests, pension experts, and government officials at both the provincial and the federal levels. Again, the apparent limitations of private pensions and the alleged superiority of old-age insurance legitimized calls for CPP expansion.21 In the end, after years of discussions, business opposition and the related mobilization of the Ontario government, which held a quasi-veto point in CPP reform, led to the defeat of the pro-expansion camp.22 So while the 1998 CPP reform illustrates that the existence of a provincial “veto point” is not necessarily an obstacle to CPP reform, the above mentioned Great Pension Debate suggests that such a “veto point” can indeed prevent policy changes from happening. In the aftermath of the financial crisis, this potential obstacle to reform and the presence of a Conservative minority government in Ottawa did not prevent the CLC and its NDP allies to support the doubling of the CPP replacement rate, from 25 to 50 percent of the income below the Yearly Maximum Pensionable Earnings (44,900 dollars in 2008). Issued in July 2009, the CLC Discussion Paper Security, Adequacy, Fairness: Labour’s Proposals for the Future of Canadian Pensions offers a justification of this bold policy proposal. The still present global “Great Recession” and the limitations of private benefits are central to this attempt to construct the “need to reform”23 and expand CPP: “The global economy is in its deepest downturn since the 1930s. Many Canadians are fearful that they may retire without adequate pensions or even fall into poverty. Hundreds of thousands of good-paying jobs have been lost, and the pensions of millions of Canadians have been put at risk by the financial meltdown and a wave of employer bankruptcies. Even those with jobs are wondering if and when they can ever retire.”24 For the CLC, in this bleak environment for private pensions, the portability of CPP and its nature as a defined benefit program made it the best possible source of retirement security for Canadian workers. The CLC also stresses the fact that CPP has much lower administrative costs than RRSPs, which is another good reason to increase reliance on the program through a higher replacement rate.25 Staged over a seven to 10 year period, the doubling of CPP’s replacement rate would be financed through a gradual increase in contribution rates.26

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The most debated alternative to CPP expansion was the creation of a new pension scheme aimed at supplementing it.27 A prime example of this type of policy alternative was the proposal put forward by the Liberal Party of Canada in its 2010 White Paper on pensions. Among other measures such as financial literacy measures and regulatory modernization for private pensions, this 40 page document proposed the creation of a Supplemental Canada Pension Plan (SCPP). A voluntary scheme, the SCPP would help Canadians save more for retirement while allowing “small businesses to offer employee pension contributions without the administrative or underwriting expenses associated with traditional pension plans.”28 An advantage of this voluntary approach to CPP expansion was the absence of the increase in CPP contributions that was so unpopular with the Canadian Taxpayers Federation and the business community.29 The Liberal approach was not without flaws, however, as the limitations of voluntarism in the field of retirement have long been debated.30 From an ideological standpoint, one would expect a Conservative government to support a voluntary approach and a focus on private pensions, rather than to embrace CPP expansion and the related increase in contributions. Yet, in June 2010, after about a year of public consultations, Conservative Finance Minister Jim Flaherty asked the provincial leaders to consider a modest and gradual increase in the CPP replacement rate. Although he rejected the CLC and the NDP proposal to double that rate, his announcement meant that the Harper government decided CPP expansion was not only acceptable but desirable, at least under existing political circumstances. The fact that the Conservatives had a minority government and wanted to grow their electoral support in provinces such as Ontario, where the McGuinty Liberal government supported CPP expansion, may help explain why Finance Minister Flaherty ended up supporting it, after putting forward other policy alternatives, such as the establishment of a supplementary program.31 Although it remained vague in order to allow Ottawa to work out its details with the provinces, the Conservative proposal gave hope to those who advocated CPP expansion. This is true because, in addition to Ontario, other provinces supported expansion, something that became clear once formal federal-provincial discussions over this issue took place, from June through December.32 In December, however, Minister Flaherty withdrew his call for CPP expansion, claiming he had not received unanimous support from the provinces on this issue. Not mentioned by him was the opposition of small business and other constituencies close to the Conservative Party, which may also have undermined the push for CPP expansion. In such a context, instead of increasing the replacement rate for CPP, the federal minister embraced the development of a pooled pension program, which would “make well-regulated, low-cost, private-sector pension plans accessible to millions of Canadians who have up to now not had access to such plans.”33 Many provinces (BC,

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PEI, Nova Scotia, New Brunswick, Manitoba, and Ontario), although they backed this proposal, argued that abandoning the idea of beefing-up the CPP replacement rate was a mistake.34 In fact, during the discussions with Ottawa, only two provinces, Alberta and Quebec, opposed this idea. Considering the low-tax stance of the Alberta Progressive Conservatives, the position of this wealthy province seemed predictable. At first, the position of Quebec seemed surprising, as the province is known for its left-leaning orientation, in the field of social policy and beyond. Politically, unions in Quebec supported QPP expansion and, although right of center, the Charest government was not known for a strong anti-welfare state agenda. In reality, a key factor behind Quebec’s approach to the pension file was the fact that the province was already in the process of reforming QPP to guarantee its long-term fiscal sustainability. This was the case because, as opposed to CPP, QPP faced long-term fiscal challenges stemming in part from Quebec’s less favorable demographics, as well as from the more generous nature of some of its pension benefits.35 The discussions to modify QPP to address this issue began before the financial crisis and the emergence of the new debate about CPP (and QPP) expansion.36 A key aspect of the QPP reform package under study at the time in Quebec involved an increase in payroll contributions, which aimed at restoring the long-term fiscal balance in the program rather than at improving its replacement rate. In this context, one can understand why the Charest government, which was on the verge of modifying QPP, did not see benefit expansion as a desirable. Combined with Alberta’s resistance, Quebec’s opposition to CPP expansion was important politically, as it could have seemed odd for Ottawa to increase CPP benefits while QPP was facing austerity measures. Quebec does not belong to CPP but the province has always played a direct role in CPP politics (the province participates to the CPP consultation process like its nine counterparts) and there is a close relationship between the two programs.37 In its March 2011 budget, among other QPP changes, the Charest government announced that the contribution rate would “gradually increase by 0.15% a year until it reaches 10.80% in 2017. As of 2018, an automatic mechanism will be implemented, allowing the contribution rate to be aligned continually with the Plan’s steady-state rate.”38 Another measure adopted in 2011 concerns the actuarial adjustment that lowers the replacement rate of people who retire between age 60 and 64 (a similar change also affects the CPP). Under the new system, which will come about place gradually between 2014 and 2016, people who receive a higher pension will be more penalized than is currently the case. People born before 1954 will not be affected by these changes,39 which should both discourage early retirement among better off contributors and help improve QPP’s long-term actuarial status. Later in 2011, the new Harper majority government introduced legislation to create the Pooled Registered Pension Plans (PRPPs). Taking effect

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in January 2013, PRPPs have a number of outstanding characteristics. First, although PRPPs are voluntary, “employees will automatically be enrolled in any PRPP offered by the employer unless they choose to opt out.”40 This form of automatic enrolment is inspired by recent scholarly literature in cognitive psychology and behavioral economics, according to which individuals are more likely to keep the coverage they automatically receive than to enroll on their own.41 Second, in order to reduce administrative costs, contributions to PRPPs are to be pooled. Finally, PRPPs, to which employers are not obligated to contribute, are to be “managed by third parties like financial institutions.”42 Considering this, the PRPPs are as much a gift to the financial industry as an attempt to help workers not enrolled in a traditional private pension plan to improve their future retirement security. Described by proponents of CPP expansion as “more costly and less efficient than CPP,”43 PRPPs are unlikely to become a “silver bullet” in retirement security. This is why, in December 2012, provinces such as Ontario kept pushing for CPP expansion.44 In the short run, however, the presence of a Conservative majority government in Ottawa and the turn to austerity that characterizes the 2012 federal budget, including the increase in OAS eligibility age analyzed in chapter 5, make any major expansion of CPP benefits less likely than in 2010 when, during an era of minority government, a window of opportunity for CPP expansion opened for a short period of time, before closing rapidly in the absence of provincial consensus and, perhaps, true commitment from the federal Conservatives.

conclusion This chapter has shown how, in the aftermath of the 2008 financial crisis, Canadian policymakers seriously considered CPP expansion before ending up formulating yet another voluntary scheme under a new Conservative majority government. In this story, the role of private pensions was prominent, as CPP reform is typically debated in the mirror of private benefits, which have faced key challenges in recent times. The decline of defined benefit pensions and the insecurity generated are only two of the challenges facing private pensions in Canada. In the above story, the provinces and, especially, the situation prevailing in Quebec regarding QPP, also played a direct role. This is what we can refer to as provincial parallelism. As argued above, to understand CpP politics, one must take into account the fate of QPP, which has been closely related to CPP since Jean Lesage decided, in what was then a favorable demographic context, to advocate the creation of QPP to help invest in the province’s economy. In its mobilization to create QPP, the Lesage government actually compelled Ottawa to increase the anticipated replacement rate of CPP (and QPP) from 20 to 25 percent. Ironically, nearly fifty years later, in another period of minority government in Ottawa, the need for Quebec to

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improve the actuarial situation of QPP may have helped derail an attempt to increase the CPP replacement rate. After the left-leaning Parti Québécois (PQ) gained (minority government) power in Québec City in September 2012, however, the position of the Belle Province over CPP and QPP expansion changed,45 which is good news for those who support this policy alternative. Considering this and the enduring push by labour unions and provinces like Ontario to improve the CPP, this policy alternative could re-emerge to the forefront of the policy agenda, as it did during the Great Pension Debate and the Harper minority years. The push for CPP expansion reflects the modest nature of the  program’s benefits and enduring issues with private pensions and personal savings, which are likely to remain a source of concern. Unless these issues are systematically tackled, it is safe to anticipate the rebirth of the campaign for CPP expansion.

notes 1 The author would like to thank Bruce Doern, Michael Prince, Christopher Stoney, and the participants to the May 2012 How Ottawa Spends workshop (Ottawa) for their suggestions. He also acknowledges support from the Canada Research Chairs Program. 2 Paul Pierson, Politics in Time: History, Institutions, and Social Analysis (Princeton: Princeton University Press, 2004). 3 Daniel Béland, “The Politics of Social Learning: Finance, Institutions, and Pension Reform in the United States and Canada,” Governance, 19(4) (2006), 559–83; Michael J. Prince, “Taking Stock: Governance Practices and Portfolio Performance of the Canada Pension Plan Investment Board,” in G.B. Doern (ed.), How Ottawa Spends, 2003–2004: Regime Change and Policy Shift (Montreal: McGill-Queen’s University Press, 2003), 134–54; R. Kent Weaver, Whose Money Is It Anyhow? Governance and Social Investment in Collective Investment Funds (Boston, MA: Center for Retirement Research, 2003). 4 Kristina Babich and Daniel Béland, “Policy Change and the Politics of Ideas: The Emergence of the Canada/Quebec Pension Plans,” Canadian Review of Sociology, 46(3), 2009, 253–71. The introduction of the Registered Retirement Savings Plans (RRSPs) in 1957 did little to address these limitations. For a general discussion about the relationship between public and private pensions in Canada see Gerard Boychuk and Keith G. Banting, “The Public/Private Divide in Health Care and Pensions in Canada” in Daniel Béland and Brian Gran (ed.), Public and Private Social Policy: Health and Pension Policies in a New Era (Basingstoke: Palgrave, 2008), 122–40. 5 Richard Simeon, Federal-Provincial Diplomacy: The Making of Recent Policy in Canada (Toronto: University of Toronto Press, 1972). 6 Daniel Béland and André Lecours, Nationalism and Social Policy: The Politics of Territorial Solidarity (Oxford: Oxford University Press, 2008); Dale C. Thomson, Jean Lesage and the Quiet Revolution (Toronto: Macmillan of Canada, 1984).

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85  The Politics of the Canada Pension Plan 7 Only the Yearly Maximum Pensionable Earnings (YMPE) is subject to regular increases. 8 Babich and Béland, “Policy Change and the Politics of Ideas.” 9 Keith G. Banting, “Canada: Nation-Building in a Federal Welfare State” in Herbert Obinger, Stephan Leibfried and Frank G. Castles (eds), Federalism and the Welfare State: New World and European Experiences (Cambridge: Cambridge University Press, 2005), 89–137. 10 Daniel Béland and John Myles, “Varieties of Federalism, Institutional Legacies, and Social Policy: Comparing Old-Age and Unemployment Insurance Reform in Canada,” International Journal of Social Welfare, 2012, 21(S1), S75-S87. 11 Ken Battle, “Pension Reform in Canada,” Canadian Journal of Aging, 1997, 16 (3): 519–52 (537); Canada Pension Plan, Fifteenth Actuarial Report (Ottawa: Department of Finance, 1995); Alan M. Jacobs, Governing for the Long Term: Democracy and the Politics of Investment (New York: Cambridge University Press, 2011). 12 Federal/Provincial/Territorial CPP Consultations Secretariat, Report on the Canada Pension Plan Consultations (Ottawa: Department of Finance, 1996). 13 Bruce Little, Fixing the Future: How Canada’s Usually Fractious Governments Worked Together to Rescue the Canada Pension Plan (Toronto: University of Toronto Press, 2008), 241. 14 Béland, “The Politics of Social Learning.” 15 Edward Tamagno, A Tale of Two Pension Plans: The Differing Fortunes of the Canada and Quebec Pension Plans (Ottawa: Caledon Institute of Social Policy, 2008). 16 Office of the Chief Actuary, 25th Actuarial Report of the Canada Pension Plan (Ottawa: Minister of Public Works and Government Services, 2010), 12. 17 Béland, “The Politics of Social Learning.” 18 For example, in November 2006, the province of Ontario set up an Expert Commission on Pensions that would “examine the legislation that governs the funding of defined benefit plans in Ontario, the rules relating to pension deficits and surpluses, and other issues relating to the security, viability and sustainability of the pension system in Ontario.” (Ontario Minister of Finance Greg Sorbara, quoted in Expert Commission on Pensions. 2008. A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules (Toronto: Queen’s Printer for Ontario, 2008), 8. For another example of a pension expert body dealing with these issues created before the financial crisis see Alberta/British Columbia Pension Standards Review, Getting Our Acts Together: Pension Reform in Alberta and British Columbia. (Alberta/British Columbia Pension Standards Review, 2008). 19 Babich and Béland, “Policy Change and the Politics of Ideas.” 20 For a more optimistic take on the capacity of Canadians to save for retirement that has helped legitimize opposition to CPP expansion see Jack Mintz, Summary Report on Retirement Income Adequacy Research (Ottawa: Department of Finance, 2009) http://www.fin.gc.ca/activty/pubs/pension/riar-narr-eng.asp. 21 Elizabeth Jean Shilton, Gifts or Rights? A Legal History of Employment Pension Plans in Canada (Toronto: Doctoral thesis, Faculty of Law, University of Toronto, 2011).

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86  Daniel Béland 22 Keith G. Banting. 1987. “Institutional Conservatism: Federalism and Pension Reform” in Jacqueline S. Ismael (ed.), Canadian Social Welfare Policy: Federal and Provincial Dimensions (Kingston: McGill-Queen’s University Press, 1987), 48–74; Michael J. Prince, “From Expanding Coverage to Heading for Cover: Shifts in the Politics and Policies of Canadian Pension Reform.” In A. Joshi and E. Berger, eds, Aging Workforce, Income Security, and Retirement: Policy and Practical Implications (Hamilton: McMaster University Office of Gerontological Studies, 1996). 23 Robert H. Cox, “The Social Construction of an Imperative: Why Welfare Reform Happened in Denmark and the Netherlands but Not in Germany,” World Politics 2001, 53: 463–98. 24 Canadian Labour Congress (CLC), Security, Adequacy, Fairness: Labour’s Proposals for the Future of Canadian Pensions. (Canadian Labour Congress 2009) 25 CLC, 2009, 10. 26 For a critique of this type of proposal in the name of actuarial prudence see William B.P. Robson, Don’t Double Down on the CPP: Expansion Advocates Understate the Plan’s Risks (Toronto: C.D. Howe Institute, 2011). http://cdhowe.org/pdf/BKG137_ June2011.pdf 27 Daniel Béland and Patrik Marier, “Vieillissement et politiques de retraite au Canada” in Patrik Marier (ed.), Le vieillissement de la population et les politiques publiques: enjeux d’ici et d’ailleurs. (Québec City: Presses de l’Université Laval, 2012). 28 Liberal Party of Canada, Canadian Pension Security, Adequacy and Coverage; Public Policy Challenges and the Baby Boom Generation. (Ottawa: Liberal Party of Canada 2010) 4. At the time, the idea of creating a new supplementary pension program was hardly new. See Alberta/British Columbia Pension Standards Review, 2008; and Patrik Marier. 2010. Improving Canada’s Retirement Saving: Lessons from Abroad, Ideas from Home. (Montreal: Institute for Research on Public Policu Study No. 9, 2010). 29 In the spring of 2010, the Canadian Federation of Independent Business stated that a survey of its members found 71 per cent are opposed to a proposal advocated by unions that would double CPP premiums and benefits. 30 Babich and Béland, 2009. 31 Bill Curry, “Flaherty proposes raising Canada Pension payroll premiums,” Globe and Mail, June 10, 2010. 32 Associated Press, “Provinces call for CPP expansion ahead of meeting,” CTV News, December 19, 2010. http://www.ctv.ca/CTVNews/Canada/20101219/cpp-pensionexpansion-101219/ 33 Jim Flaherty, quoted in CBC News, “Flaherty: Pooled pension consensus reached,” CBC News website, 2010. http://www.cbc.ca/news/canada/story/2010/12/20/flahertypension-reform-talks.html 34 CBC News, 2010. 35 Béland and Marier, 2012; Tamagno, 2008. 36 Tamagno, 2008. 37 Babich and Béland, 2009; Béland, 2006; Tamagno, 2008.

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87  The Politics of the Canada Pension Plan 38 Government of Quebec, Changes announced in the Québec budget speech in March 2011 (Government of Quebec). http://www.rrq.gouv.qc.ca/en/programmes/regime_ rentes/modifications_rrq/Pages/budget-quebec_2011.aspx 39 Government of Quebec, 2011. 40 Tom McFeat. “Pooled pension plans become the latest retirement planning option,” CBC News website, January 30, 2012. http://www.cbc.ca/news/business/taxseason/ story/2011/11/17/f-prpp-details.html 41 Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven: Yale University Press, 2008). 42 McFeat, 2012. 43 Canadian Labour Congress, Submission by the Canadian Labour Congress to the House of Commons Standing Committee on Finance Regarding Pooled Registered Pension Plans (PRPP s), March 2012. 44 Radio-Canada. 2012. “La réforme des pensions à l’ordre du jour de la réunion des ministres des Finances,” Radio-Canada, December 17. http://www.radio-canada.ca/ nouvelles/Economie/2012/12/17/001-reforme-pension-ministre-finances.shtml 45 Radio-Canada, 2012.

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7 The Alleged Downsizing of the Federal Public Service under the Harper Conservatives ian lee What happened to Harper the Visigoth? Where’s the hidden agenda? What about the skies opening and raining fire upon the advent of a Conservative majority? [Canada now] has a liberal party, wearing blue, and another slightly left of it, wearing red, and a third a tad left of that, wearing orange. Stephen Harper & Co. have beaten their old foes, not by replacing them, but by becoming them. Michael Den Tandt

introduction It is timely again to revisit the Government of Canada’s strategic plans for its public service. After having undergone a recession in 2008, followed by an avalanche of federal stimulus spending, Canada is once again in a period of austerity. Advanced economies are in dire straits in Europe and in our largest trading partner, the United States of America. Debate is ongoing about the sustainability of federal social programs. The time was ripe for the Harper Government to turn its eye to the federal public service. The purpose of this chapter is to examine the Harper record regarding public service downsizing in the context of economic and fiscal austerity but also in comparison with earlier downsizing policies of the Mulroney and Chretien eras. I characterize the cuts in the Harper era overall as “alleged” because, though cuts are underway at present, the evidence still reveals the Harper era as having increased federal public service employment significantly since 2006. Subsequent to the election of the Mulroney Conservative Government in 1984, austerity, restraint and downsizing has become part of the national political vocabulary. There was a logic to this because commencing in the second Trudeau Administration, the Government of Canada started to generate large deficits due mainly to significant increases in social programs that became larger with the passage of time. The Mulroney Government addressed the deficit, by inter alia, adopting an aggressive privatization program that sold off most of Canada’s commercial

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89  The Alleged Downsizing of the Federal Public Service

crown corporations such as Petro Canada, Air Canada, and Canadian National Railway, but also by successfully passing a free trade agreement with the US and subsequently NAFTA with US and Mexico and adopting the goods and services tax (GST) Nonetheless, the Mulroney Conservatives failed to significantly reduce the deficit. The election of the Chretien Liberals in 1993 was not promising for supporters of fiscal probity for the Liberals campaigned during the election against deficit reduction as a hidden agenda to reduce government spending and especially social expenditures. Thus, many Canadians were astonished by the 180 degree turn announced in the 1995 Budget when Finance Minister Paul Martin introduced his budget by stating: “Mr. Speaker, there are times in the progress of a people when fundamental challenges must be faced, fundamental choices made – a new course charted … We can take the path too well-trodden of minimal change, of least resistance, of leadership lost. Or we can set out on a new road of fundamental reform, of renewal of hope restored. Today, we have made our choice. Today, we take action.”1 Martin chose to address Canada’s $38.5 billion annual deficit and an accumulated debt of $487 billion, in announcing $17 billion in expenditure reductions over three years. Martin carefully noted that expenditure reductions to tax increases were set at a ratio of $7 for every $1 in tax increases. To place this in context, in the recent fiscal cliff crisis in the US, President Obama demanded a ratio of 1:1 and while achieving significant tax increases did not achieve any expenditure reductions. More importantly, as a context for this chapter, Martin called for a reduction of 45,000 public servants. Research in 1996 revealed that while the Progressive Conservative Party promised “pink slips and running shoes” in the 1984 election campaign, instead they granted federal public servants job security – not once but twice – during their nine years in office. Even more ironically, despite the Liberals’ repeated promises in the 1993 election to treat federal public servants with far greater respect and dignity than the Conservative government, once in power they orchestrated the largest downsizing in the history of the federal public service in 1995–97.2 Yet, while Mulroney promised but failed to balance the budget, Chretien and Martin who did not make such a promise in the 1993 election succeeded in balancing the federal deficit.

the size and scope of the federal public service: context As defined by the Financial Administration Act, the Federal Public Service consists of two main segments: the Core Public Administration and separate employers. The term “Core Public Administration” refers to more than 80 departments and agencies named in Schedules I and IV of the Act. In addition, the broader public service includes the RCMP and the Canadian Forces.

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90  Ian Lee Table 7.1 2011–12 Workforce Full-Time Equivalents (FTE s) Federal workforce within this study

FTE s

Federal Public Service (Core Public Administration, Separate Agencies) and Parliament RCMP regular, civilian members; Canadian Forces members, active reserve TOTAL

283 400 92 100 375 500

Source: Departmental Performance Reports, 2010–11

Figure 7.1 Federal employment, FTE basis 1990–91 to 2011–12 390

390

370

370

350

350

330

Average: 336,400 (1990–91 to 2011–12)

330 310

290

290

270

270

250

250

19

90 19 –91 91 19 –92 92 19 –93 93 19 –94 94 19 –95 95 19 –96 96 19 –97 97 19 –98 98 19 –99 99 20 –00 00 20 –01 01 20 –02 02 20 –03 03 20 –04 04 20 –05 05 20 –06 06 20 –07 07 20 –08 08 20 –09 09 – 20 10 10 20 –11 11 –1 2

310

According to the Parliamentary Budget Office, federal employment reached its maximum level in 2010–11 when full-time equivalents (FTEs) numbered 380,000. Between 2010–11 and 2011-12, more than 4,000 FTEs were reduced to achieve a new level of 375,500, as can be seen in Table 7.1.3 There have been significant variations in the number of core federal public servants throughout the last 20 years. Specifically, the PBO found that: “Between 1990–91 and 1998–99, federal employment reached a low, dropping to approximately 288,500 in 1998 as the full effects of Program Review were realized. By the late 2000s, employment had rebounded fully and continued to grow … In effect, the population lost over 70,000 jobs in the late 1990s and subsequently regained them by adding over 90,000 in the decade that followed.4

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the liberal downsizing of the 1990 ’s On February 27, 1995, then Finance Minister Paul Martin, in his Budget speech announced: As a result of that review, and a focus on key national priorities, we will be able to reduce departmental spending dramatically over the next three years while maintaining the services that are truly needed by Canadians.5 For example, between this fiscal year and 1997–98, annual spending will go down by: $1.6 billion at Defence; almost $550 million for international assistance; • $1.4 billion at Transport; • more than $600 million at Natural Resources; • almost $900 million at Human Resources Development; • over $200 million at Fisheries; • almost $900 million in the Industry portfolio; • more than $550 million at the Regional Agencies; and • nearly $450 million at Agriculture. In short, overall departmental spending will be cut by almost 19 per cent in just three years.6 • •

The Budget Fact sheets revealed that this would result in a loss of approximately 45,000 jobs and reap $17 billion in expenditure savings.7 In its next Budget in 1996, Martin announced further cuts: “To that end, we are further cutting our own departmental spending by almost $2 billion to take effect in 1998–99. This is over and above the substantial savings secured in our first two budgets.”8 Program Review ultimately resulted in a reduction of 45,000 employees (19%). When jobs eliminated in the RCMP, Military and Crown Corporations were factored in, the total job reduction rose to approximately 55,000.9 As can be seen from the chart below, the federal public service numbers dropped from over 230,000 in 1994 to 186,314 in 1999.

the harper public service cuts: its bark is worse than its bite When Stephen Harper formed his first minority government in 2006, the Government was quick to act on accountability and transparency in government. In their first Federal Budget, it was announced that: “The Government

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Figure 7.2 Changes in federal department spending 1997–98 relative to 1994–95 -49,4

Regional Agencies

-43

Industry Department

-50,8

Transport

-49,4

Natural Resources

-34,8

Human Resources Development

-31,8

Evnironment

-27,2 -23,6 -23,3

Fisheries and Oceans Industry (Science and Tech)

-21,5

Heritage and Culture

Agriculture -20,5 CIDA (International Assistance) -17,3 Foreign Affairs and International Trade -16,7 Public Works and Government Services -14,2 Defence -11,1 Veterans Affairs -10,2 Parliament and the Governor General -9,4 Citizenship and Immigration -8,9 Canada Mortgage and Housing -8,4 Justice -4 Solicitor General -3,8 Health -60

-50

-40

-30

Indian Affairs and Northern Development -20 -10 0

11,9 10

20

Figure 7.3 Public service employment 250 000

231 400

225 619 207 977

Number of Employees

200 000

194 396

187 187

150 000

100 000

50 000

0

1994

1995

1996

1997

1998

Years

Source: Treasury Board of Canada, 1999.

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will restrain the rate of spending growth. The Government will introduce a new approach to managing overall spending to ensure that government programs focus on results and value for money, and are consistent with government priorities and responsibilities. The President of the Treasury Board will identify savings of $1 billion in 2006–07 and 2007–08.”10 More specifically, the Government was committing to a launch of its Expenditure Management System (EMS) which is “the framework for developing and implementing the government’s spending plans.”11 The need for reform was echoed by then Auditor General Sheila Fraser in her November 2006 Audit Report which found that the current EMS “is not fully integrated with performance results … does not require departments to submit data to demonstrate that they have used their funding effectively.”12 In its subsequent 2007 Federal Budget Plan, the Government announced that it was “Enacting a new Expenditure Management System to ensure better value for Canadian tax dollars by reducing waste and making government more efficient through ongoing reviews of all departmental spending on a four-year cycle.”13 So, what did this mean to federal departments and agencies? They were now required to “review 100 per cent of their programs with a view to better focus programs and services, streamline internal operations and transform the way they do business and achieve better results for Canadians.”14 As part of these Strategic Reviews, all Departments and agencies were then required to: “identify reallocation options totaling 5 per cent from their lowest-priority and lowest-performing program spending.”15 At the end of the 4-year cycle announced by the Government, 98% of direct program spending was to have been reviewed. In the 2010 budget, Finance Minister Flaherty announced that “we will take specific measures to restrain the growth of program spending … we will launch a comprehensive review of administrative spending.”16 In his subsequent 2011 Budget, following the federal election that finally saw the Conservatives win a majority government, Minister Flaherty reminded Canadians that Budget 2010 “included a Strategic and Operating Review designed to realize substantial savings through greater efficiency and effectiveness. Now, with the backing we received from Canadians to guide us, we will launch that review so that, once it’s completed, we will achieve $4 billion in annual savings.”17 The Budget Plan 2011 elaborated on Minister Flaherty’s speech and noted the completion of the first four-year cycle of the strategic review exercise. “Together with measures to restrain the growth in National Defence spending, the first cycle of strategic reviews has resulted in $11 billion of savings over seven years and more than $2.8 billion in ongoing savings. As part of the Government’s plan to return to balanced budgets over the medium term and in order to restrain the growth in spending, the Government will undertake a one-time Strategic and Operating Review to be conducted across all of ­government in 2011–12.”18 In its study on federal employee compensation,

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94  Ian Lee

the PBO found that “Approximately 4,000 FTEs have already been eliminated per Budgets 2010 and 2011. As a result of announcements made in Budget 2012, the PBO expects that the workforce will be further reduced in the coming three years by 19,200 FTEs. This decline in employment represents a cumulative reduction of approximately 7.0 per cent of the workforce between 2011–12 and 2014–15 or a reduction of 8.0 per cent from the employment peak in 2010–11.”19 In March, 2012, the federal budget announced that a downsizing of the federal public service would occur over 3 years and result in a net, permanent savings of $5.2 billion and a loss of approximately 19,200 jobs. Critics on both sides immediately cried foul. Traditional conservative supporters decried that the cuts were not nearly deep enough while the Liberals, NDP and unions called the cuts excessive and ruinous not only to the public service but also to Canadians. While 2012–13 is the first year of the downsizing and the Government has released little information, enough is now available to examine the allegations of what impact this downsizing will have on the federal public service and whether it is likely to be massive or minimal.

details of the harper government cuts On March 29, 2012, Finance Minister Jim Flaherty announced in the federal budget that reductions in departmental spending would result in approximately $5.2 billion in ongoing savings, which represented 6.9 per cent of an aggregate review base of $75.3 billion.20 Minister Flaherty maintained that there would be no cuts to transfers to the provinces or to individuals.21 More precisely, approximately 12,000 government jobs would be cut over a threeyear-period. The Government further detailed that: “This number takes into account attrition – largely retirement or other voluntary departures. In total, federal employment will be reduced by about 19,200 or 4.8 per cent.” The Government also announced that “a large proportion of the job losses will occur in the National Capital Region, while the regional distribution of public service work is not expected to change significantly.”22 In summary, the Government stated: To put the total planned reduction in employment in perspective, the 4.8 per cent, or 19,200, reduction is about one-third of that experienced during the 1990s Program Review, which saw a reduction in federal employment of about 14 per cent or about 50,000.   Further, the planned reduction in employment would reverse only about 20 per cent of the increase in federal public sector employment that has occurred since the late 1990s. Indeed, between 1998 and 2011, federal employment grew by approximately one-third, or 95,000, from just under 300,000 in 1998 to just under 400,000 in 2011.23

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Not all Government departments were to be equally cut. When reviewing ongoing savings as a percentage of the review base and 2016–17 total program spending across the government, 6 departments were to be cut more than 10% of total program spending: • • • • • •

Human Resources and Skills Development: 11% Agriculture and Agri-Food:12% Health: 12% International Assistance Envelope: 14% Public Safety: 26% National Defence: 42%

Two departments subject to the most substantial reductions were Public Safety and National Defence notwithstanding long-time Conservative Party support for these policy fields.

reaction to the proposed cuts of budget 2012 Over the years, the Harper Government has long been dogged by allegations of a “hidden agenda.” Opposition parties and some pundits argued that fear of a hidden agenda prevented the Conservatives from winning a majority, rather than a minority government in 2008 despite the weaknesses of the Liberal Party at that time. Even in 2011, an Ipsos Reid poll suggested that approximately 40% of Canadians still thought that Prime Minister Harper had a hidden agenda.24 This fear was shared by public service unions. Before the Budget was even announced, six public service unions joined forces and launch a campaign, called Professionals Serving Canadians, that represented more than 75,000 professionals, from scientists and lawyers to pilots and finance officers. This was unprecedented. Union leaders were quoted as saying: “The health, safety and security of Canadians, which they believe will be compromised by anticipated budget cuts of up to $8 billion a year, is more important than the tradition of an invisible and neutral public service.”25 When the Budget itself was handed down, the Government framed the planned spending restraint as being “modest.” Its analysis was not shared by all. There was strong reaction on both sides of the political spectrum regarding proposed cuts to the federal public service. For example, the Canadian Center for Policy Alternatives (CPPA) asserted that the cuts would be far greater as the Government was not factoring in previous reductions provided for in various Departmental Strategic Reviews. The CPPA also predicted that the cuts “will be hard on the most vulnerable: Aboriginal Peoples, low-income families and individuals, those already out of work – and the environment.”26 As can be seen from Table 7.2 below, the worst case scenario would result in job losses exceeding 68,000.

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96  Ian Lee Table 7.2 Summary Job Losses by 2014–15

Scenario 1 (staff layoffs)

Federal public Service job losses

Not-for-profit, Crown corporation and private sector job losses

Total job losses excluding 2007–10 Strategic Reviews

Total job lossess including 2007–10 Strategic Reviews

51 200

10 800

62 000

68 300

Scenario 2 (transfer cuts)

0

53 800

53 800

60 100

Scenario 3 (mix of both)

25 500

28 600

54 100

60 400

Source: Departmental Reports on Plans and Priorities and author’s calculations. All job loss figures are by 2014–15

Yet, there was a balancing opposing criticism in the conservative spectrum. John Ivison of the National Post newspaper decried the cuts, stating: “Consequently, the cuts are a fraction of numbers circulated by public sector unions and will be a disappointment to those conservatives who wanted to see the size of government shrink dramatically.”27 Andrew Coyne was even more scathing in his column: “You fiscal conservatives who hung on all this time, while the Harper Conservatives ran up spending to levels no previous government had ever dreamt of … you, ladies and gentlemen, have been had ... All that the Tories are proposing to do is to roll back some of the increased spending that they themselves introduced. The public service from which the Tories pledge to trim 19,000 employees is the same one to which they added more than 30,000.”28 The parliamentary budget officer entered the fray on April 12, 2012 when he wrote to all deputy ministers and agency heads to request information “pertaining to the savings measures undertaken within your department that have been presented in Annex I of Budget 2012.”29 This request set off a series of battles between the PBO and the Government as the release of information was not forthcoming. Finally, in November 2012, the PBO announced that: “Only one-quarter of departments, representing three per cent of the $5.2 billion in budgeted cutbacks, have provided data on personnel losses or the impact on services to Canadians … The lack of disclosure will prevent the PBO from providing parliamentarians with independent analysis on the state of the nation’s finances and the estimates of the government.”30 This pronouncement by the PBO reinforced the “hidden agenda” allegations against the Harper Government. Surely, if there was nothing to hide, why would the Government not release the information? The rhetoric grew and culminated in the PBO’s announcement in late October 2012 that he

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97  The Alleged Downsizing of the Federal Public Service Table 7.3 Portfolio fte Staff Reductions Portfolio Aboriginal Affairs and Northern Development Portfolio Agriculture and Agri-Food Portfolio Canada Revenue Agency Heritage Portfolio Citizenship and Immigration Portfolio Environment Portfolio Finance Portfolio Fisheries and Oceans Canada Foreign Affairs and International Trade Portfolio Health Portfolio Human Resources and Skills Development Portfolio Industry Portfolio International Assistance Envelope Portfolio Justice Portfolio National Defence Portfolio Natural Resources Portfolio Privy Council Office Portfolio Public Safety Portfolio Public Service Commission Public Works and Government Services Canada Regional Development Agencies Shared Services Canada Transport Portfolio Treasury Board Portfolio Veterans Affairs Portfolio Total

# of FTE Reductions 480 1,144 3,008 479 402 636 52 535 452 1,416 2,008 947 314 342 1,621 261 98 3,273 86 163 240 300 469 236 272 19,234

Source: Treasury Board of Canada, Background on Economic Action Plan 2012 – Update on Public Service Reductions.

would be “filing and serving legal notice on all non-compliant Deputy Heads early this week.”31 In November, 2012, Treasury Board President Tony Clement announced that the Government had already eliminated 10,980 public service jobs. This was more than half of the total jobs that were to be eliminated. Minister Clement further elaborated, stating: “The job reductions have been achieved through a combination of attrition, which includes retirement, and positions eliminated under the collectively bargained workforce adjustment process. In the first half of this fiscal year, 7,500 positions have been eliminated through attrition, up from 7,200 originally projected in Economic Action Plan 2012.”32

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The government also released the FTE reduction targets by Government portfolio (see Table 7.3) and assured Canadians they were on track to achieve these goals over 3 years.33

conclusions This chapter shows that the Public Service of Canada has been under varied forms of program review, hiring freezes, strategic review and austerity for a major part of the of the past 20 years, but also a period of growth in the later Chretien years after Program Review and then even more so under the Harper Conservatives from 2006 to 2011. Indeed, while the Harper Government hired an additional 30,000 employees during their tenure, under their austerity programs they only eliminated 19,000 public servants. Restated, the Government of Canada is larger today under the Harper government than it was under the Chretien or Martin Liberal governments. Our review however, has also revealed that the bark of the Harper Gov­ ernment – like the Mulroney Government - has been much worse than its bite. As Andrew Coyne, John Ivison, and Michael Den Tandt separately concluded, the Harper Conservative Government is not very conservative and in many respects its policies are indistinguishable from blue liberals such as John Manley or Frank McKenna. Increasingly, Stephen Harper is revealed to be the twenty-first century Conservative equivalent of Mackenzie King, the master incrementalist, who famously said, “lean to the left, lean to the right but straddle the center.”

notes 1 Government of Canada, Finance Department, Budget Speech 1995 by Hon. Paul Martin (Finance Canada, 1995). 2 Ian Lee and C. Hobbs, “Pink Slips and Running Shoes: The Liberals Downsizing of the Federal Public Service.” In Les Pal, ed., How Ottawa Spends (Ottawa: Oxford University Press, 1996), 122–34. 3 Parliamentary Budget Office, Jennifer Strauss, The Fiscal Impact of Federal Personnel Expenses: Trends and Developments (Parliamentary Budget Office, 2012), 15. 4 Parliamentary Budget Office, Jennifer Strauss, The Fiscal Impact of Federal Personnel Expenses. 5 Government of Canada, Budget Speech 1995 by Paul Martin (Finance Canada February 27, 1995. http://www.collectionscanada.gc.ca/webarchives/20071127004123/ http://www.fin.gc.ca/budget95/speech/speech4e.html 6 Government of Canada, Budget Speech 1995. 7 Government of Canada, Budget 1995, Fact Sheets – 7

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99  The Alleged Downsizing of the Federal Public Service 8 Government of Canada, Budget Speech 1996 by Hon. Paul Martin (Finance Canada, 1996) http://www.collectionscanada.gc.ca/webarchives/20071122200801/http:// www.fin.gc.ca/budget96/speech/speech.pdf 9 Jocelyn Bourgon, Program Review: The Government of Canada’s Experience Eliminating the Deficit, 1994–99, A Canadian Case Study (Centre for International Governance Innovation, 2009). 10 Finance Canada, Federal Government Budget Plan: Focusing on Priorities, Canada’s New Government Turning a Leaf (Finance Canada, 2006), 50. 11 Treasury Board of Canada, Strategic Reviews: Frequently Asked Questions http://www. tbs-sct.gc.ca/sr-es/faq-eng.asp#q1 12 Auditor General of Canada, Report, Chapter 1: Expenditure Management System at the Government Centre (Auditor General of Canada, November 2006). 13 Finance Canada, Federal Government Budget Plan: Aspire to a Stronger, Safer, Better Canada (Finance Canada, 2007), 152 14 Treasury Board of Canada Strategic Reviews. http://www.tbs-sct.gc.ca/sr-es/index-eng. asp 15 Treasury Board of Canada, Strategic Review: Frequently Asked Questions. http://www. tbs-sct.gc.ca/sr-es/faq-eng.asp#q1 16 Finance Canada, Budget Speech 2010\ (Finance Canada, 2010), 15. 17 Finance Canada, The Budget Speech by Hon. Jim Flaherty, Minister of Finance, June 6, 2011, 7. 18 Finance Canada, Federal Budget Plan: The Next Phase of Canada’s Economic Action Plan, A Low Tax Plan for Jobs and Growth (Finance Canada, 2011), 181 19 Parliamentary Budget Office, Jennifer Strauss, The Fiscal Impact of Federal Personnel Expenses, vii. 20 Finance Canada, Federal Budget 2012 (Finance Canada, 2012) chapter 5. http://www. budget.gc.ca/2012/plan/chap5-eng.html#a4 21 Finance Canada, Budget in Brief 2012 (Finance Canada, 2012) http://www.budget. gc.ca/2012/rd-dc/brief-bref-eng.html 22 Kim Mackral, “Tory budget axes 19,200 public-service jobs,” Globe and Mail, March 29, 2012. 23 Finance Canada, Federal Budget 2012, chapter 5. 24 Thomas Walkom, “Harper’s curious hidden agenda talk,” Toronto Star, March 28, 2011. 25 Quoted in Kathryn May, “Public service unions abandon neutrality to challenge expected Conservative cuts,” Ottawa Citizen, March 21, 2012. 26 David Macdonald, The Cuts Behind the Curtain: How the Cutbacks Will Slash Services and Increase Unemployment (Canadian Centre for Policy Alternatives, January 2012). 27 John Ivison, “Budget 2012: A grand vision of still-big government,” Financial Times, March 29, 2012. 28 Andrew Coyne, “This is the terminus of Tory radicalism,” Financial Times, March 29, 2012. 29 Parliamentary Budget Officer April 12, 2012 letter to all Deputy Ministers or Equivalents (Parliamentary Budget Office).

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100  Ian Lee 30 MacLean’s, Canadian Press, November 6, 2012, PBO won’t issue analysis on Ottawa’s finances, blames secrecy, Maclean’s, November 6, 2012. 31 Susan Mas, “Budget watchdog ready to sue for info on impact of cuts” CBC News, October 21, 2012, 32 Treasury Board of Canada, Backgrounder to Press Release issued by Office of the President of the Treasury Board and Minister responsible for FedNor Tony Clement, November 16, 2012, Harper Government Announces 10,980 Public Sector Positions Eliminated in Past Six Months. 33 Treasury Board of Canada, Backgrounder on Economic Action Plan 2012 – Update on Public Service Reductions, November 16, 2012. http://www.tbs-sct. gc.ca/media/nr-cp/2012/1116-eng.asp

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8 How Ottawa Controls: Harper Era Strategic Reviews in the Context of the 1993–1996 Liberal Program Review robert p. shepherd A lack of transparency results in distrust and a deep sense of insecurity. Dalai Lama1

introduction Expenditure reviews are nothing new in Canada. So why is it that the old adage, “the more things change, the more they stay the same,” can be applied to the current Strategic Reviews initiative? As governments undergo periods of economic uncertainty, deficit and debt reduction strategies are developed to find ways to reduce spending, make current programs more efficient, or find alternative means to generate revenues. Canada has experienced periods of bureaucratic growth and austerity many times. When the economy is doing well, governments find ways to spend, and when it is contracting they undergo severe restraint. The longstanding problem is finding an appropriate balance between responsiveness to economic conditions, and the optimal capacity for government to deliver on its obligations to citizens. Systematic review processes contribute to assessing government programs to ensure such balance, but is government getting better at such processes in order to manage better? The purpose of this chapter is to compare the current and ongoing Strategic and (eventually combined) Operating Reviews initiative (SOR) with the Liberal 1994–1996 Program Review exercise, using aspects of a 1996 paper prepared by Gilles Paquet and Robert Shepherd, “The Program Review Process: A Deconstruction,” in How Ottawa Spends 1996–1997, as the basis for evaluation. In that analysis, a number of conclusions were reached about the process used in the Program Review according to four major indicators. However, only three will be discussed for the purposes of this chapter: •

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The extent to which it has effected a profound organizational reform of the governance system;

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102  Robert P. Shepherd •

•

The extent to which it examined seriously the efficiency and affordability of all existing federal programs and the degree to which delivery mechanisms were enhanced; and The extent to which it has generated significant reduction in federal government expenditure levels.2

As a general theme transcending these indicators, this chapter focuses on the extent to which the Strategic Reviews and Program Review processes were open and transparent under the first indicator as more open government was a significant promise made by the Conservative Party in the 2006 election. Two specific arguments extend from this theme. First, the criteria used to assess programs is closely guarded, planning and reporting documents are notoriously vague, and parliamentary access to such decisions is absent. Second, although the processes of review have been improved since 1996 in terms of methods and approach, they have offered little by way of making positive contributions to reforming government expenditure management. The only real conclusion is that the purpose behind these exercises is to bluntly cut government spending without any “strategic” sense of direction at the program level. The first section examines the 1993–1996 Program Review process and revisits earlier conclusions about that process. The second section explores the rationale, development and implementation of the strategic (and eventually operating) reviews (SOR) initiative beginning in 2007. The third section assesses each of these processes through the lens of the 1996 indicators, and the final section makes some general observations about each of these processes.3

the 1993 – 1996 program review The Program Review can be traced in part to the financial crisis of the early 1990s, and as part of a larger plan for government renewal to improve efficiency mainly by harmonizing federal and provincial responsibilities. The Mulroney government commissioned a blue-ribbon panel of experts headed by Robert de Cotret in 1991, which concluded that two major areas of transformation were necessary: (1) to restructure federal departments; and (2) to re-assess the role of central agencies. Prime Minister Kim Campbell reduced the number of federal ministries from 32 to 23, regrouping some and eliminating six altogether. She also created an advisory committee to provide advice on the restructuring of government, reducing costs, increasing effectiveness and enhancing service to the public according to three phases: 1 Building new structures and management teams; 2 Carrying out operational rationalization at the departmental level; and, 3 Harmonizing programs and services.

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When the Liberals assumed power in late 1993, Marcel Massé was appointed minister for public service renewal, and Phases 2 and 3 were maintained. In 1994, a departmental guide was developed for the Program Review, which outlined six tests for reviewing their programmatic activities: 1  Public Interest Test 2 Role of Government Test 3  Federalism Test 4  Partnership Test 5  Efficiency Test 6  Affordability Test

Does the program area or activity continue to serve a public interest? Is there a legitimate and necessary role for government in this program area or activity? Is the current role of the federal government ­appropriate, or is the program a candidate for realignment with the provinces? What activities or programs should or could be transferred in whole or in part to the private or ­voluntary sector? If the program activity continues, how could its ­efficiency be improved? Is the resultant package within the fiscal restraint? If not, what programs or activities should be abandoned?

Initially these tests were to be applied sequentially in four stages where each one was dependent on the results of the former, serving as a sieve to assess the value of each federal program: (1) public interest test; (2) subsidiarity test; (3) efficiency test; and, (4) affordability test. This linear approach placed the burden of proof on programs to demonstrate a rationale as to why their programs met the tests in order to maintain their financial resources and staff levels. If a program failed to provide evidence of value according to evaluations, audits and other evidentiary sources, it was identified for elimination or adjustment. The Program Review was bottom-up and consultative, where program managers, through the guidance of a central departmental coordinating committee, were required to apply the six tests, and submit their “strategic plans” to a Secretariat for Program Review established in the Privy Council Office. Some departments were involved in certain decisions of what to cut with some departments opting to cut program spending but preserve staffing levels, while others opted to do the reverse, and still others applied a combination of these. Some departments opted to raise revenues through user fees or other vehicles. Many departments cut research, oversight and policy units, as these were easy targets, resulting in significant losses in capacity in these areas.4 These plans were then assessed with the help of the Department of Finance and Treasury Board Secretariat. The plans were then submitted to a committee of deputy ministers to determine whether they were consistent with the

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Program Review guidelines. These results were then submitted to the ministerial committee chaired by Marcel Massé whose role was to screen the options from a political perspective, and to generate recommendations, which were presented to Cabinet, and the resulting decisions incorporated into the 1995 federal budget.

the strategic (and operating) review process: 2005–06 to present The combination of the Program Review and growth in the Canadian economy in the late 1990s meant the $43 billion deficit left by the Mulroney government was almost eliminated. Chrétien made sweeping changes to the role of government, including increased reliance on regulation to advance federal policy aims, and instituted a regime of fiscal discipline using targeted tax and spending measures to advance a knowledge-based economy. Paul Martin, minister of finance, tabled four budgets between 1997/98 and 2000/01, in which half of budget surpluses were allocated to program spending, and the remainder to debt reduction and tax relief. However, this program eventually shifted from one of concentrated spending initiatives on programs to tax relief.5 In addition, the 2004 election of Paul Martin as prime minister focused on increasing transfers to the provinces, and tax reduction for individuals. Martin soon found these initiatives unsustainable calling for a need to cushion the $2 billion surplus needed to afford provincial transfers.6 The size of the public service had grown to pre-Program Review levels, which led to a hiring and capital projects freeze in 2003.7 Martin introduced a new Expenditure Review Committee chaired by John McCallum, supported by the Privy Council Office (PCO), which was assigned the task of recalibrating expenditures to areas of government priority by requiring the thirty largest departments to find five percent savings in their operating and program expenditures using policy and implementation tests in ten areas. The process and tests were virtually identical to those of the 1994 Program Review except that it added one other test question: a value-formoney test, which asked: Are Canadians getting value for their tax dollars? What is the evidence that the Initiative is achieving the stated policy objectives? Is the program citizen-centred?8 In fact, this test would later inform a line of inquiry for the federal Evaluation Policy in 2009. The review process was intended to be an internal consultative process using a two-stage approach: 1 All ministers were required to meet with the Expenditure Review committee to discuss the rationale and effectiveness of their respective programs. Like the Program Review, options of cancellation, reduction, or structural change were considered;

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2 Adjustments were considered for making retained programs more fiscally sustainable in the long-run, including reducing overlap within and between departments, and ensuring that value-for-money was determined.9 These developments are critical as they formed the basis of continuous and systematic federal program review intended to provide routine monitoring of government spending and growth. The federal Management, Resources and Results Structures Policy (MRRS) implemented 1 April 2005, saw the implementation of one-year plans and annual departmental report cards, was intended to embed this thinking in departmental and agency routines. The review process relied in part on the MRRS policy to develop ongoing monitoring whereby all departments were first required to construct a Program Activity (later “Alignment”) Architecture (PAA), which provides a high-level depiction of each department’s major outcomes (e.g., safe food, sustainable national parks). In achieving these outcomes, departments and agencies provide a Report on Plans and Priorities (RPP) annually to the Treasury Board Secretariat, which approves the plan. At the end of each fiscal cycle, they are then required to submit a Departmental/Agency Performance Report on how their results aligned with the plan in the achievement of outcomes. Each department/agency, therefore, was expected to institute a sustainable system of monitoring consistent with the MRRS Policy, and each Deputy Head was graded on systems performance under the Management Accountability Framework (MAF) established in 2003. As of the 2005/06 reporting period, approximately $11 billion in budget reductions were being sought, including savings from departmental operations and procurement, reductions in government space and contracting out, and streamlining activities such as federal services in Service Canada. In terms of process, although it was not always clear how the seven tests were being applied at the departmental/agency level, the results of discussions were made known in Parliament through performance reports, and what could be gleaned from the Budget and Estimates. In addition, the TBS Expenditure Review Committee coordinated expenditure reviews which played a key role in maintaining “a common government-wide approach [for] the identification of programs and the collection, management, and reporting of financial and non-financial information relative to those programs.”10 This framework remained intact with the election of the Conservatives to a minority government in 2006. The Conservatives introduced some key measures. First, the Federal Accountability Act (FedAA) instituted measures to improve the oversight of government, including the creation of a new Parliamentary Budget Office (PBO) “to provide independent analysis to Parliament on the state of the nation’s finances, the government’s estimates and trends in the Canadian economy.”11

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Second, it announced in Budget 2010 a three-point plan for returning to budgetary balance over the medium term, including the use of “strategic reviews” with the aim of reducing spending by $17.6 billion over five years. In such reviews, all federal organizations identify their lowest priority and lowest performing programs on a rotating basis every four years, expected to amount to at least five percent of program spending, and the savings allocated to higher priority and performing programs. Targets and results achieved through the strategic reviews were in constant flux, being reported using various figures as they became available or were forecasted. The challenge was, and remains that forecasts for any current year would not be reported until the next budget, and even then, it was not clear where cuts and savings would be felt. It was announced in the March 2011 budget that a combined strategic and operating review (reviews to operations budgets) would focus on improving the efficiency and effectiveness of government operations and programs and replace the next cycle of strategic reviews. It also announced the creation of a special committee of Cabinet, led by Treasury Board Minister Tony Clement, tasked with finding “administrative efficiencies.” The committee focused on $80 billion of approximately $240 billion annual direct program spending in 2011–12 with the aim of finding five percent cuts totalling $11 billion by 2015–16. The operating review required departments and agencies to present additional 5 and 10 percent scenarios for cuts including public service salaries, professional services contracts, grants, capital, and payments to Crown corporations. Therefore, whereas the strategic reviews focused on better aligning program spending, the operating reviews examined cuts to administrative services. Notably, the cuts made in 2010 were not recorded in the 2011 budget, meaning that the re-allocations from strategic reviews were unknown, and the effects on programs unreported. Internal to departments and agencies, the continuous process mirrors that of the Program Review. Strategic plans are created to address the strategic reviews, and scenarios presented for the operating review, which are submitted to the Treasury Board Secretariat for assessment. These plans are then submitted to a deputy ministerial committee, which then submits these to the ministerial committee. Recommendations are then presented to the full cabinet and prime minister for discussion and action. Respondents indicated that departmental processes were similar to those of the Program Review: top-down from internal management committees. When asked whether there was a difference in approach to the strategic and operating review elements, respondents indicated that these varied between departments, but that as far as they could determine, most departments and agencies used a combined approach in order to ensure a coordinated and controlled strategic plan and scenario presentation so as to reduce the impacts of spending cuts on their departments.

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observations There are striking similarities in observations between the Strategic and Operating Reviews exercise and the 1994–1996 Program Review process. The following are key themes taken from the 1994–1996 experience and applied to current efforts. “As a federal expenditures reduction strategy, Program Review has been relatively successful.” This was a major observation made in the 1996 paper, and applies to the current exercise. The Program Review saw a reduction in federal spending of 20  percent, and more than 45,000 federal positions cut.12 There was the sense the exercise was founded on the right ideas and considered a “political success,”13 but that implementation was held to strict timelines that were regarded as unreasonable, and that objectives were not always clear at the departmental and agency levels. It was also a highly conflictual process as it pitted many interest groups against each other. Governments have not been keen to replicate this specific process for this reason. With respect to the current process, the federal government appears to be on track with meeting its Budget 2011 promises. The three-point plan announced in Budget 2010 promising $17.6 billion in cuts over five years appears to be on track according to Budget 2012: “Budget 2010, which announced targeted actions to control the growth in direct program spending, including: restraining the growth in defence spending; capping the International Assistance Envelope; freezing departmental operating budgets for two years; and freezing the salaries of the prime minister, ministers, members of parliament and senators until 2013. To date, the federal government claims to have made cuts amounting to $2.8 billion from the strategic reviews annually since 2010, and ongoing cuts of $4 billion in operating expenses until 2014–15.14 It is likely this latter number will be closer to $7.8 billion in annual cuts once the three rounds are completed in 2014–15. The real question, however, is whether any evidence-based assessment of programs were made, or whether departments and agencies simply “offered up” vulnerable programs and services in order to reduce the impact on their major programs. With respect to the number of federal positions, the information available varies, but there is evidence that at least 6,300 positions have been cut in both the 2007 and 2010 rounds of strategic review. It is estimated that once completed, more than 30,000 positions could be shed, which includes the 19,200 indicated in Budget 2012.15 It is not entirely clear where these cuts have been made, but it has been contended that social programs remain especially vulnerable.

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The transparency of the expenditure reduction process has changed little since 1994. A consistent complaint regarding the strategic, and strategic and operating reviews process was the strict adherence to secrecy, and ultimate control of communications in the hands of the Prime Minister’s Office. Budget 2010 states that information on strategic reviews would not be available until 2011, but there was no indication in Budgets 2011 and 2012 as to where the cuts to program spending were made. In fact, the Parliamentary Budget Officer was so concerned about this that he requested information from the government on this issue on several occasions throughout 2012. In a 15 May 2012 letter, Wayne Wouters, Clerk of the Privy Council, indicated to Page that his request for information on how the government implemented the 2012 Budget’s $5.2 billion strategic and operating review cuts over three years, would have to wait until public sector unions were informed. However, union officials communicated that they too wanted this information.16 Since May 2012, accusations have been made against Mr. Page that he exceeded his mandate, and that the Privy Council Office allegedly directed departments and agencies not to cooperate with the PBO. In October 2012, the PBO sought legal opinion on the scope of his mandate. However, until that judgement could be made, a deadline was set for 23 May to which 16 of 83 organizations said they would respond for information. This deadline was then extended to 10 October and then 19 October, and a total of 43 indicated they would honour the request. Most significantly, the largest 20 departments had not responded. What is critical in this dispute is that Mr. Page’s appointment would expire in this reporting period. However, the choice of the next PBO will be carefully screened, and one selected, who is aligned with the Conservative government agenda. Since November 2012, several departments have begun posting financial tables that explain in broad terms where spending cuts are being made. However, this information is at the activity rather than program level. This means that Canadians are no farther ahead in understanding where specific program cuts have been made. The review process is only internal to government It was concluded in the 1996 paper “that [the Program Review] has been conducted entirely by ‘insiders,’ senior political and bureaucratic officials who were likely to bear the brunt of any serious transformation of the governance system.” It was observed that the citizenry remained uninformed whereby, “the process was orchestrated from the top, with limited internal consultation and without any meaningful external consultation.”17 The same dynamic persists with respect to the Strategic Reviews process: little information is made available from departments and agencies, nor the criteria used to assess

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­ rograms. It was not until Budget 2012 that Canadians were able to at least p see the broad tests applied, buried deep in Annex 1. As it turned out, the tests were similar to those of the previous rounds of review: •

•

•

•

•

•

•

Operating efficiency  To what extent are results being achieved efficiently? Can this activity be delivered at a lower cost or in a more effective way? Internal services  Are internal services as efficient as possible? Can improvements be made to reduce any overlap and duplication? Effectiveness  To what extent is this program, activity or service achieving the expected results for which it was designed? Affordability  Is the program, activity or service a priority, and is it affordable? Relevance and need  To what extent is there still a need for this program, activity or service? Federal role  To what extent is this program, activity or service consistent with the federal government’s roles and responsibilities? Organizational role  Would greater efficiencies be achieved if another department or agency, a government service provider, or the private sector delivered the program, activity or service?18

Like the 1994–96 process, Treasury Board Secretariat guidance on the specific criteria used to assess these questions remained in the hands of insiders with very little information being released to Parliament or Canadians. As with the 1994–96 exercise, withholding information was an effective way to immunize government decisions from public scrutiny. Respondents assumed that the exercise remained a top-down one, and was driven largely by priority setters with no visible set of indicators or a plan for program cuts.19 In essence, the review process was used as a blunt instrument for cutting programs where expeditious to do so. These features alone raise some concerns about how truly rational and consultative the process is as the Treasury Board Sub-Committee on the Strategic and Operating Review has been secretive in its deliberations with departments, with very little information made available on its procedures, much like the MAF process. What is even more disturbing at the political level is the fact that whatever changes are occurring to program spending, the operations of programs are being approved in what now amounts to two omnibus budget bills in 2012 (Bills C-38 and C-45). There were virtually no details in these bills that showed where specific cuts were proposed so that parliamentarians could debate the merits of these decisions. Even where limited debate on these bills was permitted, the majority government refused to entertain any amendments as demonstrated by the more than 600 amendments to Bill C-38 that were defeated in June 2012. From a democratic perspective, passing these budgets with very little scrutiny on the part of members of Parliament signals a downward shift in the way

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fundamental changes can be made to programs and services, and the overall way departments and agencies are structured. It was announced in Budget 2012 that as a result of the operating reviews, savings would be sought to so-called “back-room” expenditures, meaning those functions that support departments and agencies in their work such as human resources, audit, evaluation, information management, and other stewardship functions. With support functions out of their control, it remains to be seen whether departments and agencies can maintain programs and services at a level of quality and capacity expected by Canadians, especially as this affects program efficiency and effectiveness. Ultimately, these reviews are about efficiency and affordability. It was concluded that the aim of the 1994 Program Review was affordability, or reducing expenditures: “Program Review is reduced to a modest panoply of ongoing review activities designed to examine ‘the need, affordability and efficiency of all programs….Moreover, its governance component had been set aside and replaced by a focus on ‘quality services.’ The focus on ‘improved performance’ and on ‘results-based management’ of the ‘quality services’ exercise had become the new centre of gravity.”20 Indeed, the entire focus of the current MRRS Policy is monitoring performance of programs in an attempt to understand program outputs. However, even that has been reduced to mainly assessing program efficiency. Indeed, the MAF also has deteriorated into a report card exercise for DM performance on spending efficiency. Evidence to actually support the improvement of internal systems under the MAF remains unseen by the public, as assessments are not available for public scrutiny. As the main “policy” aim, austerity guides most decisions. Budget and strategic reviews discourse invariably focus on spending reductions, and the extent to which government can afford any new or existing initiatives. That there is any concerted debate at all in Parliament on the need, rationale, relevance, and effectiveness of programs is non-existent. When the only message from political masters is austerity, then any spending is excessive. The rational assessment of programs will almost invariably be held hostage to efficiency concerns.

conclusions The 1993 to 1996 Program Review process was instituted not only to address difficult economic times, but to meet the challenges posed by significant shifts in the way the country and international economy works. Likewise, the Strategic Reviews process was instituted to better focus federal priorities, but ultimately to cut programs and services. Continuous and systematic program reviews are a cottage industry in Ottawa, with increasing departmental and agency resources being devoted to addressing endless accountability

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r­ equirements. Given the practice with this endeavour since at least the 1980s, one would think that the federal government would have mastered this task by now. And, in essence, it has, at least as far as reducing spending and cutting jobs. However, the process for achieving these aims remains virtually unchanged. Governments, both Liberal and Conservative, have operated in secret: departments continue to assess programs and services, and make decisions on cuts without the same public debate in Parliament that created them. Regardless of whether one thinks Mr. Page exceeded his mandate or not regarding requests for information on ongoing cuts, a strong argument can be made that it is discouraging that an officer of Parliament should have to resort to the courts for this information, or any citizen for that matter. Internal departmental and central agency processes for deciding on how to cut and where to cut, have remained shrouded from public scrutiny. Public documents, including departmental and agency RPPs and DPRs provide little meaningful information on these important questions about where cuts to service have or are being felt. At a time when Canadians are hungry for democratic participation, successive federal governments have closed ranks, and found more creative ways to hide information. The limited information at the activity level found on departmental websites is so general as to be meaningless. However, unlike the Program Review exercise which provided citizens with at least contact information in case of questions, no such capability is available for the current processes. The greater objective and opportunity for maintaining these reviews, however, is to allow public debate on how to ensure cohesion in the federation amid changing social, political and economic circumstances. Despite demands from several quarters to get on with this essential national project, successive national governments have opted instead to address internal program efficiency and spending using accountability as the pretext for action.21 The key question that invariably one must ask regarding these reviews is: what is the endgame? Is it to build better programs? Is it to create a better and more effective federation? To direct program spending for partisan ends? It is difficult to answer these questions, because there is no apparent and transparent vision or plan other than balancing a budget that few Canadians have participated in or even understand. Jeremy Bentham may be correct is his retort to such events: “I do really take it for an indisputable truth and a truth that is one of the cornerstones of political science – the more strictly we are watched, the better we behave.”22

notes 1 Quoted in Telegraph, “Dalai Lama: I Shout and Say Harsh Words.” Available at http:// www.telegraph.co.uk/news/worldnews/asia/tibet/962176/Dalai-Lama-Ishout-andsay-harsh-words.html

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112  Robert P. Shepherd 2 Gilles Paquet and Robert Shepherd, “The Program Review Process: A Deconstruction.” In Gene Swimmer (ed.) How Ottawa Spends 1996–1997: Life Under the Knife (Ottawa: Carleton University Press, 1996), 48. 3 Five anonymous and confidential semi-structured interviews were carried out between August and September of 2012 with senior federal officials familiar with the conduct of SOR at the departmental level. The results of these interviews are only used in this chapter to validate the process of strategic and operating reviews, and will not be cited directly due to purposes of maintaining confidence. 4 G. Bruce Doern, “Evolving Budgetary Policies and Experiments: 1980 to 2009–2010.” In Allan Maslove (ed.), How Ottawa Spends 2009–2010: Economic Upheaval and Political Dysfunction (Montreal and Kingston: McGill-Queen’s University Press, 2009), 14–46. 5 Geoffrey Hale, The Politics of Taxation in Canada (Broadview Press, 2001). 6 P. Francoli, “Martin, public servants to face off.” The Hill Times, 1 May, 2004. Available at: http://www.hilltimes.com/civil-circles/2004/01/05/martin-publicservants-to-face-off/12940 7 Canada. Treasury Board Secretariat and Department of Finance, “Backgrounder: Government Takes Action to Control Spending.”, 2003. Available at: http://news.gc.ca/ web/article-eng.do?crtr.sj1D=&mthd=advSrch&crtr.mnthndVl=1&nid=74299&crtr. dpt1D=6694&crtr.tp1D=&crtr.lc1D=&crtr.yrStrtVl=2003&crtr.kw=&crtr. dyStrtVl=10&crtr.aud1D=&crtr.mnthStrtVl=12&crtr.yrndVl=2004&crtr.dyndVl=7; L. Scratch, Background Paper: “Public Service Reductions in the 1990s: Background and Lessons Learned.” Library of Parliament, 2010: Publication No. 2010-20-E. Available at: http://www.parl.gc.ca/Content/LOP/ResearchPublications/2010-20-e.htm 8 Finance Canada Budget 2005. Finance Canada 2005, Annex 1. 9 Finance Canada Budget 2005. David A. Good, The Politics of Public Money: Spenders, Guardians, Priority Setters and Financial Watchdogs Inside the Government of Canada. Toronto: University of Toronto Press, 2007, 275. 10 Canada. Treasury Board Secretariat, “Management, Results and Resources Structures Policy.” Ottawa: Treasury Board Secretariat 2005. Available at: http://www.tbs-sct. gc.ca/pol/doc-eng.aspx?id=14252§ion=text#cha3, s. 3.1. 11 Canada. Office of the Parliamentary Budget Officer, (2012). “Mandate.” Available at: http://www.pbo-dpb.gc.ca/en/ 12 G. Bruce Doern, “Evolving Budgetary Policies and Experiments: 1980 to 2009–2010,” 13 G. Bruce Doern, “Evolving Budgetary Policies and Experiments: 1980 to 2009–2010,” 29; Canada. Office of the Auditor General, (1998). April Report of the Auditor General of Canada: Chapter 2 – “Expenditure and Work Force Reductions in Selected Departments.” Ottawa: Supply and Services, 1998) 14 Canada. Finance Canada, Budget 2012, Finance Canada 2012, Annex 1: Responsible Spending. Ottawa: Supply and Services. Available at: http://www.budget.gc.ca/2012/ plan/anx1-eng.html#a1, s. 5.0. 15 Canada. Finance Canada, Budget 2012, and Julian Beltrame. “Federal Public Service Cuts: Up to 68,000 Jobs to Vanish, Study says.” Huffington Post, 24, January, 2012.

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113  Harper Era Strategic Reviews 16 See: Jessica Bruno, “PBO says Parliament’s request for details on feds’ spending cuts has constitutional significance,” The Hill Times, 4 June, 2012 17 Paquet and Shepherd, “The Program Review Process,” 51. 18 Canada, Finance Canada, Budget 2012. 19 David Zussman, “The Precarious State of the Federal Public Service: Prospects for Renewal.” In G. Bruce Doern and Christopher Stoney (Eds.), How Ottawa Spends 2010–2011: Recession, Realignment, and the New Deficit Era (Montreal and Kingston: McGill-Queen’s University Press, 2010), 219–42. 20 Paquet and Shepherd, “The Program Review Process.” 53. 21 Robert Shepherd, “In Search of a Balanced Canadian Federal Evaluation Function: Getting to Relevance,” Canadian Journal of Program Evaluation, 26(2) 2012: 1–45. 22 Quoted in: Christopher Hood, and David Heald (Eds.)Transparency: the Key to Better Governance? (New York: Oxford University Press, 2006), 9.

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9 National Unity through Disengagement: The Harper Government’s One-Off Federalism david m c grane introduction

Since arriving in power, the Harper Conservative government has frequently used an approach that I refer to as ‘one-off federalism’ as a method of managing the Canadian federation. One-off federalism is when the federal government signs a bilateral agreement with each of the ten provinces in the same policy area as a way to form a single cohesive national strategy. This chapter outlines the scope of one-off federalism, dives into the details of these bilateral federal-provincial agreements, and explores the Harper government’s motivation for adopting this approach. The first section illustrates how the use of such one-off arrangements has proliferated since the Conservatives have arrived in power. The second section discusses how roughly half of the texts of the bilateral agreements that the Harper government has made with provinces have not made been public, despite their importance to citizens for understanding the nature of contemporary Canadian inter-governmental relations. Then, upon closely examining the sets of one-off federalism agreements that the Conservative government has made public, it is found that there was only limited asymmetry among the agreements signed by the federal government and rest of Canada (ROC) provinces while the Canada-Quebec agreements consistently demonstrated lower levels of conditionality and less federal intervention within provincial jurisdiction. The final section suggests that the primary motivation of the Harper government in adopting one-off federalism is the pursuit of national unity through disengagement, particularly on social issues. It should be noted that decentralization and accommodation of Quebec through the provision of some sort of ‘special status’ is not a new development in Canadian federalism. However, the context and motivation for decentralization and special status for Quebec has changed under the Harper government compared to previous Liberal governments. The Chrétien and Martin governments pursued national unity through collaborating with the provinces in such as way as to provide policy leadership

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within provincial jurisdiction. Such engagement often took the form of oneoff bilateral agreements. Indeed, bilateral agreements with provinces during the Chrétien and Martin years provided mechanisms for federal and provincial governments to collaboratively direct federal funding in prioritized social policy areas (housing, health, childcare, and post-­secondary education). The Liberal federal government provided social policy leadership through intergovernmental agreements that shaped Canada’s social policy agenda, created an atmosphere of ‘best practices’ learning, and built accountability mechanisms between the two levels of government.1 As opposed to using intergovernmental agreements to engage with provinces and pursue a pan-Canadian vision, the Harper government has used separate bilateral agreements with each province as a way to secure national unity through disengagement. The Conservatives’ national unity strategy involves acquiescence to Quebec’s desire for provincial autonomy that opens up space for ROC provinces to assert their own distinctiveness and attain narrow asymmetry in their agreements with the federal government. Besides relieving tensions within the federation, this disengagement by the Harper government reflects its neo-liberal orientation as it distances itself from leading social policy innovation and devolves more power to the provinces. Given the low public profile of these agreements and the fact their texts are often not made public, the Conservatives’ ‘hands off ’ approach to social policy issues takes place stealthily so as to avoid controversy for the government. In many ways, the Harper government is getting out of social policy innovation by devolving power to the provinces and the federal government is concentrating its policy innovation on areas that are directly linked to economic policy and economic competitiveness.2 The federal focus becomes the economy while the provinces are left to deal with social issues. One-off federalism is a flexible mechanism that allows the Conservatives to disengage with the provinces on social issues but to strongly intervene in provincial jurisdiction when economic interests are at stake as the case of Canada’s Economic Action Plan illustrates. Overall, whatever the gains in national unity, the ultimate result of one-off federalism is minimal leadership and guidance by the federal government in social policy, selective federal intervention within the economic realm, a more decentralized Canadian federation, and less transparency in inter–governmental relations.

definition and scope of one-off federalism One-off federalism is simply when the federal government signs a separate bilateral agreement with each province within a specific policy area. The idea behind one-off federalism is that the federal government can accomplish precise policy objectives which are in the national interest while allowing each province to have its own ‘Made-in-Saskatchewan,’ ‘Made-in-New Brunswick,’

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or ‘Made-in-Quebec’ plan. To be truly an example of one-off federalism, all provinces must sign agreements with the federal government within the same policy area. However, as with sales tax harmonization, one-off federalism can sometimes only succeed in getting a certain portion of the provinces to sign separate bilateral agreements with the federal government while some provinces refuse to co-operate with Ottawa’s initiative. This chapter will not deal with these failed or incomplete attempts at one-off federalism. Until the 1990s, there are only a few examples of one-off federalism in areas such as pensions, tax collection, social assistance, and economic development.3 Following the 1995 Quebec referendum and the Liberal government’s entry into negotiations with each province on agreements to transfer jurisdiction over labour market development, the federal government slowly began to wade into negotiating ‘one-off ’ agreements in other areas. Notable oneoff federalism arrangements were constructed by the Martin and Chretien governments in the areas of childcare, health care, infrastructure, official languages, post-secondary education, and the gas tax. To gain an appreciation of the scope of the Harper government’s use of one-off federalism, I have attempted to identify all the sets of one-off federalism arrangements involving the transfer of money to the provinces that have been completed since the Conservatives came into power. By ‘completed’, it is meant that every province had a bilateral agreement with the federal government in the same policy area during the Conservatives’ time in power. As such, the initial agreements could have been signed during the 1990s but the final province to sign an agreement to ‘complete’ the one-off federalism arrangement did so after the Conservatives arrived in power. In attempting to track one-off federalism, a significant challenge is to attain copies of the federal-provincial agreements that comprise one-off federalism arrangements since many of these agreements are not made public and they are not sent to a central depository. A computerized registry of federal-provincial agreements was created in 1998 at the Privy Council Office in Ottawa but I was informed by an official at PCO that the registry is no longer active and the last entries date from 2003.4 In any event, the official stated that the registry often included only the names of the agreements and not actual copies of the agreements. Fortunately, the Quebec provincial government maintains a list of all intergovernmental agreements that it has signed since 1922. Working off of this list, I was able to identify the sets of one-off federalism agreements signed by the Harper government by exploring if other provinces had signed similar agreements to those signed by Quebec. Then, through an extensive search5 of the Government of Canada’s website, I was able to identify the financial details of these agreements in budgets and news releases and locate, where available, texts of the agreements. Table 9.1 illustrates several interesting attributes of one-off federalism. First, while the Canadian Health Transfer (CHT), Canada Social Transfer

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(CST), and equalization remain the primary mechanisms for transferring money and tax points to the provinces, a significant amount of money is flowing through these one-off federalism agreements. These agreements now form a dense network of multi-year spending commitments stretching across the next several years for the Harper government. Second, with the exception of the immigration agreements, the time between the first provinces signing an agreement and the last province signing an agreement was relatively short. The Harper government has been quite adept at negotiating simultaneously with all provinces and ensuring that no province ‘holds out’ for a better deal. Third, these one-off federalism arrangements were used in a large number of different policy areas: housing, education, health, skills training, immigration, environment, agriculture, justice, economic development, and infrastructure. Fourth, the Conservatives in opposition criticized the Liberals for making one-off deals with provinces instead of dealing with federal-provincial relations in a multilateral fashion that included all provinces. However, with the notable exceptions of the childcare and Millennium Scholarship agreements, the Harper government has continued all of the Liberals’ one-off federalism agreements, even if they have changed the names.6 More importantly, the Conservatives have added several more one-off federalism arrangements in new areas.

managing the federation through secrecy and special status One of the major problems with one-off federalism is that it continues the tradition of executive federalism where deals are hammered out behind closed doors and then presented to citizens and legislatures as a fait accompli. There is no room for citizens or members of the House of Commons and provincial legislatures to provide input into these agreements. Even worse, the actual texts of roughly half of the agreements in the table above have not been made public. As such, it is impossible for the Canadian public and parliamentarians to discern the conditions under which the federal government is transferring billions of dollars to provincial governments. The Police Recruitment Fund is a good example of one-off federalism being used as a photo-op as opposed to an exercise in government transparency. The agreements with each province concerning the police recruitment fund were announced in nine separate press conferences from March 11–31, 2008 with a tenth press conference following in May 2008 to announce the final agreement. However, none of the texts of the actual agreements have been made public. Nonetheless, there are eight sets of publically available texts of one-off federalism agreements and I obtained the Wait Time Guarantees agreements through an Access to Information request after a two year wait. I examined the latest versions of each agreement in these sets to understand their ­levels

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118  David McGrane Table 9.1 Sets of One-off Federalism Agreements Signed by the Conservative Government since 2006 Set of Agreements

Year (s) signed

Duration

Transfer from federal government to provincial governments

1991– 2008

Varies (5 years– indefinite)

Funding formulas vary by province ($440 million in total to be transferred in 2012–2013)

2006 2006

8 years 10 years

$3 billion $2 billion

2006

10 years

$4 billion

2006

5 years

$1 billion

2009

10 years

$4.4 billion

2007

4 years

$5 billion

2006

3 years

$300 million

2006–07 2006–07

8 years 4 years

$270 million $489 million

2006

5 years

$1.4 billion

2006 2007 2007 2007–08

2 years 3 years 3 years 7 years

$1 billion $300 million $612 million $17.5 billion

2007

5 years

$1.5 billion

2008–09 2008 2008

6 years 3 years 5 years

$3 billion $1 billion $400 million

2009

5 years

2009

Indefinite

Immigration

Official Languages Education (renewed in 2010) Legal Aid (renewed in 2011) Youth Justice Services (renewed in 2011) Labour Market Agreements for Persons with Disabilities (renewed in 2007, 2008, 2009) Affordable Housing Agreements (renewed in 2011) Gas Tax Agreements (each province renewed their agreement until 2014 as part of Canada’s Economic Action Plan) Off-Reserve Aboriginal Housing Trust Targeted Initiative for Older Workers Public Transit Fund Public Transit Capital Trust (extended in 2008) Post-Secondary Education Infrastructure Trust HPV Immunization Trust Wait Time Guarantees Trust Building Canada Clean Air and Climate Change Trust Labour Market programs for non-EI recipients (amended in 2009 as part of Canada’s Economic Action Plan) Community Development Trust Police Officers Recruitment Fund Growing Forward Agriculture Agreements Labour Market Development for EI recipients amended as part of Canada’s Economic Action Plan

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$780 million Funding formula established annually by Government of Canada ($1.95 billion in 2012–2013).

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119  National Unity through Disengagement Table 9.2 Level of Symmetry of Selected One-off Federalism Agreements Signed by the Harper Government Agreement Immigration Official Languages Education Labour Market Development Gas Tax Public Transit Building Canada Labour Market Wait Time Guarantees Affordable Housing

Level of Symmetry Excluding Quebec 17% 100% 73% 75% 84% 90% 83% 75% 70%

Level of Symmetry Including Quebec 8% 62% 18% 25% 25% 20% 31% 0%7 50%

of symmetry and asymmetry. I identified the following 12 characteristics in each of the agreements: duration, funding formula, funding mechanism, statement of common principles, criteria for eligible expenses, financial reporting requirements, penalties for non-compliance, dispute resolution mechanism, performance indicators, communications protocol, ability to amend, and ability to terminate. The agreements that I examined contained either all of these characteristics or a vast majority of these characteristics. I then analyzed the extent to which these characteristics were symmetric (meaning the language describing the characteristic was exactly the same or extremely similar) in the agreements among the provinces and the federal government when the Quebec agreement was excluded. A score of one-hundred in this column would mean that all of the characteristics examined were symmetrical in each of the nine agreements among the ROC provinces and the federal government. I then included the Quebec agreement. A score of one-hundred per cent would mean that all of the characteristics examined were symmetrical in each agreement that the federal government signed with each of the ten Canadian provinces. All of the characteristics are equally weighted. What is striking about Table 9.2 is that it illustrates that the agreements signed by the ROC provinces were based on a common template and that the asymmetry among these agreements was present but small. Further, there was no evidence that ROC provinces like Alberta and Newfoundland that are generally considered to be more assertive of provincial autonomy signed substantially different agreements that other members of the ROC. On the other hand, the asymmetry between the agreements that federal government signed with Quebec and the agreements that it signed with the ROC was very large.

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There are only two exceptions to this general conclusion. First, the agreements on immigration represent a high level of asymmetry which reflects that ROC provincial governments are at quite different stages in regards to their immigration policy. Second, it seems that the Quebec provincial government is willing to accept more symmetry in the area of English language education (and to a lesser extent housing) than other areas. Despite these two exceptions, my analysis illustrates that the Conservatives’ embrace of one-off federalism acquiesces to Quebec’s desire for a large amount of asymmetry and provides flexibility to allow ROC provinces a small amount of asymmetry. From my examination of the agreements, it was clear that the Quebec provincial government consistently demanded to have minimal conditions placed on the funding it receives from Ottawa and a maximum reduction of the role that Ottawa plays in its provincial jurisdiction. The ROC provinces appeared to have desired asymmetry in some aspects of the agreements such as funding mechanisms and penalties for non-compliance but were willing to accept symmetry in a variety of other areas such as ability to amend and financial reporting requirements. Tellingly, the category of greatest asymmetry among the ROC provinces was ‘criteria for eligible expenses’ where only three out of the nine agreements examined displayed symmetrical criteria. Indeed, similar to Quebec, the ROC provinces negotiated specific clauses in their bilateral agreements concerning criteria for eligible expenses in order to respond to their local circumstances. For instance, in its 2008 labour market agreement with Ottawa, the Nova Scotia provincial government added African Nova Scotians as a group that could benefit from specialized skills training while Canadians of African descent are not included in other labour market agreements.

national unity, neo-liberalism and stealth The Harper government has three sets of inter-locking motivations in its use of one-off federalism. The first set of motivations relates to one-off federalism constituting a national unity strategy. As Table 9.1 shows, one-off federalism has allowed the Harper government to provide long-term and predictable funding in a way that respects provincial jurisdiction and does not unilaterally utilize the federal spending power in provincial jurisdiction (housing, skills training, and municipal infrastructure) or shared jurisdiction (agriculture and immigration). It also allows the Harper government to gain the consent of the provinces to address what it sees as a specific national problem that is embedded in provincial jurisdiction (wait times, climate change, police officer recruitment, post-secondary education infrastructure, HPV immunization). At the same time, one-off federalism has proven itself to be an effective mechanism through which the Harper government can rapidly respond to short-term crises. In particular, one-off federalism arrangements were a crucial part of Canada’s

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Economic Action Plan as stimulus money was funnelled through amendments to the Labour Market, Labour Market Development, and Affordable Housing agreements as well as the Community Development Trust aimed at vulnerable communities and laid-off workers. Most importantly, one-off federalism presents itself as a way to create a ‘de facto’ special status for Quebec while allowing ROC provinces to assert their mild inter-provincial differences. In doing so, it relieves tensions in the Canadian federation and places the issue of national unity ‘on the back burner.’ Indeed, Changfoot and Cullen have argued that recent intergovernmental agreements create “just enough asymmetry” in the relationship between the federal government and Quebec to keep sovereignty “off of the agenda.”8 As such, the usefulness of one-off federalism for the Harper government is not to win federal seats in Quebec. The accommodation of Quebec through one-off federalism is much too low-profile to register on the public’s radar and these one-off federalism arrangements have not seemed to boost the Conservative’s electoral fortunes in Quebec. Rather, the special status conferred to Quebec through one-off federalism is motivated by a desire by the Conservative government to avoid the tensions that could result if it is seen as placing too many conditions on federal funding in Quebec or unduly interfering with Quebec’s provincial autonomy. Even though the recently elected Parti Québécois (PQ) government has signalled that it will not pursue a referendum because of its minority status, the Harper government is now acutely aware that it must not be seen as unjustly intruding into Quebec’s jurisdiction thereby boosting the electoral fortunes of a sovereigntist Quebec provincial government. Therefore, it seems likely that the Harper government will continue to confer ‘special status’ on Quebec even if it seems to have a chance at winning very few seats in that province. The recent prevalence of one-off federalism also signals a change within English Canada’s view of itself and its view of federalism. The asymmetry of the Quebec-Canada agreements compared to other bilateral agreements illustrates that there was a willingness on the part of the Conservative government to quietly meet the Quebec government’s long-standing desire for special status. At the same time, there appears to be an acceptance on the part of ROC provincial governments that Quebec can negotiate an agreement that was significantly different from all other provinces. It seems that the ultimate legacy of the electoral success of the Reform Party during the 1990s and the defeat of the Charlottetown Accord has not been the entrenchment of a discourse concerning the equality of provinces. In spite of what they may have said in the past, political actors in the Harper government and all English Canadian provincial governments now seem to tactically accept that Quebec has a special status within the federation that allows it more autonomy and less fiscal conditionality than all other provinces. Indeed, oneoff federalism is good evidence for Simeon’s assessment that the Canada is

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now “highly decentralized federation” that contains high degree of informal, as opposed to “constitutionalized,” asymmetry.9 In many ways, the growth of one-off federalism also supports Lazar’s recent claim that “In defending its constitutional space, Quebec has influenced the entire realm of fiscal federalism”10 and Simeon’s recent argument that Quebec’s demands for provincial autonomy have opened up space for other provinces to succeed in following “strong provincialist strategies.”11 The provincialist strategies of ROC governments are driven by the fact that English Canada no longer sees itself as homogenous and English Canadian provincial governments are demanding that the federal government provide some recognition of inter-provincial differences within one-off federalism arrangements. Oneoff federalism is proof of McIntosh’s argument that all English Canadian provinces are taking “an increasingly hard line towards Ottawa’s unilateral actions” and depicted a distinctly provincialist outlook when they decided to follow Quebec’s suggestion to create the Council of the Federation.12 In the case of one-off federalism, it is apparent that Quebec’s assertion of a maximum degree of autonomy had a ‘ripple effect’ that opens up the space for ROC provinces to achieve the small autonomy from the federal government that they feel is needed to meet their particular local concerns and needs. A second set of motivations of the Harper government in adopting one-off federalism relates to its neo-liberal goal of removing itself from social policy innovation by devolving power to the provinces and prioritizing policy innovation that is directly linked economic competitiveness. As Harmes has noted, the Harper government’s moves towards decentralization are linked to its desire to reduce the federal government’s role in social policy.13 The sets of one-off agreements on housing, health care wait-times, climate change, public transit, and youth justice transfer federal money to the provinces to allow experimentation. The Harper government is moving Canada farther away from what Peter Leslie calls the “pan-Canadian” image of postwar federalism to a “cooperation-with diversity” image of federalism that stresses negotiation on policy roles that leads to differing levels of asymmetry and decentralization within the federation.14 The result is that the federal government no longer takes a leadership role in social policy areas to push a pan-Canadian vision and allows for considerable amount of inter-provincial variation in social policy. In this way, one-off federalism is consistent with the Conservative government’s recent moves on the CHT and CST. While there was some speculation that the Conservative government would use a one-off federalism approach to the negotiation of 2014 Health Accord,15 the federal health minister has signalled that Ottawa will seek “one agreement.”16 After she made that statement, the federal finance minister announced that the exact financial parameters of that agreement would be unilaterally imposed on the provinces by legislating a formula to determine the amount of the CHT and the CST for the next ten

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years. Instead of focusing on the amount of money in the agreement, the federal government says that negotiations of a new Health Accord will now concentrate on “performance measurement, accountability and sharing of best practices” while allowing “each jurisdiction the flexibility it needs to deal with regional difference.”17 The federal government’s move on the CHT and the CST effectively eliminates its leadership on the health file and other social policies. As the CHT and CST transfer money to provinces with only very minimal conditions, the federal government now has almost no ability to direct how provinces spend federal dollars in these areas. Similar to one-off federalism arrangements in areas of social policy, the aim of the Conservative government in the Health Accord negotiations is to shift the public focus away from itself and to the provinces when it comes to social policy. On the other hand, the neo-liberal orientation of the Conservatives leads them towards prioritizing the federal government’s role in directing the national economy. Here, one-off federalism can be a useful tool of selective federal intervention in provincial jurisdiction. The best example is the variety of oneoff federalism agreements that were a part of the Canada’s Economic Action Plan. One-off federalism proved to be a very useful mechanism by which the Conservative government could quickly and decisively intervene in provincial jurisdiction to stave off economic recession. The federal focus remains fixed on the economy, while, the provinces are left to deal with social issues. A final set of motivations in the Harper government’s decision to embrace one-off federalism is its propensity for governance by stealth. One-off federalism is a way for the Conservative government to give maximum autonomy to Quebec while allowing the ROC provinces the limited asymmetry they desire. However, such a conclusion can be reached only through a detailed examination of the agreements and their negotiating history as there is no official framework governing the negotiations of bilateral agreements nor has the federal government publicly announced a ‘doctrine of one-off federalism.’ Taken as a whole, these one-off federalism agreements represent a growing trend towards asymmetry in Canadian federalism that taken place by stealth: gradually and hidden in the technical details of the text of intergovernmental agreements. Such quiet shifts in Canadian federalism are made possible by the Canadian tradition of executive federalism that routinely excludes both legislatures and citizens from federal-provincial relations.18 In some ways, the Harper government’s signing of several one-off agreements with the provinces has led to the quiet accommodation of Quebec’s desire for provincial autonomy within intergovernmental agreements that was not forthcoming in the very public constitutional wars of the 1980s and early 1990s. It could be considered part of what Montpetit labels the Harper government’s “disjointed incrementalism” where Ottawa recognizes Quebec’s specificity in small ways that fly under the public radar as opposed to megaconstitutional deals like the Meech Lake or Charlottetown Accords.19

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The closed-door negotiations and non-public texts of one-off federalism appeal to the Harper government’s inclination for stealth and allow it to avoid public scrutiny of its intergovernmental relations. It is able to quietly, almost secretly, accommodate Quebec to maintain national unity without angering its electoral base in English Canada. Indeed, a recent poll illustrated that 96% of Conservative supporters in English Canada agreed with the statement that “All the provinces should be treated equally, even if it upsets Quebec and risks separation” while only 4% preferred the statement that “The federal government should do all it can to keep Quebec part of Canada, even if it requires special treatment.”20

conclusions The Harper government’s use of one-off federalism is reflective of its embrace of decentralization, bilateralism, and asymmetry in managing the Canadian federation. An analysis of the publically available texts of one-off federalism agreements signed by the Conservatives points to the probability that this method for managing the Canadian federation can be considered part of a national unity strategy that acquiesces to Quebec’s demand for increased autonomy and opens space for ROC provinces to assert their desire for limited asymmetry to meet their own local circumstances and needs. The importance of this national unity strategy has only increased with the election of sovereigntist Quebec provincial government (albeit with minority status). As such, in spite of the myriad of other forces that exert themselves on Canadian federalism, the case of one-off federalism illustrates that the need to accommodate Quebec remains one of the most powerful forces shaping the Canadian federation. Besides accommodating Quebec and relieving tensions in the federation, one-off federalism also provides an effective mechanism for the Harper government to alleviate itself of the obligation of leading Canadian social policy innovation and allows it to reduce the level of public scrutiny over its intergovernmental relations. As such, the Conservatives may ensure national unity but do so at the expense of accountability and transparency within Canadian federalism and through excusing themselves from a real leadership role in the realm of social policy.

notes 1 Gérard Boismenu and Peter Graefe, “The New Federal Tool Belt: Attempts to Rebuild Social Policy Leadership,” Canadian Public Policy 30, 1 (February 2004): 71–89. Peter Graefe. “The Spending Power and Federal Social Policy Leadership: A Prospective View,” IRPP Policy Matters 9, no. 3 (September 2008): 54–107.

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125  National Unity through Disengagement 2 It should be noted that the Harper government sometimes invests in what may be considered ‘social policy’ to further its primary goal of economic growth. For instance, it has invested in immigrant recruitment and settlement as a way to combat shortages in Canada’s labour market. Similarly, in Canada’s Economic Action Plan, economic stimulus funds went towards building community facilities that had positive social impacts. 3 Kenneth Bryden, Old Age Pensions and Policy-Making in Canada (Montreal: McGill-Queen’s University Press, 1974); R.M. Burns, The Acceptable Mean: The Tax Rental Agreements, 1941–1962 (Toronto: Canadian Tax Foundation, 1980); and Donald Savoie, “Regional Development: A Policy for All Seasons and All Regions,” in François Rocher and Miriam Smith (eds.), New Trends in Canadian Federalism, Second Edition (Peterborough: Broadview Press, 2003), 353–74. 4 Johanne Poirier, “Intergovernmental Agreements in Canada: The Crossroads between Law and Politics,” in Peter Meekison, Hamish Telford, and Harvey Lazar (eds.), State of the Federation 2002: Reconsidering the Institutions of Canadian Federalism (Montreal: McGill-Queen’s University Press, 2004), 427–8. 5 I would like to thank Paula Steckler, Vanessa Leon, and Emily Champ for their assistance in this research. 6 For instance, the Liberals’ Wait Time Reduction Trust Fund was turned into the Wait Times Guarantees Trust Fund and the Infrastructure Canada Program was rolled into the Building Canada program. 7 The Freedom of Information Request revealed that each ROC province had to sign a written agreement with Ottawa establishing wait times for certain medical procedures to receive their share of the Wait Times Guarantees Trust Fund. On the other hand, Quebec received its share of the Trust Fund without even signing a formal written agreement. Quebec’s share was transferred to Quebec City on the verbal agreement that the federal money would go towards meeting the wait time benchmarks for cataract, hip and knee surgeries established in the legislation that the Charest government passed in the wake of the Chaoulli decision. 8 Nadine Changfoot and Blair Cullen, “Why is Quebec Separatism off the Agenda? Reducing National Unity Crisis in the Neoliberal Era,” Canadian Journal of Political Science 44, 4 (December 2011), 771. 9 Richard Simeon, “Debating Succession Peacefully and Democratically: The Case of Canada,” in Alfred Stepan (ed.), Democracies in Danger (Baltimore: John Hopkins University Press), 49–50. 10 Harvey Lazar, “Intergovernmental Fiscal Relations: Workhorse of the Federation,” in John Courtney and David Smith (eds.), The Oxford Handbook of Canadian Politics (New York: Oxford University Press), 128. 11 Richard Simeon, “Debating Succession Peacefully,” 49. 12 Tom McIntosh, “Intergovernmental relations, social policy and federal transfers after Romanow,” Canadian Public Administration 47, 1 (March 2004), 27–51. 13 Adam Harmes, “The Political Economy of Open Federalism,” Canadian Journal of Political Science 40, no. 2 (June 2007), 417–37.

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126  David McGrane 14 Peter Leslie, “The Two Faces of Open Federalism,” in Keith Banting (ed.), Open Federalism: Interpretations, Significance (Kingston: Institute of Intergovernmental Relations), 39–66. 15 André Picard, “Tories to Steer New Course on Health Care Funding,” in The Globe and Mail, A6, 28 May 2011. 16 André Picard, “Ottawa seeks one national health accord, not separate pacts,” in The Globe and Mail, A7, 22 August 2011. 17 Heather Scoffield, “Ottawa’s health-care role about measurement, not money, Aglukkaq says,” in The Globe and Mail, A6, 9 January 2012. 18 Donald Smiley, “An Outsider’s Observations of Intergovernmental Relations among Consenting Adults,” in Richard Simeon (ed.), Consultation or Collaboration: Intergovernmental Relations in Canada Today (Toronto: Institute of Public Administration of Canada, 1979). 19 Eric Montpetit, “Easing Dissatisfaction with Canadian Federalism? The Promise of Disjointed Incrementalism,” Canadian Review of Political Science 2, 3 (September 2008), 12–28. 20 Abacus Data, “The View from the Outside: Quebec and the Rest of Canada” (14 August 2012). Web site: http://abacusdata.ca/2012/08/14/the-view-fromoutside-quebec-quebec-and-the-rest-of-canada.

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10 Energy Strategy under the Harper Government: Provincial and Industry-Led keith brownsey

introduction Over the past seven years a picture of the Conservative government’s industrial and economic strategies has emerged. While exhibiting a strong commitment to market principles, the Conservatives have, nevertheless, favoured one sector of the economy – energy – over others. While other sectors of the economy have declined – manufacturing, mining, fisheries, forestry – Prime Minister Harper and Minister of Natural Resources Joe Oliver have crafted an economic/industrial strategy which focusses on Canada’s oil and gas and electricity industries. They have gradually crafted a national energy strategy which would, if implemented, diversify Canada’s energy markets in order to ensure the continued viability of these sectors. With recent reports indicating that the United States may be energy self-sufficient by 2020, provincial governments and industry have attempted to promote projects which would either lessen Canada’s reliance on or increase access to U.S. markets. This dual approach has involved initiatives which would ship bitumen to Asian customers and increase pipeline capacity to United States refineries. This new strategy includes building both the Northern Gateway pipeline from Edmonton to Kitimat on British Columbia’s north coast to ship bitumen – the unrefined tar from Alberta’s oilsands – and the Keystone XL pipeline from Hardisty, Alberta to refineries in the Houston-Galveston industrial area. Other energy projects which have been put forward including a $13 billion proposal to construct a heavy oil refinery in Kitimat, the British Columbia’s government’s plans for a liquified natural gas processing plant and shipping terminal in Kitimat, the retooling and expansion of existing east-west

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­ ipelines in Canada to ship bitumen or heavy crude to refineries in Quebec p and the Atlantic provinces, as well as plans to construct an east-west electrical transmission grid which would reverse the north-south connections that sees a large percentage of Canada’s electrical generation sent to the United States. A combination of private and provincial initiatives, the various energy proposals range from pipelines to liquified natural gas terminals to a transCanada electricity grid. This chapter shows that at a political level this new national energy strategy is very different from its predecessors – the initiatives are led by the provinces and the private sector. While the federal government plays an important regulatory role through more flexible approaches cast as responsible regulation, it has played a secondary part in the organization and implementation of the policies which form a new energy strategy for Canada. This is not another National Energy Program (NEP) of the late 1970s and early 1980s in which the federal Liberal government intervened directly in the energy sector. The new energy strategy is led by the provinces and the private sector with the federal state in a regulatory role. While several provinces have interventionist policies – the subsidies provided to manufacturers and electricity providers through Ontario’s Green Energy Act and Newfoundland and Labrador’s equity share of offshore oil and gas development – the major energy developments in the western Canadian oil and gas producing provinces are private initiatives in which the state performs an economic and environmental regulatory function.

an inventory of five issues Within the first three months of assuming office in January 2006, the new Conservative prime minister, Stephen Harper, in a speech to the London Chamber of Commerce, stated that Canada was an emerging energy superpower. While Canada’s liquid hydrocarbon, coal, and uranium, reserves as well as its electricity production – current and potential – have long been recognized as a significant source of energy in various national and international publications and studies ranging from the BP annual World Energy Survey to the Organization for Economic Cooperation and Development (OECD), many individuals in the Canadian energy industry as well as those in other countries, thought the description of Canada as an energy superpower problematic. International relations theorists define a superpower as a nation state willing to use economic, political or military power to further its interests. Canada, on the other hand, has little influence in its energy markets. Although Canada exports some of its coal production to Asian markets and uranium from Saskatchewan is sold to several European states and Japan, electricity, oil, and natural gas – the largest, most economically important segments of the Canadian energy sector – are restricted to markets in Canada and the

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United States. Other than uranium exports, Canada faces a situation where export markets are limited and the price of energy is determined by regional rather than international markets. In this context, the idea of Canada as an energy superpower is more rhetoric than reality. Rather than becoming an energy superpower, able to set prices and open new markets, the Canadian energy sector faces a set of problems which have the potential to threaten the viability of the industry. The issues facing the energy sector can be put into five categories: (1) transmission bottlenecks which have resulted in declining and differential prices for natural gas, bitumen, and conventional oil; (2) the prospect of United States energy selfsufficiency; (3) foreign takeovers of several Canadian energy producers – specifically the purchase of Nexen and Progress Energy by Chinese state owned energy corporations; (4) continuing environmental controversies, including the designation of oil sands production as dirty oil; (5) and finally, the lack of any sort of coherent national energy strategy. The five categories are not mutually exclusive; in fact, they overlap. But they do illustrate a crucial set of issues facing Canada’s energy sector. Transmission Bottlenecks One category of issues facing the Canadian energy sector are transmission bottlenecks. Attention has been centred on two oil pipelines: Trans Canada’s Keystone XL and Enbridge’s Gateway pipelines. Calgary-based Trans Canada Corp.’s Keystone XL pipeline would ship bitumen from Hardisty, Alberta to Cushing, Oklahoma and from there to refineries on the Gulf of Mexico. The costs of the project were estimated at $7 billion and would carry up to 800,000 barrels a day of bitumen from the oilsands to the refinery hub on the Gulf. The Keystone XL project is seen as part of the needed infrastructure to relieve the oversupply of Canadian oil in the mid-continent of the U.S. and ease the pressure on Canadian crude prices which can be up to 30 per cent below the benchmark price of West Texas Intermediate.1 Questions were raised in the U.S. concerning the Nebraska portion of the pipeline which would run across the Sand Hills region which contains the Ogallala aquifer, one of the largest underground supplies of fresh water in the world and which sustains agriculture in the American mid-west.2 The Keystone XL needed State Department approval before construction could begin on the U.S. portion of the route through Nebraska. But American farmers, community groups, and environmentalists argued that the pipeline posed unacceptable environmental risks. In November 2011, the Obama Administration delayed the decision in order to give Transcanada time to select a new route which did not cross the environmentally sensitive Sand Hills region. At the same time, TransCanada has proceeded with the southern portion of the route from Cushing to the Gulf. While this may relieve some

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of the U.S. mid-west transmission bottleneck, it does not allow Canadian bitumen to flow. The decision on the Keystone came within months of the 20 April 2011 BP oil-spill in the Gulf of Mexico and numerous breaks in pipelines including a 30,000 litre spill into the Kalamazoo River in Michigan. While these pipeline and well ruptures had nothing to do with the Keystone line, they raised awareness in the United States about further damage from oil spills. When Congress forced President Obama to act, he delayed a decision on the Keystone XL until 2013, well after November 2012 the presidential election. The Northern Gateway is the other major pipeline proposal designed to expand Canadian markets for Canadian bitumen. Put forward by Enbridge Pipelines, it has an estimated cost of $6.6 billion and would carry 525,000 barrels of bitumen a day from Edmonton to Kitimat on the northern coast of British Columbia. The Kitimat terminal would load massive oil tankers which would transport bitumen to refineries in Asia. The Gateway XL is seen as an effort to diversify Canadian oil markets and add capacity to the North American pipeline system which is running at near capacity. With projections that oilsands production could increase from 2 million barrels per day 2011 to 4.5 million by 2025, increased pipeline capacity and market diversification are seen as critical to the viability of Canadian oilsands producers. The Northern Gateway, however, has a number of opponents. These individuals and groups include a number of First Nations’ communities, environmental organizations, and other local residents in the vicinity of the northern British Columbia route. Unlike the Keystone XL, the Enbridge proposal is entirely within Canadian jurisdiction. Because it traverses provincial borders from Alberta into British Columbia, it falls under federal jurisdiction. The key federal regulatory agency is the National Energy Board. In January 2012, a three person joint National Energy Board and Canadian Environmental Assessment Agency panel3 began hearings into the Enbridge proposal. The panel has travelled “to dozens of towns and cities across Alberta and British Columbia, some accessible only by boat or plane, some more than 500 kilometres from the pipeline’s planned route.”4 It has heard from 53 official interveners, First Nations groups, environmental organizations, independent researchers and oil companies who registered to deliver testimony. As well, more than 4,000 people have asked to provide oral comments.5 The National Energy Board is expected to give its decision by the end of 2013 but the final federal decision ultimately rests with the Harper government. The regulatory hurdles facing the Northern Gateway project are compounded by the response of the provincial government in British Columbia. The Liberal premier, Christie Clarke, has made clear that her government’s support for the project rests on her province receiving a share of royalties from the bitumen sent across its territory. This demand for a royalty share was

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rejected by Alberta Premier Allison Redford. Although the British Columbia government has no direct role in the Gateway approval process, its opposition to the project has two dimensions. First, the province can obstruct the Gateway pipeline by refusing to cooperate with its construction, denying the project necessary right-of-ways and even going as far as to refuse to sell it electricity – essential for both construction and operation of any pipeline. As well, the psychological dimension of British Columbia’s opposition encourages various environmental, community, and First Nations groups which are opposed to the project. Simply put, the province is seen as their ally in the fight against Enbridge. Given its 2013 election victory, the Clarke government is unlikely to give its support to what appears to be an increasingly unpopular proposal with voters. Without very strong intervention from the Conservative government in Ottawa it is unlikely that the Gateway can overcome the various political and social obstacles in its path. British Columbia has also promoted the development of its natural gas resources in the northeastern region of the province. Along with the exploration and development of its natural gas resources, British Columbia has signalled its support for two liquified natural gas (LNG) terminals in the Kitimat area and two in Prince Rupert. Royal Dutch Shell has proposed a 12 million tonne terminal, while a consortium led by Apache Corporation has been awarded a license of a 10 million tonne project in the Kitimat area. BP Group is pursuing an 18 million tonne terminal at the Port of Prince Rupert. Petronas, a Malaysian energy company, announced its intention in June 2012 to acquire Progress Energy, a Calgary based firm, on which to build a platform for LNG exports to Asia. On 21 October 2012, however, the Harper government blocked the sale of Progress. With plans to build a terminal and gas pipeline to Prince Rupert, the Progress/ Petronas project had been at the centre of British Columbia’s plans to exploit its conventional and shale gas resources.6 Nevertheless, Progress intends to build a $5 billion gas pipeline to Prince Rupert without the benefit of a senior partner, its jilted suitor, the state-owned Petronas. The Prospect of United States Energy Self-sufficiency The need for Canada to diversify its energy markets was emphasized on 12 October 2012. The International Energy Agency (IEA) released its annual World Energy Outlook which stated that the United States could be energy self-sufficient by 2020 in both natural gas and oil. The goal of energy self-sufficiency has been on the American policy agenda since the early 1970s when the first OPEC oil shock of October 1973 sent the United States economy reeling under the twin pressures of high oil and gas prices, unemployment and inflation. The achievement of energy self-sufficiency is the result of two separate but important policy initiatives.

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First, the administration of Barak Obama has implemented new energy efficiency standards for such diverse goods as electrical appliances and automobiles. While following the lead of states such as California, the Obama administration has made the new standards nationwide. Second, new sources of both oil and natural gas – both conventional and unconventional – have increased U.S. production for the first time since the 1970s. Third, several states as well as the national government have encouraged sustainable energy production ranging from biofuels to windpower to solar. But the U.S. growth of supply has also been due to the technological breakthrough initiated by fracking which, among other things has led to major discoveries of shale gas and oil in states such as North Dakota. These policy and technological threads have combined to lessen American dependence on foreign energy sources, especially oil. But the IEA World Energy Outlook had an impact on Canadian energy policy. It was the latest, but possibly the most emphatic, message that Canadian energy producers would no longer enjoy ever increasing American demand for their products. Continuing Environmental Controversies At the national level, the Harper government has signed joint environmental assessment agreements with several provinces for energy projects as well as streamlined the regulatory process for approval of interprovincial and international energy projects. For example, the federal government has signed agreements with British Columbia to undertake a joint environmental assessment with the province over the Site C Clean Energy Project on the Peace River in the northeastern region of the province. As well, the Conservatives have agreed to a loan guarantee for the Muskrat River Hydro Electricity Project in Labrador. The federal guarantee will save the province approximately $1 billion in borrowing costs.7 However, the most significant environmental policy change for the federal government, came in the March 2012 budget. As part of the omnibus budget legislation, the Conservative government now has the authority to overturn any decision by the National Energy Board (NEB) to reject a project on environmental grounds. The new legislation would also reduces the ability of non-government organizations to intervene in environmental assessments to oppose development. Outside organizations will be allowed to participate only if their members are directly affected by a project or where a group has expertise that would aid regulators in their decision. Although the NEB was given new authority to set stringent conditions on new projects such as pipelines and the authority to enforce them with fines of up to $400,000, many project reviews would be turned over to the provinces in a devolution of regulatory authority cast overall in economic terms as responsible regulation.8

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Environment-related renewable energy policy has also become a part of Conservative energy policy albeit without drawing much attention to its own early efforts in this regard. In 2007 the Harper government mandated that gasoline contain a five percent ethanol average by 2010 and two percent in diesel by 2012. At the same time the government allocated $500 million in the next-generation biofuels initiative. The biofuels program is administered by Sustainable Development Technology Canada, a non-profit energy research foundation. Its mandate is to promote alternatives to traditional agricultural feedstocks such as wood fibre and wheat stocks. Not only are there benefits for the environment, there is a political payoff as well. The biofuels program is designed to aid the agricultural sector in the three prairie provinces of Manitoba, Saskatchewan, and Alberta – the centre of Conservative support in Canada. The federal government has also taken an interest in wind and solar power. Nevertheless, the federal government estimates that in the foreseeable future renewable energy will amount to only four percent of the energy supply. Fossil fuels will continue to be, in the view of the federal government, the most important part of the Canadian energy mix. Foreign Takeovers of Canadian Energy Producers by State Owned Energy Corporations; Another major federal energy issue came on 7 December 2012 when the Harper Government approved the takeover of Nexen Energy, a Calgary-based, oil and gas exploration company by the China National Offshore Oil Company (CNOOC). After its offer was turned down by Ottawa in October, Petroneas was given another opportunity to persuade the Harper government its acquisition of Progress was in the net benefit of the country. The Petronas offer was approved after the price was raised and guarantees made to build a natural gas pipeline to Prince Rupert as well as an LNG terminal capable of handling up to 18 million tonnes of gas a day. At the same time that the two takeover bids were approved, the federal government issued new guidelines on foreign takeovers of Canadian enterprises which effectively ended acquisitions by foreign stateowned enterprises (SOEs) of Canada’s strategic resources.9 The issue of the Petronas and Nexen purchases divided both the oil and gas industry and the Conservative Party. While the official opposition New Democratic Party rejected the Nexen and Petronas bids, the Conservatives faced opposition from within their caucus and some segments of the oilpatch.10 The Harper government promised more clarity on foreign takeovers of strategic resources after it rejected the purchase of Potash Corporation of Saskatchewan by BHP Billiton, an Australian multinational. But it was not until the bids for Progress and Nexen were made that the government was forced to clarify its rules on foreign state-owned enterprises acquiring

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Canadian companies. The Nexen/ Progress decision was a reversal for a government committed to markets as “the most efficient means of determining supply, demand, prices and trade while ensuring an efficient, competitive and innovative energy system.”11 On the other hand, several advisers to the Harper Conservatives stated that there was an irony that Canada had spent years privatizing Crown corporations such as Petro-Canada, only to have foreign state-owned enterprises take partial control of the nation’s resources. The result of this contradiction was that Ottawa adopted a model for foreign takeovers based on the Australian practice of reviewing each situation as it arises, but has made it clear it will not allow a foreign state to acquire Canada’s strategic resources.12 The Harper National Energy Strategy: Responding to Provincial and Business Pressure and Advocacy for a Coherent National Energy Strategy The touchstone of the Harper Conservatives’ national energy strategy has been a “respect for jurisdictional authority and the role of the provinces,” targeted intervention in the market to achieve specific policy objectives through regulation, and a market orientation.”13 The federal government has left project development to the energy producing provinces, intervening only when required with National Energy Board hearings on the Gateway Pipeline or loan guarantees for projects such as Newfoundland and Labrador’s Muskrat Falls hydro electricity dam. Even the process for assessing the net benefit of the Progress and Nexen takeovers saw a series of delays that created a great deal of uncertainty for both corporations and governments.14 While the prime minister and his four ministers of Natural Resources since 2006 – Gary Lunn, Lisa Raitt, Christian Paradis, and Joe Oliver – have promoted Canadian energy in the United States as safe and secure, the federal government’s energy policy has focussed on supporting market mechanisms to ensure a reliable supply. Even the September 2008 global financial collapse and the consequent economic decline in Europe and North America failed to change the Harper government’s direction on energy policy. In a speech to the Economic Club of Toronto in January 2009, Minister Lisa Raitt emphasized the economic importance of resources industries such as oil and natural gas and outlined the Conservative’s plans to simplify the regulatory approval process for current and future resource projects. Although the Conservatives had constructed their energy policy on the three pillars of free-markets, provincial jurisdiction of natural resources, and a simplified regulatory process, they soon faced a series of issues which forced it to act outside these parameters. In the late 2000s media reports described the negative environmental impact of bitumen mining in Alberta and Saskatchewan.15 Not only were there stories of the negative impact of oil sands

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development on the Athabasca River watershed, the death of hundreds of migratory birds in tailing-ponds focussed public attention on the hazards faced by wildlife. Moreover, the higher greenhouse gas and other particulant emissions from non-conventional oil produced in Alberta and Saskatchewan has been described as “dirty oil” by several American states. California, among other jurisdictions, have set low-carbon fuel standards which effectively prohibit the use of Canadian bitumen. In response to the US efforts at both the national and state level to reduce the use of high carbon fuels, Ottawa set a target in 2007 to cut GHG emissions to 20 per cent below 2006 levels by 2020. It was hoped that these quite weak measures would bring Canadian standards into line with those being proposed in the United States. The Canadian government has also proposed a North American climate agreement which would include an integrated cap-and-trade scheme. The Obama administration, however, has agreed only to co-operate on developing clean energy technology. The Canadian government has taken the position that it must wait for the US to act before it can proceed on an integrated environmental and energy policy.16 With the October 2012 report from the International Energy Agency that the United States is expected to be energy self-sufficient by 2020, British Columbia, Alberta, and Saskatchewan are anxious to find new markets for oil and natural gas but, as we have seen above, face various kinds of environmental, First Nations, and local opposition. It is in this context of a sometimes disengaged and contradictory energy policy framework, that several provinces with diverse and, sometimes contradictory interests, and also various energy organizations have called on the Harper Conservatives to articulate a coherent national energy strategy. Meeting in Kananaskis, Alberta in July 2011, Canada’s provincial energy ministers called for a national energy strategy. Although there had been some discussion of a national policy framework for energy, this was the first time that such an argument had been made by provincial government ministers. The proposal was partly also the result of the failure to construct the Mackenzie Valley Pipeline in a timely and economic fashion in the mid-2000s. A natural gas and oil pipeline system had been proposed for the Mackenzie Valley in the 1970s. The Berger Inquiry effectively put a hold on resource development and pipeline construction in the Mackenzie Valley for a generation. By the mid-2000s the economic and social conditions – a high price for natural gas and the support of the First Nations population and the Northwest Territories government – appeared to indicate that the development and transmission of natural gas from the Mackenzie River delta was feasible. Nevertheless, almost a decade after the Mackenzie Valley project was resurrected, the social and environmental assessment had left hundreds of permits pending and a number of local communities and First Nations councils opposed. Moreover, the economic case for the pipeline had diminished as shale gas production in

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Canada and the United States and lower demand as a result of the 2007-2008 economic and financial collapse contributed to the decline of prices rendering the Mackenzie Valley Pipeline economically unviable. Beginning in Kananaskis, the provinces and industry groups began to assemble a national approach to energy. Although the provinces had widely varying interests based on the energy resources available to them, the ministers did find common ground in several areas. All participants committed to develop energy “in an environmentally and socially sustainable fashion, to use it efficiently, and to be leaders in the global shift to a low-carbon energy future.”17 Business groups were more specific in their proposals. The oil and gas sector requested help expanding markets, while electricity producers wanted to end regulatory hurdles which prevented the sale of electricity to other provinces. The Canadian Pipeline Association, for example, made clear it wanted time limits placed on regulatory reviews of projects such as the Gateway in order to prevent excessive delays for environmental and other approvals. The Energy Policy Institute of Canada (EPIC) asked the ministers for certainty and coherence in the policy and regulatory framework. “From investments in transmission infrastructure for oil and gas and electricity, to the deployment of renewable technology and energy efficiency,”18 there was a need for clarity, a spokesperson for the group stated, in all aspects of energy production. Business interests argued that low cost electricity was an important competitive advantage. In order to meet the need for massive investments in infrastructure to exploit Canada’s energy resources, a “national energy strategy should include an effort to break down provincial barriers, and deal with longstanding irritants such” as the dispute “between Quebec and Newfoundland and Labrador over access to electricity transmission lines.”19 Almost immediately, the effort to produce a national energy strategy ran into opposition. Quebec opposed any national plan, while Ontario and Alberta argued as to whether the oil sands was a sustainable source of fuel. On the other hand, supporters stated that a national approach was needed to streamline regulations, open Asian markets for oil and natural gas, and support research. Ontario Energy Minister Brad Duguid stated that Ontario would not support the wording of the statement released at the end of the ministers meeting in Kananaskis which described the oil sands as a responsible and sustainable source of energy. The Quebec representative did not see a need for a federal energy strategy “because, first of all, energy is a provincial competence.” The Alberta Minister of Energy, Ron Liepert, criticized Ontario for not supporting the oil sands. Liepert argued that issues such as greenhouse gas emissions made it critical for Canada to establish a single energy framework.20 The federal response to a national energy strategy was muted. The Conser­ vative government was only willing to react to events as they occurred. In January 2012, for example, the Prime Minister’s Office and Natural Resources

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Minister Joe Oliver, issued a warning against “foreign intervention” aimed at halting the $6.6 billion Northern Gateway pipeline. With the National Energy Board - Canadian Environmental Assessment Agency hearings about to begin in Kitimat on the proposal, Oliver accused an environmental lobby group, Tides Canada, of distributing foreign, U.S. funds, in Canada to opponents of the pipeline. The Prime Minister’s Office criticized the Natural Resources Defence Council, a Washington-based environmental lobby, of interfering in Canadian affairs. Harper warned of “foreign money” being used “to overload the review process” undertaken by the NEB and the Canadian Environmental Assessment Agency (CEAA). Harper claimed that the approximately, 4,000  people who indicated they wanted to appear before the joint NEB-CEAA panel21 were part of an effort by American environmental groups to prevent the construction of the Gateway pipeline. The pipeline is, the prime minister stated, in the national interest as part of an effort to diversify oil exports to Asian markets and away from the United Sates. The situation was urgent, Harper claimed, since the Obama administration had delayed a decision on the Keystone XL pipeline which was intended to deliver bitumen to refiners on the United States Gulf Coast.22 The most vocal proponent of a national energy strategy was Alberta Premier Alison Redford. During the 2012 Alberta election campaign and after, the premier called for a broad, market-focussed national energy strategy to capitalize on Canada’s energy resources which would include regulatory reform, improving energy efficiency, and developing new export markets. Her plan also called for greater cooperation in environmental standards and the construction of new transmission infrastructure. Several critics attacked Redford’s concept of a national plan. Liberal Member of Parliament David McGuinty stated it was not possible to have a national strategy that did not address greenhouse gas reduction.23 Saskatchewan Conservative MP David Anderson, the parliamentary secretary to Natural Resources Minister Joe Oliver, compared Redford’s proposal to the discredited 1980 Liberal National Energy Program. Anderson warned that “an aggressive national policy could devastate the industry.24 As well, the provinces were divided over a national program. While Saskatchewan was supportive of the Alberta approach, British Columbia walked away from a meeting of the premiers after Christie Clarke made clear her government wanted no part of any plan unless Alberta agreed to share its bitumen royalties in exchange for supporting the Gateway XL pipeline. Quebec was supportive of Redford’s initiative as long as provincial jurisdiction was respected.25 Ontario Premier Dalton McGuinty, after initially stating that Alberta’s energy sector was keeping the Canadian dollar inflated in relation to other currencies and, therefore, hurting Ontario’s manufacturing sector, joined the call for a national strategy at a private meeting with Redford. In an effort to win Ontario’s support for the Northern Gateway pipeline Redford agreed to publicly acknowledge Ontario’s important role in oil sands development.

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There were other voices calling for a national energy strategy. Three different organizations released reports in the summer of 2012. In July the Senate Standing Committee on Energy, the Environment and Natural Resources released a report, Now Or Never. Canada Must Act Urgently to Seize its Place in the New Energy World Order. The report called for responsible resource development; regulatory reform – what it termed, one project, one review; an effort to advance nation-building through a national electrical energy grid to bolster energy security; increased pipeline capacity to the westcoast through both the Enbridge Gateway line and Kinder Morgan’s proposed expansion of its trans-mountain pipeline to the Chevron refinery in Burnaby. The committee also recommended shipping western crude oil to central and eastern Canada “to boost Eastern Canadian energy security and advance nation building.”26 The last of the 13 proposals was for strong federal leadership in establishing Canada’s image in the global community. While the provinces have a key role to play in Canada’s energy development, the federal government needed to play its part in speaking for the nation.27 In August 2012, the Council of the Federation, and the Energy Policy Institute of Canada both issued calls for a national energy strategy. In A Shared Vision for Energy in Canada the Council of the Federation put forward a seven point energy plan to ensure “a secure, sustainable, reliable competitively priced supply of energy” and “a high standard of environmental and social responsibility,” which would contribute to “economic growth and prosperity. Its seven proposals included a recommendation to develop “a modern, reliable, environmentally safe , and efficient series of transportation networks for domestic and export/ import sources of energy” and a call to improve “the timeliness of certainty of regulatory approval decision-making.”28 The final recommendation was for provincial participation with the federal government in international discussions and negotiations on energy.29 The Energy Policy Institute of Canada (EPIC) published A Canadian Energy Strategy Framework. This report contained six areas for study including suggestions for reform of the regulatory process, Aboriginal Peoples consultation, market diversification, and addressing the issue of carbon emissions. Although an industry organization, EPIC called for a strong state presence in the energy sector for regulatory reform, regional planning for land use plans and transmission corridors, a clear statement of government policy intent to promote Canadian energy development, resolution of First Nations issues, and trade agreements and other forms of market development.30 Individually, the three reports each call for a Canadian energy strategy. They overlap each other in several key areas including a call for regulatory streamlining, market diversification, First Nations inclusion in the decision process, improvements and expansion of transmission infrastructure, and environmental protection. Collectively they reflect Alison Redford’s efforts to craft a national energy framework out of the diverse and often contradictory

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interests of the provinces and territories. But the emerging picture of a national energy strategy is very unlike the 1980 National Energy Program or the  interventionist strategies of earlier national policies. The new strategy looks to markets to provide secure and sustainable energy. The state – national and provincial – has a role in market diversification and regulatory reform. Instead of taking a lead role in the new national policy the federal government becomes one actor among many. It’s role is that of a facilitator, not an innovator. Simply put, what is unique about the emerging national energy strategy is that the federal government has taken a secondary role. The policy initiative is led by provinces and the energy sector.

conclusions: a different kind of national energy strategy A new type of national energy strategy is emerging in Canada. The new strategy is distinguished by the reticent and second-level role played by the Harper government. Instead of leading the debate, the federal government promotes Canada as an energy superpower and seeks to reform the national regulatory system to hasten the exploitation of energy resources. The Harper strategy is framed by an ideological commitment to free markets, a respect for jurisdictional authority and the role of the provinces., and where necessary, targeted intervention in the market process to achieve specific policy objectives such as health and safety, responsible regulation, and environmental sustainability. The federal government, simply put, is a reluctant participant in the emerging energy strategy. Unlike previous national energy policy and program initiatives, the new energy strategy as articulated by the several provinces, individually or through the Council of the Federation, the July 2012 Senate report, the Energy Policy Institute of Canada and other industry associations, is not an effort by the federal government to enlarge its responsibility in the area of resource development. It is, instead, an effort by industry and the provinces to encourage national reform of the regulatory process and promote trade opportunities for the private sector development of Canada’s energy resources. Specific proposals have come from industry and the provinces for the construction of energy infrastructure, regulatory reform, and the creation of a green energy sector to replace a declining manufacturing base. The profoundly conservative character of the Harper government with its efforts to adhere to the division of federal-provincial responsibilities set out in the Constitution, has excluded it from introducing a framework or specific projects in which energy resources would be developed. While the Conservatives have recognized a national issue, they have not responded to it on a national scale. The emergent national energy strategy was not “directed toward deliberate action by the federal government to structure the national economy.”31

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Canada’s energy policy, the prime minister has stated, is based on the idea of the free exchange of “products based on competitive market principles, not self-serving monopolistic political strategies.”32 The Conservative government has decided not to implement any sort of federally-led energy strategy to reconcile the various regional interests represented by different energy resources. While previous governments tried to establish an integrated national economy through the agency of a powerful state, the Harper Conservatives have left the provinces to pursue their own interests. The result has been confusion, uncertainty, and delay in the energy sector. While questions of dependence on a single market, environmental opposition to energy expansion, and unsettled First Nation’s land claims remain, the federal government has, relatively speaking, left the field mainly to the provinces and the private sector. The strategy has seen the provinces – led by Alberta’s Alison Redford – and industry propose a framework for the development of Canada’s energy resources. Unlike the provincial alliances of the past – especially provincial opposition to the energy policies of the Trudeau government in the 1970s and 1980s – the new energy strategy has the provinces significantly lined-up to promote an integrated national economy and political community. Alison Redford, Dalton McGuinty, and Saskatchewan’s premier Brad Wall in different ways have sought to create an economic development strategy which seeks to integrate diverse regional interests. As in the past, a provincialist coalition is battling a recalcitrant federal government. Instead of spurning federal encroachment on what is provincial constitutional jurisdiction, the provinces and industry have sought federal involvement to aid in this decentralized project of national integration. Whether this new approach to industrial-energy policy will work depends on the ability of the Harper government to understand the role of the national state in promoting the diverse interests of the Canadian economy.

notes 1 Shawn McCarthy, “Why Canadian Crude is Selling For Less,” Globe and Mail, 9 February 2012, B7. 2 Nathan Vanderklippe, “The politics of pipelines: Keystone’s troubled route, Globe and Mail, 24 December 2011, B1. 3 Shawn McCarthy, “Ottawa Eyes Quicker reviews for Energy, Mining Projects,” Globe and Mail, 29 November 2011, B4. 4 Nathan Venderklippe, “The politics of a pipeline mean the NEB’s word will not be the last.” Globe and Mail, 10 January 2012, A9. 5 Ibid. 6 Nathan Vanderklippe, “LNG at crossroads as LNG deal blocked,” Globe and Mail, 22 October 2012, B1.

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141  Energy Strategy under the Harper Government 7 “Newfoundland gives go-ahead for Muskrat Falls,” Globe and Mail, 18 December 2012, B7. 8 Shawn McCarthy, “Cabinet’s power play with energy board,” Globe and Mail, 23 April 2012, A8. 9 Nathan Venderclippe, Shawn McCarthy, Jacquie McNish, “Petronas to sweeten payoff if Ottawa says yes,” Globe and Mail, 5 December 2012, B1. 10 Deborah Yedlin, “Alberta’s Economy: The Good, the Bad, and the Ugly,” Lecture, Mount Royal University, 3 October 2012. 11 Natural Resources Canada, “Overview of Canada’s Energy Policy,” Press Release, 5 January 2009. 12 Nathan Vanderclippe, “Harper’s line in the oilsands,” Globe and Mail, 10 December 2012, A1. 13 Natural Resources Canada, “Overview of Canada’s Energy Policy.” 14 Yedlin, “Alberta’s Economy.” 15 See, for example, Robert Kunzig and Peter Essick, “The Canadian Oil Boom: Scraping Bottom,” National Geographic, March 2009. 16 Sheldon Alberts, “Obama’s climate bill threatens Alberta oilsands. Low-carbon fuel standard ‘disincentive’ to high emission tarsands oil,” Edmonton Journal, 1 April 2009, 1. 17 Shawn McCarthy, “Why a national energy strategy makes sense,” Globe and Mail, 12 July 2011, B5. 18 Shawn McCarthy, “Industry promotes national energy framework,” Globe and Mail, 13 July 2011, B3. 19 Ibid. 20 Nathan Vanderklippe, “Quebec drives a wedge into national energy plan,” Globe and Mail, 22 July 2011, B3. 21 Shawn McCarthy and Steven Chase, “For the Harper government, a Gateway that must be open,” Globe and Mail, 10 January 2012, A8. 22 Ibid. 23 Jason Fekete, “Battle heats up over national energy plan,” Calgary Herald, 1 February 2012, 4. 24 Ibid. 25 M. White, “Quebec backs Alberta energy initiative; Redford, Charest stress co-­ operation among provinces,” Calgary Herald, 12 January 2012, 4. 26 Senate Standing Committee on Energy, the Environment and Natural Resources, Now Or Never. Canada Must Act Urgently to Seize its Place in the New Energy World Order (Ottawa: Senate Committees Directorate, 2012), 28–31. 27 Senate Standing Committee on Energy, the Environment and Natural Resources, 64. 28 Council of the Federation, A Shared Vision for Energy in Canada (Ottawa: The Council of the Federation, 2012), 3. 29 Ibid., 14–15. 30 Energy Policy Institute of Canada, A Canadian Energy Strategy Framework (Energy Policy Institute of Canada, 2012), 133–5.

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142  Keith Brownsey 31 Donald V. Smiley, Canada and the Quest for a National Policy,” Canadian Journal of Political Science vol. 8, no. 1 (March 1975): 55. 32 Stephen Harper, “We intend to build ‘energy superpower,’” Financial Post, 29 July 2006, FP15.

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part two Selected Policy and Departmental Issues and Realms

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11 (Re)Defining the Apprenticeship Problem in Canada: Completion Rate Efficiency versus More Equitable Entry karine levasseur 1 Canada’s economy will only remain as strong as its workers and families. Our Government will strengthen Canada’s workforce for the future by continuing to support student financial assistance and taking measures to encourage skilled trades and apprenticeships. 2008 Throne Speech

introduction Despite long being viewed as an inferior form of study, apprenticeship is now a keenly debated policy option in Canada and with good reason. As a postsecondary career pathway, apprenticeship contributes to the development of skilled labor in a variety of trades such as plumber, construction electrician, motorcycle mechanic, tool/die maker and welder. Interest has intensified amid continuing concerns that Canada is facing a shortage of skilled labour because of an aging workforce and declining birthrates. The effects of a skilled labour shortage are widespread. For employers, recruitment and retention of skilled labour becomes increasingly challenging. For customers, planning a new building construction project or a home renovation, for example, concerns related to the availability of qualified tradespeople in a timely manner have been mounting. A skilled labour shortage, in turn, may pose a risk to Canada’s economic competitiveness, recovery and continued growth. While apprenticeship has emerged as an important issue for the Harper government, the policy response since 2006 has been preoccupied with ‘efficiency’ as expressed through completion rates defined as the number of apprentices who successfully complete all the necessary requirements to secure certification in their chosen trade. This chapter argues that a redefinition in

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the central problem is required. Specifically, it suggests that the policy problem lies less with completion than with entry into the apprenticeship training and certification system. Increasingly this issue can be seen as one of ‘equity’ with particularly low rates of underrepresented groups going into the wellpaying trades or being segregated into lower-paying trades.

overview of the apprenticeship training and certification system in canada A variety of terms are used, often interchangeably, to describe the development of skilled labour in the trades from ‘work-related training’ to ‘vocational training’ to ‘apprenticeship.’ This can result in confusion about the term and, for the purposes of this paper, apprenticeship is defined as the training and certification process of an apprentice in a specified trade as registered under a formal agreement with an employer and the respective provincial or territorial authority. Apprenticeship is one form of career training and an important aspect of active labour market development. Unlike passive labour market policies that provide income support to unemployed Canadians, active labour market policies such as training and job creation are designed to improve the employment opportunities of the unemployed or underemployed.2 This chapter focuses on the active labour market policies developed by the federal government with a specific emphasis on apprenticeship. Apprenticeship has a long history dating back to the middle ages where apprentices learned their trade from master craftsmen. Historically, apprenticeship has developed skills in a variety of trades across a variety of sectors including: • •

• •

service sector (for example, hairstylist, cook, baker) construction sector (for example, carpenter, plumber, construction electrician) industrial sector (for example, instrumentation and control technician) and transportation sector (for example, automotive service technician).

Apprenticeship consists of a formalized relationship between an employer, who provides a journeyperson for training purposes, and an apprentice, who provides his/her labour. Approximately 80% of the learning occurs on-the-job under the supervision of a journeyperson and 20% occurs in the classroom. What is important to note is that the starting point begins with an apprentice entering into a formal agreement with an employer. Apprenticeship is therefore demand driven. Without an employer, there is no training offered. Agreements between apprentices and employers are registered with the appropriate province and territory and are subject to monitoring (for example, quality of training, establishment of minimum wages for apprentices, etc).

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Situating Apprenticeship in the Context of Broader Labour Market Policy Apprenticeship is characterized by overlapping jurisdictional responsibilities. One the one hand, provinces and territories have jurisdiction for the governance and administration of apprenticeship since it is an educational matter. On the other hand, the federal government has responsibility for economic policy and since the Constitution Act is silent on the matter of labour market development, both levels share this responsibility.3 This overlap between education, economic policy and labour market policy has made federal-provincial/territorial relations somewhat tense in the area of training. In 1942, the federal government enacted the Vocational Training Coordi­ nation Act in part because of the rising need for skilled labour for the war effort.4 This legislation provided federal funding on a 50–50 cost shared basis to the provinces and territories to coordinate apprenticeship training.5 Prior to this legislation, apprenticeship training was ad hoc and informal. Despite the formalization of apprenticeship training, the federal government became increasingly concerned in the 1950s that jobs requiring skilled labour were going unfilled and thus prompted further action vis-à-vis active labour market policy development.6 In 1960, the Technical and Vocational Training Assistance Act was passed which sought to build on the 1942 legislation and expand federal funding to the provinces and territories to support more vocational training.7 Nevertheless, by 1966 though, the federal government began to withdraw its involvement in long-term vocational training to focus on short-term retraining and allow the provinces and territories the responsibility to plan for vocational training in secondary schools.8 Doern asserts that such a policy move better reflected the constitutional responsibilities with the provinces and territories responsible for education and the federal government responsible for economic growth. Such a move would allow the federal government to concentrate on re-training adults who have been unattached to the labour market for three years.9 The mid-1990s witnessed an important policy shift in active labour market development in Canada. Beginning in 1996, the federal government began devolving responsibility for adult training to the provinces and territories through bilateral Labour Market Development Agreements (LMDA). This decentralization has led some scholars to suggest that the LMDAs “represented an important re-ordering of federal-provincial responsibilities in the policy domain and resulted in a much greater degree of asymmetrical federalism than had previously existed.”10 Two reasons help explain this devolution: a need to appeal to Quebec by devolving this file in light of the 1995 referendum and a desire on the part of the federal government to contain costs given that the mid-1990s was a period of significant expenditure reduction.11

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Funding for this devolution originated from the Employment Insurance (EI) system and as a result, only those individuals deemed eligible for EI benefits could access training. This, in turn, meant the federal government still retained training responsibility non-EI eligible individuals and for matters related to cross-jurisdictional labour market issues. The labour market programming needs of non-EI eligible clients were funded through the Consolidated Revenue Fund (CRF). However, the 1995 federal budget significantly reduced the amount of available CRF spending on labour market programs for these clients and at around the same time, the Chrétien government opted to eliminate the Designated Group Policy (DGP) that sought to “identify a number of groups within the labour market as particularly disadvantaged and therefore in need of special programs.”12 This reduction in CRF funding and the elimination of the DGP mark a policy path of inequity for underrepresented groups in the labour market. Further, this devolution is problematic because it “has had the essentially irreversible effect of barring future governments from undertaking ambitious and coherent national policy approaches to training.”13 This withdrawal of active labour market development was further reinforced through the creation of per capita funding arrangements known as Labour Market Agreements (LMAs). Reflective of Harper’s ‘open federalist’ agenda, the 2007 federal budget reaffirmed the idea that the sub-national governments were better equipped to administer training to those citizens not covered by the LMDA. The Harper government initiated bilateral negotiations with provinces and territories to develop LMAs that provided a block grant funding of approximately $3 billion until 2013/2014. This funding was targeted to provide skills development for non-EI eligible clients including lowskilled clients and underrepresented populations in the labour market (for example, immigrants, older workers, Aboriginal People and women). These supports cover a range of needs from skills upgrading, apprenticeship training or diploma-based training programs. Training funding was significantly expanded in the 2009 federal budget with smaller announcements to follow in subsequent budgets as a response to recessionary pressures. The Harper government expanded its commitment to training initiatives by allocating $1.5 billion in the 2009 budget to include: •

•

•

•

Expanded training offered through the EI program by $1 billion over two years. Creation of a $500 million Strategic Training and Transition Fund delivered through LMA funding vehicles to support non-EI eligible clients and the self-employed. Additional funding of $60 million for the Targeted Initiative for Older Workers. Additional funding of $100 million to support the Aboriginal Skills and Employment Partnership, which was created under Liberal ­governments,

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149  (Re)Defining the Apprenticeship Problem in Canada

over three years; $75 million to support the Aboriginal Skills and Training Strategic Investment Fund; and, $25 million over one-year for the Aboriginal Human Resources Development Strategy, which was established in 1999. Since taking office in 2006, the Harper government has made apprenticeship a public policy priority as part of its broader investment in training. This emphasis on apprenticeship marks a renewal in labour market development to be sure, but apprenticeship is also positioned as a critical component of Harper’s economic agenda to train Canadians where the jobs of tomorrow are expected to emerge given the rise of China and the weakening US economy. Apprenticeship Supports The department that has primary responsibility for the apprenticeship file is Human Resources and Skills Development Canada (HRSDC). Apprenticeship is housed under the Trades and Apprenticeship Division with the responsibility for overseeing a number of programs that support the development of apprenticeship training and certification. One of the most important and perhaps most sensitive roles that HRSDC plays in the area of apprenticeship relates to the Canadian Council of Directors of Apprenticeship (CCDA). Since the governance and administration of apprenticeship is a provincial and territorial responsibility, this means that Canada has 13 different apprenticeship systems. To encourage greater harmony amongst the trades and, in turn, promote greater mobility of apprentices and tradespeople, the Interprovincial Standards Red Seal Program was created in the 1950s to establish uniform training and examination standards.14 The CCDA, which is a multilateral intergovernmental mechanism with representatives from every province, territory and the federal government through two HRSDC representatives, oversees the Red Seal program. To date, the CCDA has designated 53 trades under the Red Seal with a set of core skills/tasks identified for each trade and a standardized exam. Upon passing the Red Seal examination, apprentices are awarded a Red Seal that is a recognized qualification amongst stakeholders and thought to promote greater interjurisdictional labour mobility. While the federal government plays an important role by providing funding and administrative support to the CCDA, it also has a seat at the decision-making table presumably to nurture a national perspective on the development of apprenticeship in Canada. The ability of the CCDA to work across different training systems and needs speaks to the level of co-operation amongst the partners according to Lyons et al.15 Besides its work with the CCDA, the federal government has also developed several policy responses to support apprenticeship over the years. One such policy response includes the provision of EI to apprentices during

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their technical training. As noted, apprentices spend approximately 20% of their time in the classroom to advance their theoretical understanding of the trade. Typically, technical training lasts 4–8 weeks with some trades requiring longer technical training than others. Laid-off by their employers, apprentices apply for EI and assuming they have satisfied the required hours/weeks worked, they receive benefits while attending technical training as a form of income support. Another way the federal government supports apprenticeship is through the Sector Council Program. Federal funding is provided to a variety of arms length sector-led organizations that support the involvement of industry stakeholder and others in the policy process. Branded as an “effort to foster corporatism” by Wood and Klassen,16 sector councils promote sector-based learning and training. In the area of apprenticeship, funding through the Sector Council Program is provided to the national non-profit organization known as the Canadian Apprenticeship Forum.

current policy directions As discussed at the outset of this chapter, there are a variety of factors that have led to the emergence of apprenticeship as a federal policy priority in recent years. Shortly after coming into office in January 2006, the Harper government sought to position apprenticeship as a viable pathway to the development of skilled labour and thus, in turn, an important contributor of economic success. As shown in Table 11.1 below, the Harper government introduced five policies specific to apprenticeship with the majority introduced in the 2006 Budget. The Apprenticeship Incentive Grant (AIG) is an annual grant of $1,000 provided to apprentices who have completed their first or second year of apprenticeship training in a designated Red Seal trade. A grant, as a policy instrument, is conceptualized as a “non-payable “gift” with the goal of stimulating a particular activity.17 In 2010–11, 51,476 apprentices received an AIG grant for a total financial commitment of $51.5 million. The Apprenticeship Job Creation Tax Credit (AJCTC) is a non-refundable tax credit to incentivize the hiring of apprentices. Employers can receive a tax credit of 10% of wages up to a maximum of $2,000 for each apprentice working in a designated Red Seal trade each year. The Tradesperson’s Tool deduction is a maximum $500 tax deduction designed to off-set the upfront costs of purchasing tools for both apprentices and tradespersons. Some trades, such as Automotive Service Technician, require apprentices and tradespersons to purchase tools as part of their employment, which could be thought to be a barrier to completing an apprenticeship program. In addition, the limit on the capital cost allowance for tools was raised from $200 to $500. In Budget 2009, the Apprenticeship Completion Grant was introduced as part of ‘Canada’s Economic Action Plan.’ This $40 million commitment provides a

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151  (Re)Defining the Apprenticeship Problem in Canada Table 11.1 Apprenticeship Policies (2006–2011) Year

Policy

Description

2006

Apprenticeship Incentive Grant (AIG)

Taxable grant to registered apprentices who have completed their first or second level of training ($2,000 maximum)

2006

Apprenticeship Job Creation Tax Credit (AJCTC)

Tax credit up to $2,000 to employers for each apprentice hired in the first two years of training in a Red Seal trade.

2006

Tradesperson’s Tools Deduction

Tax deduction (maximum $500) for eligible tools for certified tradespersons and apprentices. The limit on the capital cost allowance for tools was also increased from $200 to $500.

2009

Apprenticeship Completion Grant (ACG)

Taxable grant to registered apprentices who have completed their apprenticeship training and certification in a Red Seal trade.

2011

Tax Relief to Certification Examinations

Extending the Tuition Tax Credit to include the costs associated with certification exams for apprentices and other in regulated professions.

taxable grant up to $2,000 to apprentices who successfully complete their training in a Red Seal trade. As of October 2011, a total of 59,400 grants have been provided. Budget 2011 extended the Tuition Tax Credit to apprentices (and to others in regulated professions such as nursing and medicine) to include the costs associated with certification. In order for apprentices to become certified, licensing and/or certification exams are required generally at a personal cost to the apprentice. Examination fees will now be eligible for the Tuition Tax Credit under this expansion. These policy responses raise an important question: what problem do they attempt to address? This chapter argues these policy responses are pre-­ occupied with completion rates to make the apprenticeship training and certification system more efficient. Expressed another way, they are implicitly or explicitly designed to move apprentices through the system once they are already registered under agreement with an employer. Take, for instance, the AIG that provides a grant of $1,000 per level to apprentices who have completed their first and second levels of training. This grant incentivizes progression in the early years of an apprenticeship program to “[build] momentum toward certification” according to government documents.18 The Apprenticeship Completion Grant and the tax credit for certification exams are the most explicit policy responses that promote completion. The former simply rewards apprentices for the successful completion of their training of up to $2000. The latter provides tax relief for the costs associated with taking a certification exam designed to support the ‘back-end’ of apprenticeship training to lead to

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certification. The only policy response that could be said to deal with issues of recruitment into the system at the ‘front end’ is the AJCTC. This tax credit, which is aimed at employers, is an incentive to recruit more young people into apprenticeship. However, it does nothing to target underrepresented groups in apprenticeship. On the surface, making the apprenticeship training and certification system more efficient is entirely logical. After all, active labor market policies are developed with the goal of producing skilled labour in a timely manner to meet current and emerging labour market demands. In light of this goal, completion is important in Canada given our low completion rates. Sharpe and Gibson’s assessment of completion rates between 1977 and 2002 indicate that while the number of registrations nearly doubled (90.8%), the number of completions remained relatively unchanged.19 Completion rates, in short, are not keeping pace with increased registrations for a variety of possible reasons: insufficient work, better job offers, dislike of working conditions, or illness.20 Two questions need to be posed here. First, is completion the central policy problem? Completion can bring several benefits to apprentices, employers and to the broader public. Completion, which culminates into the awarding of a Red Seal, may provide greater mobility across Canada and thus improve opportunities to secure work more readily. In addition, there is a labour market premium provided to apprenticeship completers over discontinuers of approximately $8,000 per year.21 Further, employers may benefit from timely completion of apprenticeship training to reap the rewards of investing their training dollars to produce the next generation of journeypersons. In short, completion promotes better use of taxes and employer training dollars to move apprentices through the system to become employed in their field and contribute economically. While there is a premium paid to completers, this premium may not be enough to make completion worthwhile. More bluntly, where is the incentive for a 3rd or 4th year apprentice to complete his/her training when s/he can earn nearly the same wage rate as a certified journeyperson? There is the assumption built into the apprenticeship system that completion is the route to securing employment in one’s chosen trade. Scholars like Meredith disagree. His analysis of census data reveals that the trades are made up of completers and non-completers alike.22 He uses the example of the piping and electrical trades to illustrate his point whereby half of the tradespeople in these areas are non-certified. Consequently, discontinuers and those workers who have never participated in apprenticeship training remain competitive in the job market despite lacking certification. These low completion rates, Meredith asserts, may simply reflect the demand from employers for semi-skilled – not certified – labour and thus completion rates may be low for this reason and not solely because of the barriers to completion outlined earlier.23 Second, if completion is the key problem, to what degree do these policies encourage higher completion rates? Meredith remains unconvinced that tax

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153  (Re)Defining the Apprenticeship Problem in Canada

credits like the AJCTC and grants like the AIG and ACG can be entirely effective.24 His interviews with 33 employers and apprentices provide insight as to whether these incentives influence hiring and retention decisions. While twothirds of employers were aware of these incentives, only 9 employers received the tax credit (AJCTC) to hire apprentices. When asked about the influence of these incentives, employers generally agree that they do not affect their hiring practices. Apprentices also cite that the AIG served a bonus given to them for something they were likely to achieve anyway. The July 2009 Formative Evaluation of the AIG reinforces Meredith’s findings. Nearly 98% of AIG recipients indicated they would have continued their apprenticeship training regardless of the grant and 89% of non-AIG recipients continued their apprenticeship training. The impact of the AIG to encourage progression through to completion is doubtful in light of these evaluation results. While completion rates are important, they are not the only public policy issue facing the apprenticeship system because completion is not an all or nothing matter. Rather, there may be benefits to partial completion as evidenced by Meredith’s research. Further, the policy instruments selected to respond to this concern are too blunt and do not appear to improve completion rates. Yet, the pre-occupation of the federal government with developing policy to nurture completion rates obscures a more pressing and systemic problem related to equity on entry into the trades for underrepresented groups. This is based on the view that the trades, in general, yield positive labour market outcomes for workers, but that certain groups such as women are excluded.25

(re)defining the problem The 2007 National Apprenticeship Survey (NAS) conducted by Statistics Canada outlines the experiences of three under-represented groups in the apprenticeship training and certification system: women, immigrants and Aboriginal People as outlined in Table 11.2 below.26 The data set for apprentices with disabilities was too small and thus not analyzed or reported in the NAS reports. Several discernible trends emerge from Table 11.2. First, women are significantly underrepresented in apprenticeship. Despite forming 51% of the Canadian population, women only comprise 10% of apprentices. Of greater concern is the fact that of this small percentage of women participating in apprenticeship, most are concentrated in two groups. Female apprentices make up 91.7% and 36.5% of all registered apprentices in hairstyling and esthetics – disparagingly dubbed the ‘beauty trades’ – and in food services. This concentration of female apprentices in these lower paying trades is not new according to Sharpe and Gibson.27 Their analysis reveals that between 1991 and 2002, participation in apprenticeship by women increased from 4.3% in 1991 to 9.3% in 2002. Despite this increase, female apprentices became increasingly segregated in food services and the beauty trades meaning their representation in non-­ traditional trades such as construction actually decreased. Apprenticeship

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154  Karine Levasseur Table 11.2 Breakdown of Underrepresented Groups in Apprenticeship Women Percent registered as apprentices Percent of Canadian population Concentration of underrepresented group in the beauty trades Concentration of underrepresented group in food services

Immigrants

Aboriginal People

10% 51%

8% 20%

5% 4%

91.7%

15%

6%

36.5%

10%

5%

Source: Laryea and Medu, 2010

is thus characterized by occupational segregation based on gender meaning few women enter the male-dominated and generally higher paying trades. As a result of being concentrated in lower paying trades, female apprentices who complete their training earn significantly less than their male counterparts. Seven per cent of male completers earn less than $20,000 annually compared to 36% for female completers. At the higher end of the salary scale, only 5% of female completers earn more than $60,000 compared to 35% for male completers.28 Second, immigrants are underrepresented in apprenticeship as a share of the overall population. While immigrants make up 20% of the population, they only represent 8% of registered apprentices. While not as occupationally segregated as women, the percent of immigrants in food services, hairstyling and esthetics is still somewhat high. As a share of the total population, Aboriginal People make up 4%, but make up 5% of total registered apprentices and are not as occupationally segregated. Given that the Aboriginal population is both young and growing in Canada, it remains to be seen whether this representation continues. These research findings reveal that serious equity concerns exist in the apprenticeship system. Despite the stigma associated with apprenticeship training in Canada, the reality is that this pathway can and does lead to favorable labour market outcomes in terms of high wages and salaries, but the inability of the apprenticeship system to better integrate underrepresented groups threatens the viability of the system. As Stewart and Kerr lament, “the underrepresentation of women [and others] is both a problem from a transition perspective and from a skills shortage standpoint. If women [and others] are unable or unmotivated to pursue careers in the skilled trades, then that has serious consequences for the openness, relevance, and overall training capacity of the apprenticeship system.”29 The barriers for underrepresented groups are well documented and are nothing short of significant to include: stereotyping that can lead to occupational segregation (i.e. gender), resistance to workplace cultural change to accommodate underrepresented groups (i.e. harassment and discrimination), skills/knowledge gaps (i.e. numeracy skills) and many others.30

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155  (Re)Defining the Apprenticeship Problem in Canada

These findings suggest that the federal government has an opportunity to integrate social policy with active labor market development to reduce income polarization.31 Apprenticeship can and does lead to satisfying, and in many instances well-paying careers, but these benefits need to be better distributed amongst underrepresented groups more evenly. One way the federal government could respond to this issue is through LMA funding. As shown earlier, LMAs are bilateral agreements between the federal government and provinces/territories targeted to provide training and other employment-­ related supports to citizens who are low-skilled or ineligible for training under the EI system. Some provinces use LMA funding to increase the participation of underrepresented groups such as women, Aboriginal People and immigrants in trades and apprenticeship training. One such example from BC is the Women in Trades Training (WITT) which is designed to promote the non-traditional trades to women. In 2009/2010, WITT served 649 women and provides a variety of supports such as such as tuition support, child-care subsidies, counseling and networking opportunities with potential employers for a total cost of $4,143,004. BC also has similar programs to promote trades and apprenticeship training to Aboriginal People and immigrants.32 While federal funding to the provinces and territories to help promote apprenticeship to underrepresented groups is laudable, the asymmetrical nature of the LMAs produces inconsistent policy responses. Under the LMAs, the provinces and territories have authority for the development and implementation of training supports. So long as these supports are aimed at non-EI eligible citizens and low-skilled workers, the provinces and territories have significant latitude to design programming as they see fit. On the one hand, this provides greater opportunity for tailored and responsive labor market programming to the provinces and territories based on their needs. On the other hand, there is little capacity to produce a national response to the problem of under representativeness and occupational segregation in apprenticeship training. Since each province and territory develops its own programming, programs like WITT in BC may not be reproduced by other sub-national jurisdictions. While the federal government has no direct role in the actual administration of apprenticeship training, it does have an important leadership role to play in working with stakeholders (provinces/territories, employers, educational institutions, etc) to develop a broader vision or framework for better inclusion of underrepresented groups. As it stands however, the asymmetrical nature of LMA funding prevents this from occurring to any meaningful degree.

conclusions Since 2006, federal policy to support apprenticeship training and certification has centred on the value of ‘efficiency’ as represented by completion rates. This pre-occupation with the completion efficiency of the system obscures

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156  Karine Levasseur

the need to make apprenticeship more ‘equitable’ to underrepresented groups. What is needed is a redefinition of the central policy problem facing apprenticeship; namely, the need for the system to become more inclusive. While the challenges to recruiting under-represented groups are significant, and space considerations prevent a full treatment of prescriptive solutions here, employer participation is critical and must become part of the federal focus if it is to be seriously addressed. The federal government has a real opportunity to use apprenticeship for social gains, but its lack of a comprehensive strategy to work with other stakeholders and develop more inclusive apprenticeship training and certification system will only contribute to a widening gap in Canada’s skilled labour market.

notes 1 The author is grateful to Kevin McPike for his research assistance. She also thanks John Meredith, Chris Stoney, Bruce Doern and others who have chosen to remain anonymous for providing thoughtful comments on an earlier draft. 2 Rodney Haddow, “Canadian Labour Market Policy: Federalism and Policy Alignment at the Millennium,” in Federalism and Labour Market Policy: Comparing Different Governance and Employment Strategies, edited by Alain Noël, (Montreal & Kingston: McGill-Queen’s University Press, 2004), 235. HRSDC uses the language of ‘active employment measures’ that are designed to improve/gain skills, improve access to employment opportunities, and improve how employers work together. See: http://www.hrsdc.gc.ca/eng/employment/employment_measures/index.shtml 3 Thomas Klassen and Donna Wood, “Devolution and Democracy: Labour Market Policy in Canada and the United Kingdom 1996–2006,” International Review of Public Administration 12: 2 (2008): 15. 4 G. Bruce Doern, “Vocational Training and Manpower Policy,” Canadian Public Administration 12, 1 (Winter 1969): 64. 5 Bonnie Watt-Malcolm and Beth Young, “Canadian women in the industrial trades: A historical perspective.” Paper presented at The Changing Face of Work and Learning Conference, University of Alberta, 2003. 6 Haddow, “Canadian Labour Market Policy: Federalism and Policy Alignment at the Millennium,” 247. 7 John E. Lyons, Bikkar S. Randhawa, and Neil A. Paulson, “The Development of Vocational Education in Canada,” Canadian Journal of Education 16: 2 (1991): 143. 8 Ibid., 143. 9 Doern, “Vocational Training and Manpower Policy,” 67. 10 Allison Bramwell, “Training Policy for the 21st Century: Decentralization and Workforce Development Programs for Unemployed Working-Age Adults in Canada” (Toronto: Mowat Centre, 2011): 6. Available online: http://www.mowateitaskforce.ca/ sites/default/files/Bramwell.pdf

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157  (Re)Defining the Apprenticeship Problem in Canada 11 Ibid. 12 Ursule Critoph, “Who Wins, Who Loses; The Real Story of the Transfer of Training to the Provinces and Its Impact on Women”, in Training the Excluded for Work, edited by Marjorie Griffin Cohen (Vancouver: UBC Press, 2003), 18. 13 Allison Bramwell, “Training Policy,” 5. 14 Lyons et al. “The Development of Vocational Education in Canada,” 145. 15 Lyons et al, 145. 16 Donna Wood and Thomas Klassen, “Bilateral federalism and workforce development policy in Canada,” Canadian Public Administration 52: 2 (June 2009): 255. 17 David Beam and Timothy Conlan, “Grants,” in The Tools of Government: A Guide to the New Governance, edited by Lester Salamon (New York: Oxford University Press, 2002): 341. 18 Service Canada, Frequently Asked Questions, Available online: http://www.servicecanada.gc.ca/eng/goc/apprenticeship/incentivegrant/faq/program.shtml 19 Sharpe and Gibson further indicate that completion rates vary considerably by trade and province/territory. Their analysis of completion rates in 2002 by trade show a wide range of successful completion rates from a low of 16.7% (plasterer) to 64.1% (Industrial electrician). They further note that completion varies within sub-national governments from 10.9% (Newfoundland) to 61.6% (Manitoba). 20 Benoit Cadieux, “Factors Influencing Completion of Apprenticeship,” (Ottawa: CCDA/HRSDC, 2011), 34. 21 Nina Ahmed, National Apprenticeship Survey 2007: Labour Market Outcomes of Canadian Apprentice. (Ottawa: CCDA/HRSDC, 2011), 31. 22 John Meredith, “Apprenticeship in Canada: where’s the crisis?” Journal of Vocational Education and Training 63: 3 (2011): 323–44. Relying on Census data, using NOC codes, may inadvertently overestimate the number of non-certified workers in these trades. NOC codes contain several trades so one code may contain data for both apprenticeable and non-apprenticeable trades. As a result, the data may overinflate the number of non-certified workers. 23 Meredith’s reliance on census data provides insight into these issues at a single point in time. Thus, it is unknown whether partial completers remain in the trade over a longer period of time. 24 John Meredith, “Crucial Contributors? Re-examining Labour Market Impact and Workplace-training Intensity in Canadian Trades Apprenticeship” (CLSRN Working Paper No. 64, 2010): 28. 25 This perspective is advanced by Marjorie Griffin-Cohen and Kate Braid, “The Road to Equity: Training Women and First Nations on the Vancouver Island Highway,” in Training the Excluded for Work, edited by Marjorie Griffin Cohen (Vancouver: UBC Press, 2003). 26 Samuel Laryea and Kemi Medu, “Participation of Women, Immigrants and Aboriginal People in Apprenticeship Programs” (Ottawa: CCDA/HRSDC, 2011). 27 Sharpe and Gibson, “The Apprenticeship System in Canada: Trends and Issues,” 9. 28 Laryea and Medu, “Participation of Women, Immigrants and Aboriginal People in Apprenticeship Programs,” 14.

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158  Karine Levasseur 29 Graeme Stewart and Angelika Kerr, “A Backgrounder on Apprenticeship Training in Canada,” (Higher Education Quality Council of Ontario, no date): 10. 30 See Allison Andrew, “Challenging Boundaries to ‘Employability’: Women Apprentices in a Non-Traditional Occupation,” Social Policy & Society 8:3 (2009): 347–59; Margaret Little, “Hammering their way through the barriers: Low-Income Women Retrain to be carpenters”, in Training the Excluded for Work, edited by Marjorie Griffin Cohen (Vancouver: UBC Press, 2003), 108–123. 31 Allison Bramwell, “Training Policy for the 21st Century: Decentralization and Work­ force Development Programs for Unemployed Working-Age Adults in Canada,” 2. 32 In 2009/10, BC spent $1,240,189 and $1,008,221 of its LMA funding to promote trades training opportunities to Aboriginal People and immigrants respectively.

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12 Promises to Keep: Federal Spending on Communications and Transportation Infrastructure in the Territorial North joshua gladstone, sheena kennedy dalseg, and frances abele

Highways, power lines, harbours, grid-plan towns, telecommunications, and sewage and water systems overlay the thousands of years-old Inuit and Inuvialuit, Dene, Yukon First Nations, and Métis lands of the territorial north. Their traditional lands are full of life, sustenance and meaning; they require no infrastructure grants to maintain them. The old landscape, though, now also holds modern infrastructure, as important to the way northern people live as is infrastructure in any other part of Canada. This modern ‘built’ landscape is largely an artifact of national dreams of northern development, and federal spending. Since territorial governments generally lack the means for large infrastructure investments, federal infrastructure spending in the territorial north is still extraordinarily important to the well-being of every northern resident. Given the distances between northern population centres and the import-­dependence of northern societies, this is particularly true for transportation and communication facilities.1 When they came to power in 2006, the Conservatives signaled no major changes to federal investments in northern communications and transportation infrastructure, except for expenditures related to national defence.2 As elsewhere in Canada, however, northern infrastructure spending spiked with the stimulus response to the global crash of 2008, mandated under Advantage Canada and Canada’s Economic Action Plan. While providing for some welcome improvements, the post-2008 stimulus spending has not been sufficient to overcome the northern infrastructure deficit, a legacy of decades of under-spending being compounded by the effects of climate change, population growth, and burgeoning natural resource development. In light of these challenges, there is an urgent need for a ­comprehensive

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160  Joshua Gladstone, Sheena Kennedy Dalseg, and Frances Abele

transportation and communications strategy, developed jointly by federal, territorial and Aboriginal governments in each territory. Such a strategy is necessary to coordinate and guide wise expenditure of public funds over many years, meeting the deepest needs first and ensuring that the level of infrastructure development in each territory is harmonized. Piecemeal funding in the absence of a consistent plan risks expensive degradation and deteriorating ­living conditions.

northern communications and transportation infrastructure: an overview The two largest cities in the territorial north are the capitals of Yellowknife and Whitehorse, each with populations of about 20,000 residents. In the other seventy-one communities of the territorial north, populations range from under a hundred to a few thousand; and in most of these smaller communities most of the residents are Inuit, Inuvialuit, Dene, Yukon First Nations, or Métis. There is pronounced variation in the communication and transportation services provided in each territory and within regions of each territory (Table 12.1). In Yukon, all communities except Old Crow are connected by all-weather road, compared to about half of NWT communities and none in Nunavut.3 Communities without road connections rely on water or air transportation for freight. For coastal communities, annual sealifts bring items that can be ordered well in advance and stored for months. Communities that lie inland rely upon winter ice roads, partial river transport, or entirely on airplanes. Air freight is used for daily or unplanned necessities like fresh food and medications, and for the mobility of persons.4 In Nunavut, where dependence is highest, air-freight amounts to approximately one thousand kilograms per person, per year.5 With few updates made to community airports since they were built in the 1960s and ’70s, growing populations and increased travel related to resource extraction raise concerns about both the capacity and safety of the existing infrastructure. Basic marine infrastructure (docks, cranes, and ramps) is lacking in most communities.6 And though many communities rely on boats for harvesting, inter-community transport, and travel, only one community (Hay River, NWT) has a small craft harbour. Communications infrastructure,7 particularly broadband Internet and cellular network access, varies: over 90% of households in Yukon have access to broadband Internet,8 compared to 41% of households in the NWT and just 27% in Nunavut. Reliability and speed are major challenges, particularly where communities rely on satellite service on older networks that are sensitive to weather disturbances.9 Besides maintenance and upgrading of existing infrastructure, northern residents have identified a number of long term, capital intensive infrastructure projects. In Nunavut, arguably the territory of greatest infrastructure

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161  Communications and Transportation Infrastructure Table 12.1 Inventory of Communications and Transportation Infrastructure in the Territorial North1 Infrastructure Type Yukon

Northwest Territories

Nunavut

Transportation2 All-weather roads (length)

4800 km

Winter Road (length)

No major winter roads

All communities connected by road, except Old Crow

2200 km

No road infrastructure with Prior to the constructhe exception of tion of the Deh Cho bridge, 20% of residents a 110 km all-season road between Baker had permanent highway access; 65% lacked Lake and Meadowbank Mine. highway access during two-month transition A 21 km road used to period between ferry connect Arctic Bay service and ice crossto the now-closed mine ings; 13% relied on at Nanisiviik. winter roads; 2% had no access at all. 1450 km of public winter roads 570+ km of private winter roads for oil and gas supply and mine resupply

Airports (#)

13 airports

27 airports

16 aerodromes

Several privately operated airstrips

All operated by Yukon Government

A few private winter roads, associated with mine sites.

Each community (26) relies on air transportation for essential needs All operated by the Government of Nunavut. Several privately operated airstrips. 2 airports have paved runways

Marine

No existing marine infrastructure (links with ports in Alaska)

Rail / truck to barge marine system for community and industry;

All communities have rudimentary beach landing sites.

16 communities (4 exclusively) depend on this system for bulk commodities;

Proposed deep-sea port at Nanisivik cancelled.

Infrastructure is privately owned

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162  Joshua Gladstone, Sheena Kennedy Dalseg, and Frances Abele Table 12.1 (continued) Infrastructure Type Yukon

Northwest Territories

Nunavut

Communications Microwave radio (length), fibre optic cable (length), satellite (# of communities)

Northwestel (a private firm) is the primary service provider and owner of communications infrastructure in the North, including: a 7354 km network of microwave radio, 3250 km of fibre optic cable covering southern Yukon and nwt, and satellite services covering 43 communities (all 26 in Nunavut and the northern and eastern nwt communities).

Broadband Access3 90% (% households) The majority at very high speeds (16-24.9 Mbps)

41%

27%

Just under half of these at very high speeds (16-24.9 Mbps)

All at the lowest speed possible for broadband (1.5-4.9 Mbps)

Notes: 1 Except where indicated, this table is adapted from National Roundtable on the Environment and the Economy. 2009. True North – Adapting Infrastructure to Climate Change in Northern Canada. Ottawa: nrtee, 54–5. 2  All 2008 data. 3 All data is from the Canadian Radio-television Telecommunications Commission (crtc), Broadband Report (crtc, November 2011).

need, three such “generational” projects are proposed: the Bathurst Inlet Port and Road (BIPAR) project, the Nunavut-Manitoba Road, and a deepwater port at Iqaluit. In the Northwest Territories, with little federal support, one legacy project has been completed: the Deh Cho Bridge across the Mackenzie River, opened in November 2012.10 A second legacy project is actively promoted by the territorial government: the proposed Mackenzie Valley Highway would extend the highway system from the southern Mackenzie Valley to Tuktoyaktuk on the Arctic coast.11

public finance in three territories An initial pulse of federal northern infrastructure spending in the three decades after the end of the Second World War was oriented toward developing population service centres, satisfying military needs, and supporting the resource extraction sector.12 After the initial postwar period of investment, federal funding for public infrastructure, including northern infrastructure, entered a period of prolonged stagnation.13 As territorial governments grew, they assumed responsibility for maintaining this system, but often, they have not been able to develop the capacity to fill the infrastructure gap. Territorial governments face unusually high per capita expenditure requirements (due to small, widely distributed populations and high costs) while lacking the ability to tax natural resource development. Exceptions to this are Yukon, which reached a resource revenue sharing agreement with the federal government

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163  Communications and Transportation Infrastructure

in 2001,14 and Aboriginal governments and organizations that administer the provisions of comprehensive claims agreements ceding subsurface rights to Aboriginal authorities. (At the time of writing, the NWT was close to reaching a resource revenue sharing agreement with the federal government.) The northern territories are not part of the federal-provincial equalization program. Instead, in recognition of the special circumstances of the territories, Territorial Formula Financing (TFF) is used, a system developed to implement the equalization principle in the special circumstances of the territories.15 Federal transfers in Nunavut in 2011–12, accounted for approximately 93% of the expenditure budget, the highest among the three territories. The Governments of the Northwest Territories and Yukon received 73% and 72%, respectively. In each territory, capital expenditures place heavy demands on budgets straining to meeting day-to-day program needs. In 2011–12, they ranged from $127.3 million, or 9% of territorial revenue in Nunavut, to $155 million (11% of territorial revenue) in NWT 16 and $113 million (10%) in Yukon. Everywhere in Canada, municipalities play an important role in infrastructure development; in the territorial North because communities are so widely dispersed, this is particularly true.17 With small, very young populations and high levels of social assistance, particularly in the area of housing, northern municipalities face high costs. An additional complication is that all but the largest municipalities lack a southern-style tax base; because much housing is social housing, there is scant or no municipal income from property taxes. Smaller municipal governments rely entirely upon territorial and federal funding for their expenditure budgets, and for infrastucture investments.

federal infrastructure programs and spending in the north The North has featured prominently in the Conservative government’s stated priorities.18 The Conservative Northern Strategy states that “critical infrastructure needs” must be addressed, reporting that Canada “is working closely with the territorial governments to develop tailored responses to local needs.” It highlights a commercial fishing harbour in Pangnirtung, and “a range of infrastructure programs, including Broadband, Recreational and Green Infrastructure” from which territorial governments and communities are already benefiting. Infrastructure is also identified as an area requiring urgent attention if Northerners are to be positioned to take advantage of the “enormous” resource potential. Nowhere, however, does the document outline a clear vision for a more integrated, connected North, or a strategy for getting there. Many of the legacy projects northerners have been hoping for are not mentioned. If the federal infrastructure strategy in the North is foggy, the reality of federal infrastructure spending – the positive results of which are touted on the Northern Strategy website – has proven difficult to track. Federal infrastructure

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164  Joshua Gladstone, Sheena Kennedy Dalseg, and Frances Abele Table 12.2 Federal infrastructure commitments to the North (2007–2014) Building Canada Fund Jurisdiction Yukon nwt Nunavut

P-T Base Fund

Gas Tax Fund

Total

($ million) 7.91 10.80 7.68

0

175 175 175

60 60 60

242.91 245.8 242.68

Total

731.39

Source: Infrastructure Funding Agreements

spending announcements were significant early in the Harper government’s tenure. In Advantage Canada, the government committed to a comprehensive plan for Canada’s infrastructure that included long term, predictable funding and an emphasis on public private partnerships (P3s).19 Budget 2006 outlined the government’s plan to maintain existing infrastructure funding commitments and announced $5.5 billion in new spending to be divided among five infrastructure programs.20 In Budget 2007 the Building Canada Plan was announced, which included additional funding commitments along with new programs to house them. Existing programs would conclude by 2013–14.21 In their place, a suite of programs were announced, some of which were new, and some of which repackaged existing programs. Overall, federal infrastructure spending would be $33 billion over seven years.22 Funding agreements signed in 2008 committed $731 million to the three territories for the period 2008–2015 through the Building Canada Fund, Base Funding, and the Gas Tax Fund. Other infrastructure programs supplement these amounts, while responsibility for small craft harbours was transferred to the territories. Early calculations based on the infrastructure funding agreements suggest that average per capita spending in the territories would be over four times higher than average per capita spending in five of the southern provinces – a north-south differential that has remained constant for many years.23 In what follows, we discuss patterns of spending under these agreements, aware that we have likely not been able to identify all federal infrastructure spending, or in some cases match actual expenditures to announced amounts. Under the Infrastructure Funding Agreements, territorial governments were allocated between $243 and $246 million (see Table 12.2) to spend according to infrastructure plans developed in each territory. Public reporting requirements and a detailed communications protocol are also outlined in the agreements. With Building Canada programs (except the Gas Tax Fund) set to wind down in 2014, it is possible to begin an analysis of the territorial outcomes of federal stimulus funding by evaluating the spending patterns in each territory.

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165  Communications and Transportation Infrastructure Table 12.3 Capital Spending in Nunavut under the Building Canada Plan (Gas Tax Fund and Building Canada Fund), 2009–2013, by Project Type Water/ Solid Waste Water Waste

  Aggregate total ($ 000) Percent of total spending

Roads Airport Marine Telecom. Facilities Other

53,614

11,650

0

26,021

0

0

23,448

33

7

 

16

 

 

14

Total

47,886 162,619 29

100

N.B.: All figures taken from territorial capital estimates.

Table 12.4 Capital Spending in the Northwest Territories under the Building Canada Plan (Gas Tax Fund and Building Canada Fund), 2007–2015, by Project Type Water/ Solid Waste Water Waste Roads

  Aggregate totals ($ 000) Percent of total spending

75,442

27

Planning Airport Marine Telecom. Facilities Energy Capacity & Admin. Total

32,574 107,717 20,100

12

39

7

460

25

0

0

27,259 1,723

10

1

7,304

2,252

274,856

3

1

 

N.B.: Gas Tax figures are from GNWT audit reports and internal tracking documents. Building Canada Fund figures are from GNWT internal tracking documents.

Because territorial reporting conventions vary, we present the results in three different tables. Each of the three territories spent a substantial proportion of the new funding on water, wastewater and sewage upgrades – an urgent need in many of the north’s communities, where facilities were built decades ago for much smaller populations. The next largest category of expenditure in Nunavut funded new facilities or upgrades to existing ones, including $24.2 million (or 14% of total infrastructure spending to-date) allocated towards the now-completed Piqqusilirivvik Inuit cultural centre in Clyde River, 16% of Building Canada funding for airport upgrades, 14% to buildings, and 7% to landfills. According to Nunavut’s capital estimates, no funding was allocated to roads, marine transportation, or telecommunications. That said, only $163 million of the territory’s $242.7 million federal allocation is accounted for in the sources available at the time of writing. With respect to Yukon, we can account for $166 million in actual and planned Building Canada Fund spending out of the territory’s $246.8 million

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166  Joshua Gladstone, Sheena Kennedy Dalseg, and Frances Abele Table 12.5 Capital Spending in the Yukon under the Building Canada Fund, 2008–2015, by Project Type Water/ Solid Planning Prior Year’s Waste Water Waste Roads Airport Marine Telecom. Facilities Energy & Admin. Projects Total

  Aggregate total ($000)

111,540

Percent of total

67

11,793 18,503 7

11

0

0

0

0

11,425

1,542

11,213

166,016

0

0

0

0

7

1

7

100

N.B.: Figures from fiscal years ending in 2008–2011 are taken from territorial capital estimates. Figures from fiscal years ending in 2012–2013 are taken from territorial capital projections.

federal allocation. Fifteen percent of the total allocation in the Building Canada Fund (BCF) has gone to administration, capacity-building, and power generation, 7% for solid waste projects, and 11% for roads. No funding was allocated toward airports, marine, telecommunications, or building infrastructure.24 In the NWT, capital plans, audit reports, and other territorial government sources reveal that together, the Gas Tax Fund and the Building Canada Fund have resulted in $275 million in actual and planned spending from 2007–2015. The greatest part of this ($108 million or 39%) has been allocated to upgrading existing road infrastructure.25 Spending on facilities accounts for $27.3 million or sixteen percent (10%) of the BCF funds, while water/waste water and solid waste account for $75.4 million (27%) and $33 million (12%), respectively. Airports received $20 million (7%). Energy, capacity building, and administration together account for approximately five percent (5%) of overall spending. Marine and telecommunications infrastructure spending is negligible.

meeting current and future needs Climate change, population growth, and natural resource development place significant strain on the no-longer-new infrastructure in the territorial north, and rapid changes in these inter-related factors will have a dramatic effect on northern quality of life in the near and medium terms. The impacts of climate change on infrastructure are already being felt across the North. Much of the northern infrastructure, for example, relies heavily on the continued existence of frozen ground: building foundations, roads and air airstrips, pipelines, communications towers, and waste containment structures, all depend on permafrost to maintain their structural integrity.26 According to a 2009 Senate report, the cost of repairing buildings affected by permafrost degradation in Inuvik, NWT alone is a staggering $140 million.27 Compounding these effects, rapid population growth, particularly in Nunavut, drives demand for more housing and associated transportation and communication infrastructure. An

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167  Communications and Transportation Infrastructure

additional accelerant is the pressure to exploit natural resources for export, resulting in more transportation of materials and workers over long distances. The small surge of federal spending in the post-2008 stimulus budgets was helpful, but even in the absence of full needs assessments and full spending accounts for each territory,28 it is plain that these expenditures did not come close to addressing the northern infrastructure deficit. Much was spent on necessary upgrading of existing buildings and sanitation facilities. Transportation and communications infrastructure received almost no stimulus funds in Nunavut and the Yukon (with a modest allocation in the NWT), despite estimates as high as $2.5 billion needed just to address the transportation infrastructure deficit alone.29 Faced with a choice between clean water and new roads, northern communities chose the former, but this is not an indication of an absence of need. There is remarkable variation among the territories both in terms of needs and in fiscal capacity to meet those needs. In Nunavut, the priorities were water, waste water and sewage, airports, and municipal buildings. In the Northwest Territories and Yukon, water and sewage were important, but so were roads and energy projects, reflecting climatic factors, resource development, and population growth that increasing the wear and tear on existing roads. With substantial support from the federal government, the Northwest Territories was able to proceed with the Deh Cho bridge. However, federal support to complete the basic road system has not been forthcoming despite the substantial brake its absence puts on balanced economic development.30 The 2011 federal Economic Action Plan commits the federal government to development of a new long-term public infrastructure plan, to replace Building Canada after its conclusion in 2014. The new Building for Prosperity plan will “[explore] opportunities that encourage greater private sector involvement and public-private partnerships to generate better value for taxpayers, and ensure affordability and sustainability over the long term.”31 Building for Prosperity’s six-member Steering Committee identified six priorities, one of which is the North. To date the Committee appears to have focused primarily on the “symbiotic” relationship between natural resource development – especially mining – and infrastructure, with a cursory mention of the important role that infrastructure plays in connecting northern communities to one another and to the South. The Steering Committee includes representatives from Infrastructure Canada (co-chair), the Alberta Treasury Board (co-chair), the Canadian Association of Municipal Administrators, the Canadian Construction Association, Engineers Canada, and the Federation of Canadian Munici­ palities. None of the other provinces and territories are represented on the Committee. Government and non-government stakeholders were invited to make presentations to the Committee on northern infrastructure needs and priorities; presenters included the territorial governments, the President

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168  Joshua Gladstone, Sheena Kennedy Dalseg, and Frances Abele

of the Chamber of Mines of Nunavut and the Northwest Territories, and the Director of the Conference Board of Canada’s Centre for the North. In summer 2012, Minister of Infrastructure, Denis Lebel conducted “regional roundtables” with municipal officials and community and business leaders to discuss their concerns and priorities regarding infrastructure in their region. There was one consultative meeting in each territorial capital. To date the Steering Committee have not commented on the conclusions they have drawn from these consultations, no research has been released, and there is no indication of their estimation of the magnitude of northern needs.

conclusions Rapid northern economic and political development and population growth, the deterioration of existing infrastructure, limited territorial fiscal capacity, and inadequate federal funding, have created a northern infrastructure deficit. Federal stimulus spending under the Economic Action Plan saw the highest federal spending on infrastructure in decades, but it has ended. Furthermore, it came without a long-term strategy for northern infrastructure development – development which must take into account the unprecedented but doubtless massive impending impact of climate change that will increase the strain on infrastructure resulting from population growth and major resource development projects. With burgeoning international interest in northern resource development, a relatively impoverished public sector confronts massive capital commitments from international mineral giants, a tension that is sharply felt at the territorial level, where the infrastructure deficit has not been matched by federal spending on important transportation and communication infrastructure.  The revenue opportunities available from resource development accrue most unevenly, so far to only one territorial government and, where a comprehensive land claims agreement is in place, to Aboriginal organizations. For the rest, the federal government sets the rate of taxation on resource production and collects the funds, which may or may not be transferred north for infrastructure and other purposes. The developing residents of the north require improved transportation alternatives. Highways, such as those proposed for the Mackenzie Valley Highway and for Nunavut’s communities on the west coast of Hudson’s Bay, would reduce costs for the residents of the communities also lowering the costs of private natural resource development projects. For the north’s distinctive, resource and harvesting based economy, where people live in dispersed communities, world class communications infrastructure is essential – for effective governance and for community and regional economic development. A renewed federal infrastructure strategy will need to include a flexible “core needs” component and a legacy component. Core needs will vary from

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169  Communications and Transportation Infrastructure

region to region, but in all cases will entail maintenance of the facilities that provide essential services, including, in many parts of the North, social housing. Legacy projects are needed to address fundamental infrastructure deficits in all areas. Consideration must be given to projects’ potential contribution to regional economic growth through reductions to the cost of living and the cost of industrial projects, as well as their impact on greenhouse gas emissions and other environmental factors. Given the rising costs that will be associated with deteriorating facilities, the impact of climate change, population growth, and the pressures of resource development, a renewed long-term federal fiscal commitment is urgent. Large federal commitments must be carefully planned, deployed and sequenced in consultation with northern political authorities – both the public governments and Aboriginal organizations – so that territorial capacities are strengthened and the regional economic impact of spending is maximized. Only in this way will the promise of northern development finally be given effect.

notes 1 We are grateful to Anthony Delorenzo, David Miller, and Eleanor Young, as well as some who shall remain anonymous, for helping us improve this chapter. None of them will necessarily agree with our analysis. Please note from the outset that for reasons of space, we exclude important areas such as infrastructure for education, health, housing, and energy. Local infrastructure --community sewage dumps, water treatment facilities, electricity generation--is vital to the health and viability of northern communities. 2 Frances Abele, “Use it or Lose It? The Conservatives’ Northern Strategy” in G. Bruce Doern and Christopher Stoney, eds. How Ottawa Spends 2011–2012: Cutting Fat or Slicing Pork? (Montreal and Kingston: McGill-Queen’s University Press, 2011), 218–42. 3 In the NWT and Nunavut, responsibility for roads on federal lands falls to the federal government, whereas in the Yukon, as in the rest of the country, responsibility for roads and highways falls within provincial/territorial jurisdiction. 4 Iqaluit and Yellowknife have the highest per capital aviation passenger trips in the country. Joseph Patrick Dunlavy, Monica Lipai, and Gord Baldwin, “Transportation in the North,” EnviroStats 3.1 (Spring 2009): http://www.statcan.gc.ca/pub/16002-x/2009001/tbl/transpo/tbl004-eng.htm. 5 Government of Yukon, Northern Connections: A Multi-Modal Transportation Blueprint for the North, 2008, 13. 6 Dean Ruffilli, “Arctic Marine and Intermodal Infrastructure: Challenges and the Government of Canada’s Response.” Prepared for the Library of Parliament, Industry, Infrastructure and Resources Division, 2011, Publication No. 2011-77-E. http://www. parl.gc.ca/Content/LOP/ResearchPublications/2011-77-e.pdf.

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170  Joshua Gladstone, Sheena Kennedy Dalseg, and Frances Abele 7 Internet, wireless communications, and satellite technology are all important for emergency response to disasters and security threats. At present, the existing telecommunications infrastructure in communities is strained – built several decades ago, and not intended for larger populations. These systems are easily overwhelmed and also tend to be unreliable in inclement weather. 8 Yukon’s high connectivity rate was the result of significant territorial government investment through the Connect Yukon program in the early 2000s. 9 Canadian Radio-television Telecommunications Commission. Broadband Report (November 2011). 10 The $200 million bridge was funded from territorial coffers and tolls, supplemented in 2005–06 by a total of $1.4 million from the then Indian and Northern Affairs Canada Regional Partnership Fund for feasibility studies related to the project. 11 In budget 2011, the federal government committed $150 million toward the Inuvik to Tuktoyaktuk highway, the northernmost segment of the Mackenzie Valley Highway. Government of the Northwest Territories, Connecting Canada Coast to Coast to Coast: A Proposal to Complete the Mackenzie Valley Highway to the Arctic Coast, 2005.http://www.dot.gov.nt.ca/_live/documents/content/Connecting%20Canada. pdf.; see the map at http://www.dot.gov.nt.ca/_live/documents/content/MVH%20 Overview%20Map.pdf 12 K.J. Rea, The Political Economy of the Canadian North (Toronto: University of Toronto Press, 1968). 13 Between 1961 and 2002, public investment in infrastructure as a share of overall public investment in Canada declined from 69.4 percent to 48.6 percent. Meanwhile, the ratio of public infrastructure capital to the overall tangible produced capital stock declined from 8.1 percent in 1961 to 5.5 percent in 2001, while infrastructure capital as a share of GDP also declined over the same period. Also during this period, the local government share of infrastructure capital relative to the federal share has increased substantially, suggesting and increasingly important role for municipal governments in infrastructure development. Among northern municipalities, perhaps only the capital cities have the capacity to raise funding for this purpose. 14 Under this agreement, Yukon receives up to $3 million in mineral resource royalties, after which the TFF grant is reduced.. This is in addition to the 60–80% TFF reduction for oil and gas revenues over $3 million under the Canada-Yukon Oil and Gas Accord. In 2010, the NWT Devolution Agreement-in-Principle was signed, offering a significant improvement over the Yukon deal. Ottawa later agreed to extend the same treatment to the Yukon. See Anthony Speca, “Nunavut, Greenland and the Politics of Resource Revenues,” Policy Options 33, 5 (2012): 62–7, and Anthony Speca, “Political Vision and fiscal reality in Canada’s North,” Northern Public Affairs 1, 2 (Fall 2012): 36–42. 15 In 2012–13, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Ontario, and Manitoba will receive equalization payments, while Newfoundland, Saskatchewan, Alberta, and British Columbia will pay into the program.

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171  Communications and Transportation Infrastructure 16 Government of Nunavut, “Capital Estimates 2011–2012,” Iqaluit, Department of Finance; Government of the Northwest Territories, “Budget Address 2011–12,” http://www.fin.gov.nt.ca/documents/address/2011-12%20Budget%20Address%20 and%20Papers.pdf; Yukon Government, “Public Accounts 2011–2012,” Whitehorse, Department of Finance. http://www.finance.gov.yk.ca/pdf/public_accounts/ 2011-12pub_da.pdf 17 Ken Coates and Greg Poelzer, On the Front Lines of Canada’s Northern Strategy. Report Prepared for the Federation of Canadian Municipalities, 2010, Ottawa. 18 See Abele, “Use it or Lose It? The Conservatives’ Northern Strategy.” 19 Government of Canada, Advantage Canada, Department of Finance, 2006. 20 Government of Canada, Budget Plan 2006, Department of Finance, 2006. The Budget Plan divided $5.5 billion among the following programs: The Highways and Border Infrastructure Fund, Canada’s Pacific Gateway Initiative, the Canada Strategic Infrastructure Fund, the Municipal Rural Infrastructure Fund, and the Public Transit Capital Trust 21 These programs included the Canada Strategic Infrastructure Fund, the Municipal Rural Infrastructure Fund, and the Public Transit Capital Trust. 22 Government of Canada, Budget Plan 2007, Department of Finance, 2007. 23 See Gordon Robertson, Northern Provinces: A Mistaken Goal (Montreal, Institute for Research on Public Policy, 1985). 24 The figures here are for the Building Canada Fund only. Yukon receives $37.5 million annually from the Gas Tax Fund; however at the time of writing the authors were unable to find a breakdown of spending on a project-by-project basis. 25 The reason these funds are allocated to road upgrades rather than new roads is a question of jurisdiction. 26 National Roundtable on the Environment and the Economy. True North – Adapting Infrastructure to Climate Change in Northern Canada (November 2009). 27 W. David Angus and Grant Mitchell, With Respect, Canada’s North. Sixth Report of the Standing Senate Committee on Energy, the Environment, and Natural Resources. (Ottawa: Senate of Canada, 2009). 28 On Canada’s relatively poor system for tracking the impact of stimulus spending, see Christopher Stoney and Tamara Krawchenko, “Transparency and Accountability in Infrastructure Stimulus Spending: A Comparison of Canadian, Australian and U.S. Programs,” Canadian Public Administration, 55, 24 December 2012, 481–503. 29 Yukon, Northern Connections, 16. 30 The federal government did commit funding to the construction of short portion of this road between Tuktoyaktuk and Inuvik. 31 Infrastructure Canada, “Minister Lebel Meets with Partners in Nunavut to Discuss New Long-Term Infrastructure Plan for Canada” (Iqualuit, July 2013). http://www. infrastructure.gc.ca/media/news-nouvelles/2012/20120710iqaluit-eng.html

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13 “Not Good Enough”: Canada’s Stalled Disability Policy mario levesque and peter graefe

introduction “Not good enough.” Those three words may best sum up the May 2012 Federal Court of Appeal’s decision in dismissing arguments from federal government lawyers that Donna Jodhan, a legally blind person, could have accessed information and applied for government jobs through alternative means rather than via the internet. As the Court noted, current Canadian government websites are minimally accessible to persons with disabilities regardless of whether they possess assistive technologies. As it stated, forcing Ms. Jodhan “to rely on sighted assistance is demeaning and propagates the point of view that [people with disabilities] are less capable and less worthy,” thereby violating her equality rights guaranteed under Canada’s Charter of Rights and Freedoms.1 This example illustrates barriers persons with disabilities face in daily life. The fact that it comes a full fourteen years after In Unison: A Canadian Approach to Disability Issues (1998) is noteworthy. In Unison, which elaborated the vision of full inclusion for persons with disabilities in Canadian society, is the high water mark in recent Canadian disability policy. It identified three building blocks in need of attention: disability supports, income supports, and employment services.2 For persons with disabilities, In Unison held the promise of significant policy changes. Yet with few policy developments over the last fifteen years and having watched advances in other fields such as early learning and child care over the same time frame,3 persons with disabilities have been left to wonder: “When is it our turn?” We explore this question to uncover challenges in making progress in Canadian disability policy as outlined in In Unison and reveal the incremental nature of policy changes to date.

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173  Canada’s Stalled Disability Policy

We define “disability policy” as “courses of action that affect the set of institutions, organizations, services, and funding arrangements of the disability system. It goes beyond formal practices and includes actions or intended actions by public, private, and voluntary organizations that have an impact on disability.”4 While In Unison represented a bold vision, we attribute the lack of progress to three main barriers. First, substantive barriers exist within the federal government including successive federal minority governments, the low salience of disability policy among decision makers and tight budgets. Second, the lack of political will caused by these barriers within the federal government has been reinforced by barriers in interprovincial relations surrounding program operation and accountability mechanisms. Lastly, barriers to progress are found in the advocacy sector where we find a unified voice from the disability community missing. Such fragmentation has been reinforced by the lack of stable core funding for groups. We conclude that given such complexity, the incremental nature of policy changes that have occurred since In Unison is not surprising. For those wanting substantive changes and given the long time frame involved, this suggests a likely unpopular answer by decision makers to our question of “When is it our turn?”: “We do not know but we acknowledge the problem, are somewhat committed to working on it but are really unsure how to move forward.”

contextual setting A shift in perspective has underpinned recent changes in Canadian disability policy. Understandings that emphasized persons with disabilities as worthy poor have increasingly been challenged by human rights perspectives. While the former led to obligations for the care of persons with disabilities and for the provision of sheltered workshops, the latter calls attention to the need to remove systemic barriers for full inclusion and the fact that persons with disabilities have the same bundles of rights and opportunities as others.5 Building on the momentum of substantive gains with the inclusion of persons with disabilities in the Canadian Charter of Rights and Freedoms banning discrimination on grounds of mental and physical disability, subsequent governments worked to embrace this new human rights vision. Several reports ensued in the 1980s and 1990s that questioned equality in employment practices and Charter consistency, outlined key obstacles to full inclusion and the need to remove systemic barriers for full integration, and detailed practical courses of action.6 Yet substantive progress was missing as a review of Canada’s 1991–1996 National Strategy for the Integration of Disabled Persons concluded. At one point, even the federal government questioned its role in the disability field which led to loud criticism from the disability community.7 In response, a robust federal government role was outlined by the Task Force on Disability Issues in 1996 which led to a new intergovernmental, multi-sectoral vision as outlined in In Unison.

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174  Mario Levesque and Peter Graefe

the promise and effect of in unison In Unison elaborated the vision of persons with disabilities participating in all aspects of Canadian society as full citizens. Three pillars underpin this concept of full citizenship: disability supports, income supports, and employment services. Disability supports are required to address associated costs of individual disabilities and for workplace accommodation. They include a wide range of supports such as special equipment, homemaker services and life skills. The key here is not only to improve access to and offset the costs of such supports but to ensure their portability across multiple income programs via individualized funding models. Only one important change has occurred with the introduction of the disability supports tax deduction in 2004. This deduction allows persons with disabilities to deduct some costs related to employment or educational participation and was further enhanced under the Martin Liberals.8 Further enhancements on this front, especially in terms of enhanced federal funding for needed programs, have so far been rejected by the Harper Conservatives much to the chagrin of the disability community.9 One exception here has been the Enabling Accessibility Fund, which involves supporting community retrofits or developing new accessible facilities. The fund was established in 2007 and reconfirmed for three years in 2010, albeit at a meager $15M per year, making it more of a public relations opportunity than a policy.10 Progress on income supports, In Unison’s second pillar, has been mixed. Income supports are required to encourage labour force participation yet need to provide a safety net for those that are unable to do so due to their disability. This includes changes to remove disincentives to work, ensure access of disability supports regardless of income program and improvements in access to income supports while rationalizing administrative functions.11 Building on the 1996 Disability Issues Task Force, the disability tax credit was broadened in 2005 while the refundable medical expense supplement and expense limits for caregivers and children with disabilities was increased. Further progress was made by the Harper Conservatives in introducing a Registered Disability Savings Plan in 2008, which was expanded in 2012.12 These are nevertheless small initiatives in a field where federal and provincial governments already spend roughly $25.7B in disability benefits, but through seven distinct and poorly coordinated programs.13 If a decade ago, Michael Prince could describe federal disability policy as granting “citizenship by installments,” the federal modus operandi has not changed, but the hope that such incremental change might aggregate into a larger qualitative shift has certainly dimmed.14 Such progress is also undermined by the fact the Court Challenges Program (CCP), which funded test cases from equality seeking groups pursuing redress through the courts such as the Jodhan case noted above, was cancelled in 2006 by the Harper Conservatives. Similarly, the Participation and Limitation

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Survey (PALS), the main data survey for persons with disabilities, was cancelled in 2010. Combined, the result has been to stall progress for full inclusion along human rights understandings of persons with disabilities. Lastly, employment services, In Unison’s third pillar, are required to enhance the employability of persons with disabilities thus reducing their dependency on income supports. To achieve this, the promotion of, and increasing access to, education, training and work-related supports is needed, as well as efforts to address workplace accommodation. From 1961 to 1997, employment supports were largely delivered through two to three year federal-provincial agreements under the Vocational Rehabilitation of Disabled Persons Act (VRDP). These were cost sharing agreements (50/50) that funded various educational and training programs as well as sheltered workshops largely wrapped up in the deserving poor understanding of persons with disabilities. It was not until the 1997 Multilateral Framework for Employability Assistance for Persons with Disabilities (EAPD) and subsequent 1998 bilateral agreements, which replaced the VRDP, that the human rights understanding was captured. The EAPDs, also short-term, shared cost agreements but with a cap on the federal portion, narrowed the focus of employment services with the termination of funding for sheltered workshops and addictions services. The EAPDs proved to be highly conflictual due in large part to elaborate accountability mechanisms and were replaced in 2003 with the Multilateral Framework for Labour Market Agreements for Persons with Disabilities (LMAPDs) and its 2004 bilateral agreements. The LMAPDs are also short term agreements at two years that have been continually renewed with the same narrow focus on employability programs. The LMAPDs are also cost shared agreements (50/50 with a federal contribution cap) yet offer provinces more latitude in program implementation and streamlined accountability measures. The federal government has also continued investment in the Opportunities Fund at the level of $30M per year, with the 2012 budget announcing an additional $10M per year for the next three years. Tied to this is the establishment of a panel on labour market opportunities of persons with disabilities in order “to identify private sector successes and best practices with regard to the labour market participation of persons with disabilities.”15 The government has also integrated disability as a potential client group in several programs such as the Youth Employment Strategy16 or the labour market agreements with the provinces. On the surface, it seems like much progress has been made along the employment services pillar yet, in reality, the opposite is true. While agreements have changed, little programmatic innovation has occurred given that provincial governments simply repackaged existing employment services in order to qualify for funding under new agreements.17 More troubling is the fact that program accessibility has narrowed given the focus on program completion rates which has resulted in the “cherry picking” of participants to ensure high

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program completion rates thus further marginalizing people with medium and severe disabilities. Meanwhile, the panel on labour market opportunities seems like simply the latest iteration of the search for best practices: without policy ambition to more aggressively regulate private sector hiring and management practices or to provide greater supports, it is as much a stall as a step forward. Broadly speaking, in response to In Unison’s call for a qualitative shift in disability policy, the changes over a decade and a half have been incremental. While heading in the right direction in terms of In Unison’s vision, they are clearly “not good enough.” In interviewing provincial government officials, we regularly heard frustration that the federal government was no longer engaging in big strategic questions, so much as trying to nit-pick existing intergovernmental agreements. Big ideas like re-inventing the disability policy system by shifting the income support piece to the federal government and concentrating developmental, labour market and other services to the provinces (akin to the National Child Benefit model18) seemed to find no interlocutor on the federal side of the table.19 What explains the pace of this response? In what follows we look at the barriers that exist within the federal government, intergovernmental process and the advocacy sector.

entrenching incremental policy changes Barriers within the federal government In an immediate sense, the string of minority governments from 2004 to 2011 discouraged major initiatives, be they in terms of “federal-only” policies or federal-provincial initiatives. These were risk averse governments that centralized policy and communications functions to limit the possibilities of policy mistakes. While there were some bigger policy gambles, such as Paul Martin’s moves on the Kelowna Accord, for the most part government policy was limited to a short list of deliverables that might be accomplished in the life of a minority Parliament. The political energies of the government, indeed of all parties, also was invested more strongly in short term calculations of partisan advantage and electoral strategy,20 removing attention from the longer time horizons and risky intergovernmental negotiations that real progress on In Unison-like policy would require. Certainly for the provincial officials we spoke to over this period, there was a sense that the federal government was missing in action, and emphasized the management of existing agreements over engaging the provinces in policy innovation. There are of course more general background factors that also limit the ambitions of the federal and provincial governments. Disability is an issue with low salience for the population as a whole, and by extension for political parties. As Michael Prince shows, Canadians have ambivalent feelings about

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people with disabilities.21 While there is recognition that persons with disabilities face barriers and discrimination, this tends to give rise to charitable or paternalistic responses rather than ones based on rights to full inclusion. Indeed, the idea of full inclusion often elicits discomfort and often calls into question who fits as “disabled.”22 Moreover, when it comes to improving the situation of people with disabilities, Canadians instinctively tend to solutions involving changing attitudes, as opposed to the role of the state and public policy. Given this background, and the fact that persons with disabilities are a minority of the population, there is little surprise that political parties do not make disability issues central to their campaigns or policy agendas, once in office. That is not to say that disability issues are invisible: party platforms tend to make some commitments, and the federal budget will make some space to profiling initiatives, usually both in terms of the section on social policy and in the area of employability. Conservative budgets since 2006 have put particular stress on the Registered Disability Savings Plan as the flagship social initiative, using tweaks in the rules as an excuse to bring it regularly back to the fore, and commitments to improve employability programs (first through contributions to the Opportunities Fund, and more recently through promises of further study and consultation) on the labour market front. To date, then, the austerity agenda has not hit the disability file too hard, but while spending has not been ratcheted down, it is not as if there is much momentum to make claims on resources for transformation in a generalized period of austerity. Finally, on an ideological level, it is tempting to point to the Conservative government’s indifference or hostility to government action to secure social rights as a barrier. Whether it is the cancellation of the child care agreements upon taking office in 2006, the defunding of women’s services, or the closing of the National Council of Welfare, this is not a government marked by a sense of having an expansionary social policy agenda. Indeed, those who plumb the ideological influences of Stephen Harper and the “Reform Party” faction within the Conservatives, highlight twin sources of social policy disinterest: first, that social policy affects realms (the market, the family) that should be left to private regulation; and second, that these are responsibilities that should be left to provincial governments.23 However, there are reasons why these might not be impossible hurdles: if the Conservatives wanted to show some social policy initiative, disability might be an ideal area. While the political payback is limited, so is the political cost: while Canadians hold ambivalent feelings about disability, people with disabilities do fit traditional notions of the “deserving poor” – like children, they are hard to scapegoat and blame for the difficulties that they face. In addition, while In Unison spoke to full inclusion and citizenship in a multidimensional view, it has been the labour market participation segment that has been prioritized in government responses, and this emphasis is consistent with the market-driven emphasis of the Conservatives.

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Perhaps not surprisingly, the pattern of policy since 2006 reflects both the predicted lack of partisan passion in this file, and policy developments that are consistent with Conservative policy vision. While the commitment in the party’s 2005 platform to creating a National Disabilities Act led HRSDC to promise associated consultations, officials ceased reiterating this commitment post-2008.24 Only one Conservative Throne Speech mentions the word disability, namely in 2007 with the announcement of the Disability Savings Plan. But the areas where there has been activity, noted in the preceding section, are consistent with the overall partisan outlook: many of the programs take the form of individual tax credits. These include expanding eligibility for the disability tax credit, increasing the child disability benefit by $256, increasing the maximum amount of the Refundable Medical Expense Supplement by $233, as well as enhancing the medical expenses credit for caregivers for dependent relatives.25 Barriers in intergovernmental processes These barriers to change within the federal government are compounded by difficulties in the intergovernmental realm, particularly around employment services. The federal government supports provincial programming through the LMAPD (previously the EAPD), providing financial contributions in return for provinces submitting annual plans, as well as releasing annual reports to their citizens.26 While the EAPD/LMAPD signaled the shift of emphasis to the philosophy of full inclusion, they have fallen short in terms of spurring significant departures in programming. The have more provinces were already running a number of programs to qualify for their full share of federal funds, and so did not have to adjust their programming mix. The have less provinces, by contrast, sometimes found it harder to transition, but the federal government accommodated the persistence of some earlier programming so as not to penalize them. On another register, the federal government saw the associated reporting requirements as a manner to spur inter-governmental learning about promising practices. The provinces, while interested in policy learning, nevertheless recognized the potential for public reporting to be used by the federal government to embarrass provinces. They also saw federal oversight of annual plans as a mechanism for meddling in provincial areas of jurisdiction. As such, in moving from the EAPD to the LMAPD, the provinces negotiated to limit these possibilities: annual plans became “for information purposes only,” while reporting requirements were relaxed, with provinces being required to report to the public data “where available.” The result has been to create a charade of reporting, where annual provincial reports provide data in a form that is of little use to stakeholders. Intergovernmental learning does still occur, but through established channels between program officials. New ­intergovernmental a­ rrangements have not enriched this learning but have consumed the time and resources needed to feed the reporting regime.

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A similar story could be told about program evaluations. While the federal government launches its panel on labour market opportunities, no mention is made of what provinces may have learned in their LMAPDs, even if evaluation and sharing of best practices was part of previous agreements. While the multilateral agreement on LMAPDs sets out a framework for federal and provincial roles in conducting evaluations, the process has been long, cumbersome and frustrating. Given the lack of basic evaluation infrastructure and of an evaluation culture, the lack of resources, and the challenges of collecting and reconciling data from multiple agencies (e.g., social services, labour, revenue), it has taken years for Nova Scotia and Manitoba to develop, run, and publish their evaluations. The intergovernmental realm has thus been marked by petty bickering over reporting and evaluations, rather than by discussions of how to make progress towards full inclusion. It too has produced outcomes that are “not good enough.” From our discussions with provincial officials, there is a desire to go beyond the existing model of LMAPDs, either to try and sort out existing tensions around reporting and funding, or to rethink the integration of income supports with employment programming more broadly. However, the Harper government’s general distaste for intergovernmental negotiations extends to this realm, with the LMAPDs being consistently renewed since 2007, rather than using expiry as an occasion to explore new possibilities. Barriers to Progress in Advocacy Sector Barriers to substantive disability policy change also remain within the advocacy sector which have been exacerbated by the Harper Conservatives. On the one hand, persons with disabilities continue to be represented by many disability organizations, typically divided along the type of disability, at various levels of government (e.g., South-East New Brunswick Deaf and Hard of Hearing Association, Cerebral Palsy Association in Alberta, Muscular Dystrophy Canada).27 While potentially healthy in that the diversity of disabilities is represented28 such diversity continues to work against disability organizations given the many differences of opinions that exist regarding how to proceed.29 This fragmentation in the advocacy sector was one reason for its co-optation by the Chretien government’s 1999–2004 Voluntary Sector Initiative and has repeatedly led for calls to strengthen the capacity of disability organizations.30 The Harper Conservatives have to date refused to enact measures to strengthen the disability advocacy sector. Large sweeping social policy initiatives have not been pursued by the Conservatives. Rather, in its embrace of classical federalism through the provision of “no strings attached” funding, the Conservatives have devoted much work to disentangling responsibilities with the provinces.31 At the same time, disability organizations as charitable organizations have been sideswiped with additional reporting requirements for charities aimed at curtailing their political activities announced as part of

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Budget 2012 (initiated due to environmental group opposition to Alberta tar sands development)32 and underscores their lack of core operating funding.33 It is the lack of such funding that has led disability organizations to increasingly compete against each other for contracts to deliver programs in order to sustain themselves, which works against their previous collaborative behavior.34 This contributes to the fragmentation of the disability advocacy sector and, in particular, its instability given its increased emphasis on revenues from the sale of goods and services from the people they serve and on fundraising initiatives, the effects of which are particularly acute in the have less provinces. The end result is an increased reliance on provincial sources of funding and underscores federal provincial transfers which form a significant part of revenues for have less provinces.35 The net effect is to entrench incremental changes in disability policy by stifling innovation.

conclusions If Canadian disability policy is “not good enough,” if the installments in “citizenship by installments” seem to be getting ever smaller, what might be the path to full participation? In listing barriers, as we have, there is a risk of a self-defeating pessimism. After all, while the ideological leanings of the current government might be part of the problem, there are so many other contributing factors that putting faith in electing a different colour of government seems of limited use. Similarly, how easy is it to expect a reduction in intergovernmental axe-grinding, at least in the current environment of austerity where there are few resources to lubricate federal-provincial negotiations? There are nevertheless always paths ahead to more promising policies. One manner has been to use the courts and litigation to expand the sphere of participation, a strategy that has been increasingly pursued since the enactment of the Charter. As Vanhala (2009)36 and Chivers (2008)37 trace, while notable gains have been made such as with voting rights for Canadians with psychiatric and mental disabilities and for the provision of sign interpreters when seeking medical intervention, many challenges have arisen such as with euthanasia as the Rodriguez and Latimer cases respectively highlight. Moreover, the cancellation of the Court Challenges Program by the Harper Conservatives in 2010 seriously undermined further judicial activism by the disability community given their previous heavy reliance on this program as a source of funding. Another path lies in provincial innovation. The recent report of the Ontario Commission for the Review of Social Assistance (2012) proposed ending the separate disability program in social assistance, and instead creating a separate disability benefit to be added to the basic social assistance income.38 While this is unlikely to be implemented given the disinterest of the current Liberal government and the province’s tight fiscal situation, this provides a path to

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reconfiguring the income support piece in a manner that could reward the initiative of people with disabilities rather than punishing it. It would also create a provincial architecture that could accommodate a big picture swap of federal and provincial roles (e.g., federal income support and provincial employability and activation supports) that some have suggested. That, however, is to look forward to a new qualitative shift, when fifteen years of implementation have been far from “good enough” in meeting the vision set out in In Unison. That is hardly likely to comfort people living with disabilities, who see a lack of priority given to their issues by governments, intergovernmental bickering over jurisdiction overriding sound policy development, and an advocacy sector which at times seems less than the sum of its parts. For persons with disabilities, it is cold comfort to hear bureaucrats and politicians confirm what they already know, namely that the current system falls short. What they want to know is: “When is it our turn?”

notes 1 Jodhan v. Attorney General of Canada, FCA, 161, A-478-1. 2 Federal/Provincial/Territorial Ministers Responsible for Social Services, In Unison: A Canadian Approach to Disability Issues (Ottawa: Human Resources Development Canada, 1998). 3 Martha Friendly and Linda White, “‘No-lateralism’: Paradoxes in Early Childhood Education and Care Policy in the Canadian Federation,” in Herman Bakvis and Grace Skogstad, eds., Canadian Federalism: Performance, Effectiveness, and Legitimacy, 3rd ed. (Toronto: Oxford University Press, 2012), 183–202. 4 William Boyce, Mary Ann McColl, Mary Tremblay, Jerome Bickenbach, Anne Crichton, Steven Andrews, and Nancy Gerein, A Seat at the Table: Persons with Disabilities and Policy Making (Montreal: McGill-Queen’s University Press, 2001), 5. 5 Marcia Rioux and Michael Prince, “The Canadian Political Landscape of Disability: Policy Perspectives, Social Status, Interest Groups and the Rights Movement,” in Alan Puttee, ed., Federalism, Democracy and Disability Policy in Canada (Montreal and Kingston: McGill-Queen’s University Press, 2002), 11–28. 6 For an overview, see Peter Graefe and Mario Levesque, “Impediments to Innovation in the Canadian Social Union: The Case of the Labour Market Agreements for People with Disabilities,” Canadian Public Policy 36, 1 (2010): 45–62. 7 Michael Prince, “Canadian Disability Policy: Still a Hit-and-Miss Affair,” Canadian Journal of Sociology 29, no. 1 (2004): 59–82. 8 Technical Advisory Committee on Tax Measures for Persons with Disabilities, Disability Tax Fairness, Cat. No.: F34-1/2004E-PDF, (Ottawa: Queen’s Printer, 2004). 9 Council of Canadians with Disabilities, Five-Point Plan for Reforming Disability Supports, Caledon Commentary, (Ottawa: Caledon Institute of Social Policy, 2007). 10 Budget 2010: Budget Plan, (Ottawa: Department of Finance, 2010).

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182  Mario Levesque and Peter Graefe 11 In Unison. 12 Budget 2012: Budget Plan, (Ottawa: Department of Finance, 2012); and, Council of Canadians with Disabilities, Conservatives Have a Record on Disability, 2011, available at http://www.ccdonline.ca/en/socialpolicy/elections/2011/conservative-platform 13 John Stapleton and Stephanie Procyk, “A Patchwork Quilt: Income Security for Canadians With Disabilities”, Issue Briefing, November 2010, Toronto: Institute for Work and Health, available at http://www.iwh.on.ca/examining-disability-benefits 14 Michael Prince, “Citizenship by Installments: Federal Policies for Canadians with Disabilities,” in Leslie Pal, ed., How Ottawa Spends 2001–2002: Power in Transition (Toronto: Oxford University Press, 2001), 177–200. 15 Budget 2012. 16 Budget 2010. 17 Graefe and Levesque, “Impediments to Innovation.” 18 Michael Prince, Absent Citizens: Disability Politics and Policy in Canada (Toronto: University of Toronto Press, 2009). 19 The provinces have not shown much proclivity to invest in large scale changes in their existing areas of responsibility. While provincial “push” can be seen as an impetus for In Unison and for a growing federal government role in the 1995–2005 decade, the last real pressure from the provinces on the federal government was the 2004 report Supports and Services for Adults and Children with Disabilities. See Ann McColl, Mike Schaub, Lauren Sampson, and Kevin Hong, A Canadians with Disabilities Act? (Kingston: Canadian Disability Policy Alliance, 2010). 20 Jonathan Malloy, “The Drama of Parliament under Minority Government,” in Bruce Doern and Christopher Stoney, eds., How Ottawa Spends 2010–2011 (Montreal and Kingston: McGill-Queen’s University Press, 2010), 7–23. 21 Prince, Absent Citizens. 22 Sally Chivers, “Barrier by Barrier: The Canadian Disability Movement and the Fight for Equal Rights,” in Miriam Smith, ed., Group Politics and Social Movements in Canada (Peterborough: Broadview Press, 2008), 307–28. 23 Michael Behiels and Robert Talbot, “Stephen Harper and Canadian Federalism: Theory and Practice,” in Michael Behiels and Francois Rocher, eds., The State in Transition: Challenges for Canadian Federalism (Ottawa: Invenire Books, 2011), 15–86. 24 McColl et al., A Canadians with Disabilities Act?. 25 Budget 2011: Budget Plan. (Ottawa: Department of Finance, 2011). 26 For a fuller discussion, see Peter Graefe and Mario Levesque, “Accountability in Labour Market Policies for Persons with Disabilities”, in Peter Graefe, Julie Simmons and Linda White, eds., Overpromising and Underperforming? (Toronto: University of Toronto Press, 2012), 127–43. 27 Peter Elson, High Ideals and Noble Intentions: Voluntary sector-government relations in Canada (Toronto: University of Toronto Press, 2011). 28 Michael Bach, “Governance Regimes in Disability-related Policy and Programs: A Focus on Community Support Systems,” in Alan Puttee, ed. Federalism, Democracy

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183  Canada’s Stalled Disability Policy and Disability Policy in Canada, (Kingston: McGill-Queen’s University Press, 2002), 153–74. 29 Boyce, A Seat at the Table. 30 Michael Prince, “People with Disabilities, Labour Markets, Public Policies, and Canadian Federalism,” Disabilities Health Research Network Speaker Series Presentation (Council of Canadians with Disabilities, February 3, 2010). 31 Stephen Harper interview with Peter Mansbridge, January 16, 2012. 32 Andrew Coyne, “Harper move to defund political charities might be partisan, but it’s also Right,” National Post, May 04, 2012, available at: http://fullcomment.nationalpost.com/2012/05/04/andrew-coyne-charity/ 33 Linda Roberts, Caught in the middle: What small, non-profit organizations need to survive and flourish. Voluntary Sector Initiative Report. Voluntary Sector Secretariat. 2001, available at: http://www.vsi-isbc.org/eng/products/reports.cfm 34 Denise Cloutier-Fisher and Mark Skinner, “Levelling the playing field? Exploring the implications of managed competition for voluntary sector providers of long-term care in small town Ontario,” Health and Place 12 (2004): 97–109. 35 Mario Levesque, “Assessing the Ability of Disability Organizations: An Interprovincial Comparative Perspective”, Canadian Journal of Nonprofit and Social Economy Research, 3, 2 (2012): 82–103. 36 Lisa Vanhala, “Disability Rights Activists in the Supreme Court of Canada: Legal Mobilization Theory and Accommodating Social Movements”, Canadian Journal Of Political Science 42, 4 (2009): 981–1002. 37 Chivers, Barrier by Barrier. 38 Ontario Commission for the Review of Social Assistance, Brighter Prospects: Transforming Social Assistance in Ontario (Toronto: Queen’s Printer, 2012).

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14 Pragmatism and Political Expediency: Housing Policy under the Harper Regime steve pomeroy and nick falvo

introduction A 2008 press release by then Conservative minister responsible for the Canada Mortgage and Housing Corporation (CMHC), Monte Solberg, used the headline “Minister Solberg Says Federal Involvement in Housing Has Never Been Stronger.” And perhaps surprisingly to some, the statement is true. But does this unprecedented level of nominal spending represent a strong interest in a federal role in housing and a purposeful policy agenda? This chapter briefly reviews Harper era housing policy in the context of the legacy of six decades of housing activity inherited by this government. It reviews the spending decisions that underpin the current level of expenditures and argues that the relatively high levels of spending do not in fact reflect a political commitment to a federal role in housing. Nor do they reflect a concerted commitment to address unmet housing needs of lower income households. Rather, the Harper government’s approach is characterized by pragmatism and political expediency only coincidentally linked to housing policy.

pre- 1993 canadian housing policy Much of the context for current patterns of housing expenditure was laid out from the mid-1960s until 1993. Over this period, the federal housing agency, Canada Mortgage and Housing Corporation (CMHC), designed and sought government approval to implement a series of housing programs. It pursued a dual course, the first focusing on establishing and sustaining an effective and efficient housing system, premised on a foundation of housing finance

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and mortgage insurance.1 Even before the global financial crisis that began in 2008–09, Canada was frequently highlighted for its effective and sound housing finance regime.2 In an industrialized liberal market economy, the policy priority was to enable and facilitate an efficient and effective market.3 Mortgage insurance formed the main plank of this approach. Providing insurance against mortgage default reduces risk and it encourages private lenders to provide mortgage financing to homebuyers and to developers of rental investment properties. This is a commercial program, sustainable through the collection of insurance premiums with no ongoing government subsidy; that said, it is premised on the implicit guarantee of the federal government standing behind its crown corporation, CMHC.4 Concurrently, the limitations of the market were recognized in the development of a series of social housing programs intended to help those that the market could not adequately serve. These “social housing” programs have primarily emphasized construction of housing to house low-moderate income households.5 The housing in question is owned and managed by either public (provincial and municipal housing corporations), or community based not for profit entities (non-profit corporations and co-operatives). In all cases the properties were financed with long-term mortgages, initially directly from CMHC; and since 1978, from private lenders, facilitated by CMHC insurance.6 Housing low- and moderate-income households generated insufficient rent revenues from tenants to cover operating costs and mortgage payments. Accordingly, ongoing subsidies were provided to sustain these projects, which grew from just 12,000 units prior to 1964, to over 600,000, representing 6% of total housing stock in Canada by 1994.7 The subsidy mechanism involved a long-term operating subsidy tied to an operating agreement of 35–50 years, thereby imposing a long-term expenditure obligation on the federal treasury (and where programs were cost shared with provinces and territories, on their treasuries too – although the federal share was usually 50–75%). As a result of this layering approach, federal expenditures on grants and subsidy authorized under the National Housing Act, of which social housing was the largest component, alongside some other small infrastructure and market programs, expanded exponentially. By 1984, these expenditures reached $1.4 billion8 and, while continuing upward, total growth slowed thereafter due to a series of incremental reductions in annual authorizations and the elimination of some smaller programs in a process of ongoing fiscal restraint. Even with these ongoing reductions, by 1994 federal grants and subsidies mainly for social housing (including renovation programs) had reached over $1.9 billion. Such expenditure growth was perceived to be unsustainable, and in the last budget of the Mulroney Conservative government, in April 1993, the federal government announced the termination of all new funding for social housing (including renovation assistance), except on reserve.9

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The long-term nature of these funding agreements meant that this $1.9 billion expenditure continues long into the future (35–50 years after initial development of each project). Prior to 1978, programs were funded with 50-year subsidy profiles, the first significant amount beginning in 1964. The agreements will consequently mature and then begin to see annual funding diminish in 2014. Beginning in 1979, the agreements were 35 years in duration, and, coincidentally, would also begin to see diminished annual outlays in 2014. Thus, very soon, annual federal expenditure related to these older commitments will begin to decline.10

the chrétien-martin years Although they campaigned to reinstate social housing following its announced termination in the final Mulroney budget, the Chrétien Liberals did not turn the taps back on once they formed the new government in late 1993. They did, however, follow through on a campaign promise to re-instate the Residential Rehabilitation Assistance Program (RRAP) at $100 million for 2 years.11 RRAP is politically attractive; it assists a lot of households with relatively low costs per household assisted, especially in comparison with building new social housing. While CMHC had carried out subsidy administration and oversight for much of the 1973–85 portfolio, the majority of public and social housing units were under provincial administration; there was therefore duplication in administrative responsibilities, and this was suggested as an area of potential administrative savings. Accordingly, the 1995 federal budget directed CMHC to initiate negotiations to transfer these duties to the provinces/territories, via Social Housing Agreements.12 To facilitate negotiations, the federal government agreed to sustain its share of subsidy funding of previous long-term commitments at the 1995/96 level. Most provinces – and all territories – executed transfer agreements between 1997 and 1999. However, British Columbia held out for better terms until 2006; and, as of 2012, Alberta, Quebec and PEI have still not executed agreements. In 1999, the Chrétien administration established a Homelessness Secretariat within HRSDC and announced a new National Homelessness Initiative. This provided $753 million (approximately $150M each year for 5 years) to fund emergency shelters and transitional housing. This was renewed for 2003–07 at $135M/year and expanded to include long-term transitional and supportive housing for formerly homeless persons. Concurrently, active negotiation among federal, provincial and territorial Housing ministers (FPT) in 2000–01 resulted in the re-engagement of the federal government in affordable housing, under a new Affordable Housing Framework agreement with the provinces and territories. The rebranding from “social housing” to “affordable housing” in part reflects a different orientation in the form of funding.13 Notably, in discussions

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with housing advocates, Alfonso Gagliano, the minister responsible for CMHC at the time, was emphatic that the federal government would not resurrect the former long-term ongoing subsidies; instead, the new framework would provide one-time capital grant funding. Provinces and territories were required to cost share on a 50/50 basis, rents had to be set below average market rent and affordability at this benchmark sustained for a minimum 10 years.14 These F/P/T discussions culminated in a new federal funding announcement of $680 million over five years, announced in the 2001 federal budget but starting in 2002/03. This was then augmented with a further $320 million in 2003 to create a program at $1 billion over 5 years (through to 2008). Housing received a temporary boost following a budget deal between Jack Layton’s NDP and the Martin Liberal minority. In exchange for supporting the 2005 budget, Layton negotiated a set of lump sum investments for affordable housing. These were implemented through Bill C-148 and passed in the summer of 2005. When the Martin government fell, late in 2005 a new Conservative minority was elected early in 2006, and inherited this funding. The commitment was honoured by the new government, largely because it had been approved by a vote in parliament (Bill C48) and was implemented in the form of three trust funds totaling $1.4 billion, each paid out over 3 years: •

•

•

•

Affordable Housing Trust: $800 million, allocated across P/Ts on a per capita basis Off-Reserve Aboriginal Housing Trust: $300 million, allocated based on per capita off reserve population (2001), and to be administered by the provinces Northern Housing Trust: $300 million, allocated across the territories with $50 million each to Yukon and NWT, and $200 million to Nunavut These trust funds augmented the AHI funding; but, unlike AHI, they did not require P/T cost sharing.

the harper years The Harper government’s interest and perspective on housing has evolved through its three mandates (two initial minority governments and the present majority one). Across the three parliaments, housing has cycled though very different levels of policy attention. •

•

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During their first minority, the government’s approach can best be described as mild disinterest, with minimal new policy or funding activities, beyond the aforementioned inherited spending commitments. The second minority was consumed with managing the global financial crisis and its impact on Canada. To the extent that the economic collapse in the US was precipitated by imprudent mortgage lending and a housing

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•

market crash, the housing file gained more prominence in Canada. New policy initiatives were announced for mortgage insurance and securitization. In this period housing, was employed as a key plank in the government’s economic stimulus program, with ancillary significant benefits to social housing. The government’s stance was one of opportunism – taking advantage of programing features that already existed in CMHC’s mandate to help manage and stabilize economic uncertainty. Since gaining a majority in May 2011, and facing ongoing economic turmoil in the Eurozone, housing policy in Canada has retrenched although remains on the horizon in terms of managing household debt and mortgage financing. The First Minority Government: Benign Neglect

Early in its mandate the first Harper minority government identified a narrow set of priorities on which it said it would focus: federal accountability, lowering taxes (GST), strengthening the justice system, child-care and health care (wait times guarantee with the provinces) – all populist policy themes that helped to cement the repositioning of the Conservatives in the political centre.15 Notably, the new government quickly abandoned the one housing proposal of its election program that proposed a new US-style approach to housing policy – a tax credit program aimed at stimulating private institutional investment in affordable housing by selling tax credits to large financial institutions and using proceeds to fund new affordable development. It was speculated that this was never a serious platform idea and was merely an attempt to frame a new and different approach – but with little sincerity.16 However, it did reflect a policy ethos that, with a little stimulus, the affordable housing needs of low-income households could be met by the private sector. Beyond dropping its campaign proposal, it was uncertain how the new government’s narrow and specific set of priorities would impact other policy and funding areas. In retrospect, it can be seen that this government adopted a “don’t rock the boat” approach, abetted by ongoing fiscal surpluses such that, initially, there was no need to impose spending restraints in “non-priority” areas, such as housing. Accordingly, existing, ongoing programs were retained and the housing programs funded via the AHI and RRAP continued as planned by the previous Liberal governments to their duration (generally March 2009). To the extent that much of this investment flows to cities, this may have been a strategic attempt of a minority government to assuage concerns of the urban voters – ridings that the Conservatives had failed to capture. Sustaining investment in cost shared housing programs was also politically important to reinforce election gains in Quebec – a province that has generally been more pro-active in affordable housing policy and spending. Concurrently, both the rehabilitation

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and On-Reserve new construction programs (an area retained as unilateral federal responsibility) continued at the same level of funding as under the previous government. In addition, and as noted above, the affordable housing trusts, announced in the previous parliament (Bill C-48) were retained; these allocated funding over the 2006–09 fiscal years at significantly higher levels than would have been the case under the AHI and RRAP funding streams. One seemingly minor policy change was the change in mortgage insurance policy. Implemented late in 2006, this extended the maximum amortization on insured mortgages from 35 to 40 years and also eliminated any down payment minimum for qualifying buyers – a policy that benefits younger households seeking to gain a step on the ownership ladder (although in the face of high consumer debt, these policies have subsequently been reversed). It also reinforced the new government’s appeal to suburban voters – as most moderately priced new homes tend to be developed in suburban growth areas of larger cities. The sole new initiative announced by the government was to create a $300 million First Nations Market Housing Fund through CMHC. This was designed as a loan guarantee fund with a goal of encouraging use of private lender capital for housing on reserve, increasing housing supply, and providing participating families and individuals with a means to build equity and generate wealth.17 Again this reflects political pragmatism and opportunism. It was a low cost initiative and a loan guarantee reserve rather than an expenditure. It provided the government with an opportunity to be visible and active in enabling goals of Aboriginal autonomy and self-sufficiency while being consistent with the Conservative’s philosophy to emphasis market based policy solutions. The pragmatism is also reflected in the way the government took advantage of ongoing investments to earn political points with the working class. Both in this initial minority term and the subsequent two administrations politically motivated sod-turning and ribbon cutting ceremonies were prolific (over 600 between 2007–12), especially in comparison to substantive speeches, which were noticeable by their absence (only 7 between 2006–12). The Second Minority Government: Opportunistic Response to Economic Challenges The October 2008 general election returned another minority government amidst the global financial crisis. These circumstances effectively pre-empted any policy agenda to focus almost exclusively on managing macroeconomic challenges and trying to minimize the effects of the global crisis on Canada. Accordingly, departments and agencies were directed to develop options to assist the government in developing a pro-active stimulus program, labeled Canada’s Economic Action Plan (CEAP).

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Housing was well positioned to assist the government’s efforts, primarily because home construction and renovation have large economic multiplier effects.18 The profile of housing in contributing to the crisis in the United States also placed a spotlight on housing, stimulating efforts to reassure consumers, investors and financial markets that Canada’s housing system was not similarly vulnerable. Thus the government pursued two parallel policy tracks – stimulus measures directed to stabilizing employment in the construction trades and a mortgage finance stabilization initiative, the Insured Mortgage Purchase Program (IMPP). In doing so it is notable that, rather than seeking to stimulate the market and private sector housing activity the government elected to invest directly in the construction of social housing. The Action Plan housing stimulus measures included a total of just over $2 billion in federal spending on social/affordable housing over two years. Half of this ($1billion) was directed to retrofitting and upgrading existing social housing properties (many of which are assets owned by the provinces and territories). The other half was directed to support new construction or renovation across specific target groups – seniors ($400M), Aboriginal On-Reserve ($400M), persons with disabilities ($75M) and northern housing ($200M). Housing investment was evidently seen as an effective mechanism through which to deliver stimulus measures. “It was an easy lever to pull” – the F/PT program delivery frameworks had been established via the AHI and it was expedient to use these. This mechanism also enabled the federal Conservatives to lever their spending and the stimulus effect by encouraging provincial/­ territorial cost sharing. Additional stimulus measures were directed to the private sector in the form of incentives for first time buyers to purchase a home – intended to prop up sales in the real estate sector. This included two measures: enhancement of the existing RRSP Home Buyer Program and a new tax credit to assist first-time homebuyers (FTHB) with the costs associated with the purchase of a home. The FTHB Tax Credit was a $5,000 non-refundable income tax credit on a qualifying home acquired after January 27, 2009. For an eligible individual, the credit provided up to $750 in federal tax relief. With a budget of $385 million over two years this program is a good example of the power of politics over policy: for families purchasing homes, typically well over $200,000 in price, it is unlikely that a credit providing $750 in tax relief would have triggered a decision or ability to buy. Meanwhile, the limit on the amount that individuals could borrow from their RRSP plans to put towards a down payment on a home was increased from $20,000 to $25,000. This partially responded to years of advocacy from the real estate industry to index this limit, but did not embed annual increases as advocated. Additional stimulus funding was directed to consumers through both a Home Renovation Tax Credit (total $3 billion budgeted) and a home

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energy retrofit program ($400 million) – together the largest stimulus related programs, and both targeting middle class homeowners. While substantial funds did flow through these tax credits and the government’s advertising and communications efforts certainly highlighted how these were helping ordinary Canadians, the direct investment in social housing provided a platform for additional ribbon cutting and political profile of the federal role. Supporting home renovation and construction was also strategic – targeting the construction industry and the union workers in it. This appealed to Jim Flaherty as a Whitby Conservative, not a Bay Street Conservative, who wanted to deliver to the workers and union members in his riding and beyond. A further stimulus measure was to utilize CMHC’s financing authority to provide low cost financing to municipalities in support of municipal infrastructure projects. This was an activity in which CMHC had been prominent in the 1960s and 1970s. Effectively this levered a higher volume of spending while spreading out cost over time through the loan repayments (on which CMHC generates a small spread and profits). The total volume of loans under this program was budgeted at $2 billion. Together this suite of stimulus initiatives was associated with over $6 billion of new investment in the housing sector, an amount far exceeding the levels of federal expenditure on housing outside of this stimulus period. The policy imperative was founded mainly on creating jobs and responding to weak economic conditions, rather than responding to unmet housing need and issues of disrepair in the existing social housing stock. But again, as a case of political pragmatism, the government was able to do both. The second area of policy and programing related to the government’s efforts to maintain stability in Canada’s housing sector and mortgage markets. This built on roles in which CMHC is already active – mortgage insurance and securitization. The corporation substantially ramped up its securitization volumes and intervened directly to purchase mortgage assets from lenders as a way to sustain liquidity in the home mortgage market. This was something that could be implemented quickly and effortlessly. Essentially, CMHC’s securitization business facilitates mortgage lending institutions to raise capital for mortgage loans by selling bulk portfolios of insured mortgages to investors through mortgage-backed securities (MBS). These are attractive to investors (typically institutional) because the loans in the pools are all insured against default, and CMHC guarantees timely payment of monthly mortgage payments to the investors. As a result of the US housing crash, institutional investors were nervous about purchasing these MBS in the same volume as they had done historically so the government intervened though CMHC not only to securitize the loan pools but also to purchase these pools, funded by borrowing from the treasury. This injected cash into the financial institutions enabling them to continue to provide new mortgages (and other banking activities). Between

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fall 2008 and the end of 2010, CMHC purchased $69 billion of mortgages through this Insured Mortgage Purchase Program (IMPP), and this became a key component of the government’s bank stabilization program (along with other interventions through the Bank of Canada.19 By force of circumstances and in a somewhat reactionary way, the federal government became highly active in the housing area, increasing direct expenditure in renovation programs for both private owners and in social housing. It has intervened heavily in the mortgage market though the IMPP. CMHC as a federal institution with an existing mandate emerged as a useful conduit that enabled government to act quickly and decisively to sustain ongoing mortgage lending and home buying activity. While the government’s PR spin highlights the success of our financial institutions, it is not known just how important or significant these interventions were. However, unlike most other countries, with the exception of Australia, which also exhibited remarkable resilience, the fact that home sales and prices continued to trend upward through the 2008–2010 period does suggest that these initiatives had some success. The Harper Majority Government: Housing Returns to the Priority Back Burner To a great degree, housing was a beneficiary of difficult economic times. Recessions appear to be good for housing! By the same token, recovery is less favourable, at least in terms of gaining or retaining a place in the policy agenda spotlight. As the Harper Conservatives won a majority in the May 2011 election, their Action Plan programming was reaching its logical conclusion. The focus of government, while seeking to keep an active hand on sustaining economic recovery, has moved beyond stimulus to a new pre-occupation with paying down the deficit created during the crisis period. Expenditure review now permeates all federal departments (and indeed provincial/territorial governments too). Accordingly, uncertainty about the federal commitment to housing beyond 2014 is resurfacing. Just prior to the last election, Budget 2011 confirmed the government’s commitment to the final three years of the $1.9 billion housing and homeless program suite – although announced in late 2008, just prior to the fall election, the funding confirmation in the 2009 federal budget committed only two years of funding across the three programming areas – the HPS, RRAP, and AHI. But while confirmed through March 2014, there is uncertainty about renewal at that end date. To date the government has remained silent on the extensive advocacy from both provinces and territories and affordable housing advocates to maintain federal spending on existing social housing. Due to the nature of funding, linked to long-term operating agreements on projects built between the 1960’s and 1994, federal funding for ongoing subsidies (totaling over $1.7 billion in 2012) is scheduled to decline precipitously, declining to below $1 billion over the next decade and disappears completely by 2033. Advocates

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have lobbied for the federal government to maintain spending at the current $1.7B and recycle “savings” accrued via reduced expenditures back into new housing investment or into rehabilitation of the existing stock. Also, the 2011 budget included a subtle slight of hand: RRAP and AHI were rolled into a single funding envelope. Previously, as separate envelopes, provinces and territories were not required to cost share RRAP, only AHI. By combining them into one lump-sum, and requiring cost matching at this level, the federal government effectively levered an additional $128.1 million in matching funding from the provinces/territories. The AHI was also rebranded as IAH: Investments in Affordable Housing. While the investments under the Homeless Partnering Strategy (HPS) were beginning to have some impact on homelessness, the slow economy and loss of employment has significantly impacted those in more vulnerable and tenuous employment and at risk. However, as Falvo has argued elsewhere, there appears to be a three- to five-year lag from the time a recession begins until homelessness sees a noticeable increase.20 Despite the impact of the recession on this group, there has been no attempt by government to adjust or enhance funding beyond the level that has been recurrently funded in recent years – the allocation of funding to address homelessness prevention and reduction remains minimal at $135 million per year. Reflecting persisting concern about the state of the housing market and whether certain markets such as Toronto and Vancouver are poised for a major correction, coupled with concerns about high levels of household debt, the Minister of Finance has singled out housing consumption as the culprit in a shaky economy. Accordingly, through two rounds of regulatory reform, the Minister of Finance has revised regulations governing insured mortgage lending to reduce the maximum amortization period from 35 years to 30 years in the summer of 2011 and in July 2012 further reduced the maximum to 25 years. At the same time, the maximum loan-to-value ratio for refinancing (and equity withdrawal) was reduced from 85% to 80% of home value, an attempt to rein in use of home equity that was supporting excessive spending and growing household debt. At prevailing mortgage rates, a reduction of five years in the amortization period is roughly equivalent to a 1% increase in mortgage rates, so this will tend to suppress home buying. Perhaps in a case of ‘be careful what you wish for,’ there is now strong evidence of cooling real estate markets and average home price decline in some markets.21

conclusions Reflecting on the rising trajectory of spending in the late 1960s, a seminal text on housing was aptly titled “Programs in Search of a Policy.”22 This indictment holds just as true in 2013, and is an apt encapsulation of the Harper Conservatives’ management of this issue since first forming a minority government in 2006.

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Arguably, the recent peak level of federal expenditures is an accidental happenstance. Much of this spending was inherited, and was then abetted by economic conditions that emphasized opportunistic stimulus benefits of housing investment. As such this is not an outcome of a purposeful policy agenda, shaped by a careful analysis of how to strengthen Canada’s housing system. The housing file is complex and it is neither easy nor inexpensive to implement significant change. It is also not an area, especially the affordable housing part, that has the potential to garner significant votes; but like many policy areas, there is always political risk in implementing cuts to existing funding or programs. Accordingly, the approach of the Harper government has been to manage the housing file, without making significant waves. When handed a pragmatic opportunity to pull the easy levers around stimulus, it did so, not because of any ideological commitment to housing issues, or in response to political pressure to address persistent unmet need, but because it made sense – it would, and did, have a significant impact on economic matters. In short, housing under Harper has been a beneficiary of a highly pragmatic political agenda. But in the absence of a purposeful policy framework and identified outcomes, and amidst pressures for expenditure restraint, federal expenditures may have peaked and are now poised to steadily decline over the coming decade.

notes 1 Albert Rose, Canadian Housing Policies 1935–1980 (Toronto: Butterfield and Co., 1980); Michael A. Goldberg, The Housing Problem: A Real Crisis? (Vancouver: UBC Press, 1983). 2 Mark Boléat, The Canadian Housing Finance System (London, UK: Building Societies Association, 1980); George Fallis, Corporate Sponsorship of Housing (Ottawa: Canada Mortgage and Housing Corporation, 1990); Duncan Maclennan, “Trunks, Tails and Elephants: Modernising Housing Policies,” International Journal of Housing Policy 8, 4 (2008): 423–40. 3 John Bacher, Keeping to the Private Market: the Evolution of Canadian Housing Policy: 1900–1949. MA Thesis, University Toronto, 1985; J. David Hulchanski, Canada’s Dual Housing Policy: Assisting Owners, Neglecting Renters (Centre for Urban and Community Studies Research Bulletin #38, University of Toronto, 2007). 4 The government was called upon to bail out the Mortgage Insurance Fund following large claims related to collapsing values and defaults, mainly in Alberta in the mid 1970’s, largely associated with Graduated Payment Mortgages and the Assisted Rental Program. 5 Albert Rose, Canadian Housing Policies, 1980; Michael A. Goldberg and Jonathan H. Mark, “The Role of Government in Housing Policy: A Canadian Perspective and Overview,” Journal of the American Planning Association 51, 1 (1985).

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195  Housing Policy under the Harper Regime 6 George Fallis, Corporate Sponsorship of Housing; Goldberg, The Housing Problem. 7 Canada Mortgage and Housing Corporation, “The Evolution of Social Housing in Canada,” 2011 Canadian Housing Observer (Ottawa: Canada Mortgage and Housing Corporation, 2011). 8 Canada Mortgage and Housing Corporation, Canadian Housing Statistics (Ottawa: Canada Mortgage and Housing Corporation, 1984), Table 29. 9 Tom Carter, “Current Practices for Procuring Affordable Housing The Canadian Context,” in Housing Policy Debate 8 (1997): 593–632. 10 Some agreements have already expired and since 1996 annual federal expenditures on pre-existing programs had already declined by over $134 million (Canada Mortgage and Housing Corporation, Canadian Housing Statistics, 1996, 2011). 11 Dale Falkenhagen, The History of Canada’s Residential Rehabilitation Program (Ottawa: Canada Mortgage and Housing Corporation, 2001). 12 Carter, “Current Practices.” 13 The initial press communiqué referred to both an “Affordable Housing Program Framework and an Affordable Housing Initiative,” so that the funding is variously referred to as either AHP or AHI. Here, for consistency, we use AHI. 14 Canada Mortgage and Housing Corporation, Press Release, December 1, 2001. 15 G. Bruce Doern, “The Harper Conservative Agenda: True Blue or Liberal-Lite?” in G. Bruce Doern, How Ottawa Spends, 2006–2007: In From the Cold: The Tory Rise and the Liberal Demise (Montreal and Kingston: McGill-Queen’s University Press, 2006): 3–26. 16 Steve Pomeroy, Designing an Affordable Housing Tax Credit Program for Canada (Ontario Non-Profit Housing Association and Canadian Housing and Renewal Association, 2007). 17 Canada Mortgage and Housing Corporation, 2008-2012 Summary of the Corporate Plan (Ottawa: Canada Mortgage and Housing Corporation, 2008). 18 Canada Mortgage and Housing Corporation, Research Highlight 69: Economic Impacts of Residential Construction (Ottawa: Canada Mortgage and Housing Corporation, 2000); Steve Pomeroy, The Housing Market and Canada’s Economic Recover (Ottawa: Federation of Canadian Municipalities, 2012). 19 David Macdonald, The Big Banks’ Big Secret: Estimating Government Support for Canadian Banks During the Financial Crisis (Ottawa: Canadian Centre for Policy Alternatives, 2012). 20 Nick Falvo, “Calm before the Storm: The Great Recession’s Impact on Homelessness.” Paper Presentation at Annual Conference of the Canadian Economics Association, Quebec City, 2010. 21 Canadian Association of Accredited Mortgage Professions – CAAMP Stats, November 2012, based on Lepage Quarterly Home Price Survey which identifies year over year price declines in a number of markets. 22 Michael Dennis and Susan Fish, Programs in Search of a Policy (Toronto: Hakkert, 1972).

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15 Single-Purpose Entities in the Governance of a Multiplex World ruth hubbard and gilles paquet For every problem, there is a solution which is simple, clean and wrong. H.L. Mencken

introduction There has been a tendency for governments to respond to focalized crises (actual or imagined) by creating single-purpose (advisory or operating) entities to deal with them. The political rationale for such action (for example in the aftermath of the official languages debates in the late 1960s or of the Gomery Inquiry into the sponsorship scandal) has been for governments to be seen incontrovertibly as addressing the issue. In a world that poses more and more wicked policy problems (e.g., evolving problem definition, unclear goals, unstable means-ends relationships, and the like), the proliferation of these single-purpose entities (for political optics or other reasons) has proved toxic. It has dumped on the policy scene a variety of somewhat myopic and narrow-minded agencies. These agencies are both externally vulnerable to being hijacked by single-issue lobbies or populist pressure groups, and internally vulnerable to becoming the nest of singleminded and/or self-righteous ideological technocracies tending to turn them into crusading entities. Both these biases are likely to prevent them from developing an appreciative system sufficiently broad and flexible to evolve with circumstances and to help marshal crucial trade-offs in the despatch of their mission. In the public management tribe, there has been a tendency to put the blame primarily on politicians for these aberrations. This is grossly unfair. The reason these entities have proliferated is that they have received enthusiastic endorsement by a variety of groups including academics and bureaucrats absorbed by an instrumental rationalism view of public administration and an

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archaic notion of public policy defined as a bow-arrow-and-target marksmanship game. For them, policy and strategy are fundamentally defined by precise goals ab ovo, instruments guaranteeing predictable results, and marksmanship that ensures measurable outcomes. Such a scientistic and anti-politics perspective wrongly presumes that the policy-maker/strategist has an actionable problem definition to begin with, abhors ambiguity, and tends to develop a propensity for technocrats to entrap real-life issues into quantophrenic boxes such as single-purpose ventures.1 In this chapter, first, we say a bit more about the rationales behind the proliferation of single-purpose entities, and the major responsibility of experts in not having dammed that flow. Second, we refer briefly to the toxicities generated by these entities. Third, we underline the difficulties in containing these toxic effects, and in damming the irreversible damage they trigger. Fourth, since these kinds of entities are unlikely to vanish, we suggest imposing on them an inquiring system approach as a way to contain and attenuate the harms that can be anticipated from such creatures. Fifth, we illustrate the seriousness of the potential harms generated by these sorts of entities, and the usefulness of the proposed safe fail design responses.

political and expert rationales for such choices Politicians are excellent at recognizing the symptoms of serious problems, and they have good reasons to propose pointed action as a very visible way of showing sensitivity to the message of those in civil society who have brought the issue forward. This kind of pointed initiative often helps to mobilize the attention of highly specialized experts who may be the source of helpful advice on the matter, and, in some cases, may act as a way to shake the inertia of the bureaucracy by creating a focal point for action considered to be a political priority. In most circumstances, the citizen is falsely under the impression that all policies are the result of the government in power imposing its whims on a docile bureaucracy. In fact, most policies are the result of a very significant direct intervention from bureaucrats (and indirectly from business and other interest groups, and from academics in their consultant and teaching capacities). Bureaucrats have a central responsibility to invent and design adequate and effective policy processes likely to nudge the system in the general direction detected as desirable by elected officials, while ensuring that the downside of such actions (if there are any) are neutralized or attenuated to the greatest possible extent. The experts (in the bureaucracy or academe) have not acted forcefully to discourage the creation of single-purpose entities. They have rather wholeheartedly encouraged such initiatives as serving well their instrumental

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rationalism, however unwarranted and ill-advised this approach might be. The antiquarian and somewhat mechanical notion of policy in good currency in bureaucratic and academic circles wrongly presumes that the policy-maker has all the information, resources and power to solve policy issues regarded as maze-like problems. In fact, they do not have all the information, resources and power to do so, and the challenges they face are not maze-like. Consequently, bureaucrats and academics have been unduly immodest and imprudent in allowing their scientistic bent to overwhelm the more wholesome appreciation of politicians and their propensity to entertain necessary trade-offs among the different relevant dimensions in this broader perspective.2 So instead of recognizing that wicked problems do not lend themselves to a narrow control view of policy, they have systematically comforted the politicians in the unwarranted view that the old Big ‘G’ (Government) approach to policy making (hierarchical, centralized, authoritarian, coercive) is canonical, because policy responses can more easily be stylized elegantly with clear goals and a metrology of outcomes – the trappings of pseudo-precision and quantophrenia.3 This has been argued forcefully despite the fact that, in our complex world, clear goals and measured outcomes do not necessarily amount to a meaningful way of formulating the mission envisaged – given the ill-defined state of affairs, the incomplete state of knowledge about the situation, the evolving incarnations of the problems, and the lack of commitment ab ovo by the partners required to do the job. Indeed, embracing such primitive view of strategy and policy has encouraged the genesis of utopian management frameworks that have stood in the way of the job to be done, and thereby have driven a wedge between technocrats and their political masters.4

the toxicity of single-purpose entities Ever since the 1980’s, it has been fully realized that, both more turbulent environments and a richer and more deeply diverse texture of the socio-­economy have forced organizations to adjust constantly and faster to survive. This has created new challenges for single-purpose agencies. In fact, there has been a tendency for any such agency to take refuge into a narrowing and yet imperial interpretation of the scope of its mission in chaotic or turbulent times, in order to be able to demonstrate its value-adding contribution. Over time, these single-purpose or quasi-single-purpose entities have tended to ossify more readily than central agencies whose broader mandates forced them to maintain a broader perspective in the face of on-going change requiring a continuous modification of their operations5. In the same way, the focalization of policy action by single-purpose entities has made it an obvious target for crusading single-issue lobbies from without (e.g. minority language groups for the Office of the Commissioner of Official Languages), and made it prone to fall prey to much advocacy, self-righteousness and cognitive dissonance

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from within. Finally, all these factors have contributed to stifling the required drive to innovate and accommodate as the pace of change has accelerated. A few examples – like the crisis about nuclear safety and medical isotopes6 a few years back, or the hardening of human rights tribunals into fundamentalist inquisitions at a time requiring reasonable accommodations to be negotiated – are indicative of this tendency. In the first case, a worldwide medical isotope crisis was created when a Canadian nuclear safety commission that came to regard itself as handcuffed by its own interpretation of its very narrow mandate, found it impossible to engineer reasonable global versus local tradeoffs when lives worldwide were endangered by its fundamentalist stand, and forced the prime minister of the day to recall the Parliament of Canada to take it out of its self-inflicted incapability. In the second case, human rights tribunals have become an abomination by falling prey to ayatollahs and illiberal ideologues, and degenerating into threats to free speech at a time when they should have evolved into negotiating tribunals rather than becoming promoters of unreasonable accommodation.7

difficulties in containing these toxic effects For those supporting the creation of such single-purpose entities, the standard argument has been that the convenience yield of such contraptions is high, and that they need not generate the malefits anticipated by some. Such putative malefits may be contained, it is argued, by standard and wellknown constraints imposed ab ovo on the functioning or the structure of these entities. This is being unduly optimistic. The Possibility of Containment ab ovo Given the fact that in most cases these entities are created in response to wicked problems that are very politically sensitive, any attempt to constrain firmly ab ovo the nature of its operations would have the same effect as efforts to limit the ambit of a commission of inquiry when it is created: it would be perceived as a way to neuter the entity and prevent it from dealing freely and most ­effectively with the noxious problems at hand. Therefore it would appear easier to constrain it later by various accompanying mechanisms: sunset scenario: limit on the life expectancy of the entities Given the fact that a particular issue may appear to be so critical that a singlepurpose entity is felt required to deal with it, one way to deal with the possibility of that entity becoming irrelevant or toxic over time is to create it as a planned non-permanent organization. The best example might be the special entity put in place to deal with the Vancouver Olympics. This is clearly an

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e­ ffective mechanism but it would seem to be applicable only to a most limited sample of the cases where the single-purpose agency has been regarded as the remedy called for. conventional periodic mandate review A less radical approach, when the problem that it is meant to tackle might be presumed to persist for an undefined period of time, is to call for a periodic mandate review of such entities to determine if they should survive, in what form, and with a similar or modified mission. Such a mandate review may suggest a termination if it is felt that the job is done or that the task need not have this particular agency in charge any longer. This is what the Quebec government has done as an ad hoc measure in its 2010 budget when it eliminated 30 of the 170 advisory committees that had been set up over the years.8 But this was done after such a long period that they may be said to have had ample time to do much damage. More nuanced outcomes might be provisions for a redistribution of certain functions assessed as still useful to existing entities with appropriate cognate missions. The mandate review may also soften somewhat the modus operandi of the entity (i.e., suggest a transformation of the way in which it carries out its mandate) in order to enable the entity to continue its work by other means. However, too often mandate reviews lack the gumption necessary to do anything that may appear drastic (even when it is not) as long as the issue remains ever so slightly politically sensitive. safe-fail mechanisms in times of crisis There are moments when the narrowness of the mandate and the drive to assert its absolute dominion over all other dimensions of the problem area may generate some difficulty in reconciling the activities of single-purpose entities with what a broader social rationality might suggest. This would call for an ad hoc mediation between the entity and other entities involved in related or cognate issue domains. In the case of administrative entities, such issues might be mediated by the Clerk of Privy Council to ensure that the entity is fully aware of the concerns of those other organizations, and takes fully into account these sensitivities in its decision-making process. However, the medical isotope crisis has revealed that the Clerk has proved a very poor safe-fail mechanism in such situations. In the case of parliamentary entities, there is no obvious locus for such mediation.

The Doctrine of Non-intervention Even though the precautionary principle would suggest that all these avenues of containment be fully examined when single purpose entities are created, they are generally not explored, and even when soft safe-fail mechanisms are put in place (as the only ones politically palatable), they are not likely to be effective.

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This is ascribable to the sacrosanct notion of independence that is trotted out as a guarantee that the sensitive job of critical importance that led to the creation of the entity will be carried out without any sabotage (ascribable to bureaucratic morass and political interference) being allowed to derail the crusade. This means that the worst excesses of these entities are rarely denounced except when there is evidence of financial shenanigans or sexual misdeed. Elected officials and the technocracy have a tendency to self-censor on this front, and only the media (acting invidiously as fact finder, accuser, and judge) are allowed to thrive on innuendos and insinuations, when this proves good for audience-building purpose9 – with mixed results. The mix of hands-off and insouciance that follows is not a matter of lack of character or professionalism; it is often a matter of fear of lèse majesté as a result of the special status of these single-purpose initiatives. In the case of administrative entities, the arm’s length demanded from the standard ministries is always intimidating, and unless the Clerk (in the unique position of ‘overlord’ of all public servants) is willing to intervene temerariously, non-involvement is the default position. In the case of agents of parliament or parliamentary entities, the lustre of the agency is likely to be even greater and the arm even longer. While the prime minister and other ministers have at times been tempted to intervene, it has not resulted in important political collateral damage. This has often meant that only oblique and indirect ways to intervene – often too late and most ineffectively to mitigate the damage – have been used. More important even than the formal habits and rules is the cultivation of the special character by these entities. The separate nature of these entities has acquired in the media almost the same sacredness as the separation of the legislative, the executive and the judiciary branches of government. In the same way as the most idiotic decision by a judge is not allowed to be questioned by elected officials or the executive, the same degree of reverence has come to be expected for the heads of these single-purpose entities and for their bulls. Any hint of a violation of this supposedly infallible status is quickly denounced by the press, when it does not originate such action for its own reasons. Consequently, there is a certain irreversibility that accompanies the creation of single-purpose entities: in the case of administrative entities, it is mostly because politicians do not dare to be seen as abandoning a cause that has gathered a clergy and a flock; in the case of parliamentary agencies, the immunity from criticism is so deeply ingrained from within and without government that it has seemingly granted these agencies a license to do anything they wish – however destructive.

reframing the notions of strategy and policy Even politicians have begun to learn from the experience of the recent past that some of these agencies can easily be hijacked by lobbies and ideologues,

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and create much more collateral political damage than good. This has led the Quebec government to abolish dozens of such agencies in 2010. On the bureaucratic/academic front, there is more resistance. Public administration embodies a cosmology that is profoundly rooted in the Big ‘G’ ideology. Even though an alternative small ‘g’ approach (more pluralist, participative, horizontal and experimentalist) has emerged more than a decade ago – predominantly shaped by social learning, that would appear to be better equipped to cope with the polycentric coordination challenges in our multiplex world, and more capable of yielding innovation and resilience to cope effectively with the evolving context10 – this alternative approach has failed to have much impact on the orthodoxy.11 Yet the toxicity of such a single purpose agency form is such that both politicians and technocrats might be persuaded that a precautionary approach is called for. This approach might be initiated in two steps: first, by redefining policy as an inquiring system ab ovo, and second by better use of design thinking along the way. An Inquiring System as an Alternative View of Policy This alternative approach starts from the basic position that most policy problems are ill-defined to start with, and the problem definition needs to be broached by way of an inquiring system that will evolve the nature of the problem as the process of probing and exploring unfolds. At the core of this exploration is an inquiring system fundamentally seeking and processing information as a sort of self-organized, direction-finding, super automatic pilot. It is designed to mop up information; to actively seek out anomalies and investigate identifiable pathologies; to explore problem definitions; to seek out potential collaborators; to generate prototypes of responses from conversations with those collaborators; to fail early and to fail often, using these prototypes, but also to learn quickly and thoroughly from each such experimentation; to disseminate the good and bad news about what has been learned; and to continuously close thereby the knowing-doing gap within the organization or society.12 An inquiring system is an evolving nexus of relationships among partners and contributors that is continually being modified by the information being accumulated. Those relationships among partners are not necessarily etched in MOUs or formal partnership agreements (as some would have us believe) but in the willing co-learning and value adding exchanges that the relationships engender. Consequently, the various relationships (internal and external, quantitative and qualitative, functional and metabolic, etc.) are continually transforming both the intelligence-gathering processes and the implementing capabilities that they mediate. Any inquiring system is based on a cumulative process of learning and unlearning. Its outputs are appropriately compiled and acted upon through

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system modification, development, and redefinition over time. This learning and unlearning cycle is best facilitated by discovery engines that are frugal and flexible, that are based on learning by trial and error, and that have no guarantee of success in a world that is constantly changing. Imposing such an inquiring system framework from the start on single-purpose entities would mandate explicitly social learning as a modus operandi, and actions and arrangements rooted in serious play with prototypes.13 When the unintended negative consequences of some sort of arrangements are detected, the inquiring system reacts by attempting to generate corrective action. In the same way as experiences lead organizations and social systems to modify the choice of means as the environment changes through some level I learning loop, the same process also operates at level II in modifying the goals or objectives when it becomes necessary, and at level III when a broader learning loop triggers a re-arrangement and a refoundation of the organization per se. Responses Inspired by Design Thinking Redesign is a fundamental result of the workings of the inquiring system, but there is no invisible hand generating this redesign work. It is the result of collective action, of some collaboration among the partners mobilized by the inquiring system. But such organizational re-arrangement can only occur if the inquiring system opens the door to design thinking. There is quite a gap between organizational design and design thinking: the former rarely avoids the trap of formulaic recipes better suited to routine repairing of ferry-boats operating between the shores of a relatively eventless river, while the latter insists on exploring ways to prepare the organization to face the turbulence of the high seas, beyond the bounds of the known14. Design thinking prototypes from day one, and it builds on an old saying of Linus Pauling that “to have a good idea, you must first have lots of ideas.” In the case of single-purpose entities, social learning and redesigning as learning proceeds need to be mandated from the start. It may be proceeding fast or slow, but, if it is mandated, the officials will have no choice but to demonstrate that they have actively taken advantage of all opportunities to intervene to tilt the inquiring system in the direction of faster social learning. This will maximize the chance that its evolutionary mission will be tackled well.15

selected illustrations Single purpose entities might not be entirely avoidable. On the other hand, no single purpose organization necessarily displays all the toxic features mentioned above, so no particular example can illustrate the perfect storm. It would be easy to show, for instance, that a variety of entities created to accelerate the process of computerization in fields as varied as e-health or gun

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registration have triggered a focus on digital concerns and a displacement of the original missions. But this would tend to ascribe the whole problem to the hijacking of policy areas by technical rationality, and to occlude the fact that this is only a minor source of the problem. The sources and causes of the malefits flowing from single-purpose agencies have less to do with technological fixations than with political and ideological shenanigans made very much easier by the hyper-focalization of such agencies, and the ease with which their activities can be derailed into fundamentalism by external and internal pressures. Indeed, the process through which such entities fall easily into premature problem definition without the necessary inquiry, and come to hyper-focus on ill-inspired superficial targets on the basis of self-righteous arguments is a much more toxic source of distortions that freeze the single-purpose entities into blind pursuit of objectives regarded as sacred. The best one can hope to accomplish in a few pages is to raise awareness of the problem by a quick look at a pair of single purpose agencies to show how they have generated some toxicity worth noting. To show how a mix of inquiring system and design thinking in their mandate might be able to do much to reduce the incidence of malefits likely to plague such entities will be hinted at, but the bulk of the work on this front must remain a task for future papers capable of tracking down such experiments as they materialize. The entities we have quickly looked at are the: • •

Canadian Nuclear Safety Commission CNSC c Office of the Commissioner of Official Languages OCOL o

To help X-ray our illustrative cases in the simplest way, it might be useful to remind the reader of the major predicaments we have referred to in the earlier sections • • • • • • •

Premature problem definition Mission : thwarted nature or mission drift Ossification and imperialization of the mandate Hijacking by lobby groups from without Hijacking by ideologies from within Flaws of conventional mandate reviews Absence of effective challenge mechanism

I c II c o III c o IV o V c o VI c o VII c o

and to show how the sample of single-purpose entities might be said to have suffered from some of these predicaments by mentioning them alongside with the predicament in question. Our questioning of this sample of agencies is not meant to be an indictment, but only an expression of concern generated by our understanding of

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the principle of precaution, and the consequent suggestion that such agencies are prime candidates for developmental evaluation and refoundation. (1)  We have had an opportunity to study the CNSC case in some detail elsewhere.16 Growing concern about the impact of nuclear energy led to the creation in 2000 of the Canadian Nuclear Safety Commission (CNSC). Its mandate is “(a) to regulate the development, production and use of nuclear energy, possession and use of nuclear substances, prescribed equipment and prescribed information … and (b) to disseminate objective scientific, technical and regulatory information to the public” in order to prevent unreasonable environmental and health and safety risk to people and to inform the public about the effects as well as the Commission’s activities.17 The establishment of CNSC as a stand-alone entity significantly weakened the governance of nuclear energy sector. The ability to balance the risks related to people’s health, safety and the environment from the use of nuclear energy on the one hand, with the economic and social benefits that the peaceful uses that it brought here and abroad on the other, was lost. The resulting forceful interpretation that any other considerations except safety were outside its mandate but also not relevant to the government of the day or the people it served (which is patently untrue), was allowed to spiral out of control with CNSC’s decision to shut down a crucial reactor thereby severely limiting the supply of urgently needed medical isotopes worldwide and requiring Parliament to intervene to save the day. (2)  The mission of the Office of the Commissioner of Official Languages (OCOL) is to oversee the application of the Official Languages Act (OLA) – an Act originally conceived (1969) with a primary focus on ensuring federal services were provided appropriately to the public in the official language of their choice – was defined in the aftermath of the Royal Commission on Bilingualism and Biculturalism, and has evolved with the 1982 Charter of Rights and Freedoms protecting minority rights (including language rights). There was a mandate creep when the 1999 Annual Report of the OCOL determined that the “traditional watchdog role with respect to language rights has not been sufficient to fulfill the mandate” – a mandate that came to be interpreted as the enforcement of what was seen as the government’s commitment to enhance the vitality and assist in the development of official language minority communities.18 In tackling this aggrandized mandate, and in choosing the benchmarks for gauging community vitality – the preservation of the minority language spoken at home – the OCOL has tended to be very much at variance with the original intent of the Official Languages Act as understood by Pierre Trudeau,19 and at variance with the reality of the increasing inter-marriage of Francophones with non-Francophone partners. Indeed, this choice of interpretation of its mandate – granting more importance to the traditional dynamism of conservation over the dynamism of

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accretion20 (i.e., vitality measured by the capacity to attract other locutors) – might be quite consequential to the extent that the former tradition has come to regard bilingualism as subtractive and not as an additional asset bolstering the community’s vitality and dynamism. Community vitality and development obviously include other important factors besides language spoken at home, and focusing mainly on this indicator may shape community expectations about community vitality perversely.

conclusions Our argument has been that single purpose entities are likely to be toxic in a multiplex world because they are likely to •

•

•

simplify the problem definition process unduly, and to ignore or play down significantly-important trade-offs with dimensions of import that are not directly connected to a reductive version of their mission; fall prey to external and internal hijacking by interest groups or ideologues, and to ossify and radicalize their mandate instead of adapting it to the evolving circumstances; tend to dissociate their actions from the socio-political context within which it is nested, and to elicit a fundamentalist version of its mandate in denial of the wicked nature of the problem and of the pluralist perspective it commands.

If our argument carries any weight, it is not only a matter of acting preventively (as we suggest) when other single-purpose agencies are created, but also a matter of putting in place a massive cleansing and redesign strategy to deal with those sorts of agencies already in place, namely: •

•

a mandated review of all single-purpose entities based on developmental evaluation principles, and; some elaboration of the principles to decide what stays and what goes, and of the principles of redesign for what stays.

The most toxic of such agencies are those who have already been institutionalized to such a degree that they have already developed a flock of subsidized lobbies vocally supporting them, or have already generated a fifth column of fundamentalists who have morphed over time into counterproductive sentinels of the past and deniers of the realities the agencies are meant to accompany. A developmental mandate review of all these agencies might be useful if it can be set in such a way as to avoid being hijacked (in the same manner as one has such developmental reviews for a number of legislative frameworks in many sectors like banking for instance) but it might not suffice.

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207  Single-Purpose Entities

The challenges generated by single-purpose agencies must also serve as révélateurs of the new complexities and difficulties confronting public policy that require that the very notion of public policy be refurbished. This, in turn, calls for a revolution in the minds of bureaucrats and academics about the central importance of bringing politics back into public administration, of exorcizing anti-politics from the practice of public administration, and of questioning frontally the very flawed politics-administration dichotomy that has plagued public administration since the time of Woodrow Wilson. This point is made persuasively by Michael Spicer,21 and it is clearly understood by politicians and citizens, but bureaucrats are schizophrenic about it – living in a world of explorers but very adept at rationalizing their quest ex post facto so as to make it look like the result of instrumental rationalism. And academics too often remain satisfied to pronounce that the best way to find a watch lost in a dark alley is to search for it with the help of a model teaching how to conduct a search under a lamp post because there is more light there. Consequently, we have a long way to go.

notes 1 For a forceful definition of this position, see Kenneth J. Meier 1997. “Bureaucracy and Democracy: The Case for More Bureaucracy and Less Democracy,” Public Administration Review, 57: 193–9. 2 Michael W. Spicer, In Defense of Politics in Public Administration – A Value Pluralist Perspective (Tuscaloosa: The University of Alabama Press, 2010). 3 Gilles Paquet, “Quantophrenia,” www.optimumonline.ca 39, 1 (2009): 14–27. 4 For an oblique admission of guilt by two retired senior officials of the Canadian federal bureaucracy, see Ian D. Clark and Harry Swain, “Distinguishing the Real from the Surreal in Management Reform: Suggestions for Beleaguered Administrators in the Government of Canada.” Canadian Public Administration 48, 4 (2005): 453–70; for a probing of the various brands of disloyalty of which the one mentioned here is only one, see Gilles Paquet, “Disloyalty,” www.optimumonline.ca 40, 1 (2010): 23–47. 5 The difficulties of the unemployment insurance scheme in adapting to the evolution of the labour process over time (part-timers, self-employed) is a good example. 6 Ruth Hubbard and Gilles Paquet, “Design Challenges for the Strategic State: Bricolage and Sabotage,” in A.M. Maslove (ed.) How Ottawa Spends 2009–2010 (Montreal and Kingston: McGill-Queen’s University Press, 2009): 89–114. 7 Rory Leishman, Against Judicial Activism (Montreal and Kingston): McGill-Queen’s University Press, 2006). 8 Gilles Paquet, “L’impasse de l’impolitique,” in M. Fahmy (ed.) L’état du Québec (Montreal: Les Éditions du Boréal, 2011): 447–53. 9 Gilles Paquet, “Médias, imprécations et désinformation,” www.optimumonline.ca 42, 1 (2012): 41–8.

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208  Ruth Hubbard and Gilles Paquet 10 Gilles Paquet, “Innovations in Governance in Canada,” Optimum 29, 2/3 (1999): 71–81; Gilles Paquet, Governance Through Social Learning (Ottawa: The University of Ottawa Press, 1999). 11 Gilles Paquet, “Slouching toward a relatively stateless state,” www.optimumonline.ca 42, 2 (2012): 99–121. 12 This is the essence of effective stewardship. Ruth Hubbard, Gilles Paquet, Christopher Wilson, Stewardship (Ottawa: Invenire, 2012): 38–9. 13 Michael Schrage, Serious Play: How the World’s Best Companies Simulate to Innovate (Boston: Harvard Business School Press, 2000); Gilles Paquet, Crippling Epistemologies and Governance Failures – A Plea for Experimentalism (Ottawa: The University of Ottawa Press, 2009), 159ff. 14 Tim Brown, Change by Design (New York: HarperCollins, 2009), 67. 15 Michael Quinn Patton, Developmental Evaluation – Applying Complexity Concepts to Enhance Innovation and Use (London: The Guilford Press, 2011). 16 Ruth Hubbard and Gilles Paquet, The Black Hole of Public Administration (Ottawa: The University of Ottawa Press, 2010), chapter 11. 17 http://laws-lois.justice.gc,ca/acts/N-28.3/page-2.html accessed Aug 14, 2012 18 Office of the Commissioner of Official Languages, Annual Report January 1, 1999–March 31, 2000. As reflected in the significant 1988 amendments to the OLA reinforced by further amendments in 2005. Office of the Commissioner of Official Languages “Our History Our Path” http://www.ocol-clo.gc.ca/html/timeline/ timeline_e.php?noflash=true accessed 21 Oct 2012. 19 In fact, on tabling the first OLA, former Prime Minister Trudeau’s view was clearly stated “French Canada cannot survive by turning in on itself but by reaching out to claim its full share of every aspect of Canadian life.” (http://www.collectionscanada. gc.ca/primeministers/h4-4066-e.html accessed Oct 18, 2012). See also Supreme Court of Canada “Remarks of the Right Honourable Beverly McLaughlin, P.C. Chief Justice of Canada,” http://www.scc-csc.gc.ca/court-cour/ju/spe-dis/bm200802-06-eng.asp accessed July 11, 2012; and “Vitality Indicators for Official Language Minority Communities 1: Francophones in Urban Settings” http://www.ocol-clo.gc.ca/ html/stu_etu_sum_som_10_07_e.php accessed Oct 21, 2012. 20 Ruth Hubbard and Gilles Paquet, “Community governance innovations: French Canada outside Quebec,” www.optimumonline.ca 42, 3 (2012): 18–26. 21 Michael W. Spicer, In Defence of Politics, 2010.

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16 The Promise and Paradox of Open Government in the Harper Era jonathan craft

introduction The ‘open government’ agenda has returned with a web-enabled vengeance. Calls for ‘open government’ are by no means new having ebbed and flowed over the years in various incarnations.1 At times agendas hinge on efforts to secure more participatory forms of government, improve government transparency and accountability, or ‘good governance’ models and specific measures such as freedom/access to information legislation. The most recent incarnation of ‘open government’ has been buoyed by the potential and evolving capabilities associated with advances in information and communication technology (ICT). Web 2.02 and ICT technologies have animated new discussions and set new expectations related to citizen-state relations, dialogic and participatory practices, transparency, service delivery, and the management, regulation, and disclosure of an ever growing volume of public sector information (PSI)3 and data4. The current Conservative government has jumped on the proverbial open government bandwidth bandwagon, formally launching Canada’s first ever Action Plan on Open Government (APOG) in 2012. The APOG relies heavily on the ability of the government to marshal web 2.0 and ICT technology and commits the government to twelve specific initiatives intended to increase government openness through improved transparency and access, citizen participation, and service delivery modernization. This chapter offers a critical analysis of the promise and paradoxes associated with the Canadian APOG in the context of contemporary Canadian realpolitik.

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First, a concise review of the notion and key operating principles of open government is provided. This is imperative given the significant potential ambiguity in ‘open government’ nomenclature. This ambiguity can be problematic as it can enable governments to claim improved government ‘openness’ simply from the deployment of open data technology or disclosure of large amounts of PSI. The leading international definitions of open government are canvassed to provide specificity for the subsequent evaluation of Canada’s APOG and its operational environment. Subsequently, the APOG is set out with a focus on its 12 key commitments arrayed along its three ‘activity streams’ open information, open data, and open dialogue. The three streams are then evaluated against their performance to date as well as the considerable practical examples that underscore the paradoxes created by open government and realpolitik. The main argument advanced is that while the APOG holds considerable promise – having already transformed important aspects of Canadian PSI creation and management – the plan is fatally flawed. It lacks substantive and overdue reform to the Access to Information Act (ATIA) and provides no measures to reduce the current or future governments’ abilities to obfuscate, delay, and deny meaningful access and participation through parliamentary and communications tactics. As such, it does not go far enough to foster robust open government in Canada.

the importance of a prefix: defining “open” government Before delving into the specifics of Canada’s APOG and evaluating the promise and paradoxes of claims of ‘open government’ it is imperative that the terms be explicitly defined. Open government has become a term that while bandied about considerably, can be wielded with great imprecision. Scholars have noted that the ‘open’ prefix has been subject to conspicuous concept stretching with the effect of muddying interpretations of what constitutes ‘open government.’5 Originally, in its most basic sense, open government referred to the right of people to access governmental documents and proceedings. It has however evolved in significant ways, in large part due to the proliferation and evolution of ICT advances.6 While open government initiatives can include open government data (OGD) components, ‘open data’ and ‘open government’ are not synonymous. As Yu and Robinson explain, “A government can be an open government, in the sense of being transparent, even if it does not embrace new technology (the key question is whether stakeholders know what they need to know to keep the system honest). And a government can provide open data on politically neutral topics even as it remains deeply opaque and unaccountable.”7

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The OECD defines open government as “the transparency of government actions, the accessibility of government services and information and the responsiveness of government to new ideas, demands and needs.”8 Recognizing the adaptive pressures of ICT the OECD has noted that open government has become a legal framework in most member countries (including Canada) which consists of: (1) laws on access to information, (2) laws on privacy and data protection, (3) laws on administrative procedures, (4) laws on ombudsman institutions, and (5) laws on supreme audit institutions. A second and related point is that ‘open government’ requires both vision and voice. That is, it compels not only governments engaging in activity designed to promote openness in informational terms (vision) but is fundamentally rooted in the ability of citizens to engage in meaningful participation in governance activities (voice).9 In short, any adjudication of a government’s ‘openness’ must include attention to its openness in informational and interaction terms. Having specified the definition of open government facilitates an examination of the Conservatives foray into the area to determine just how ‘open’ Canadian government really is.

the promise of open government and canada’s action plan on open government Open government advocates point to a spectrum of benefits associated with the adoption of open government measures. The Canadian APOG captures much of the techno-optimistic potential associated with open government. The contention of advocates is that ‘open government technologies’ “have the power to make government better, democracy stronger and citizens more powerful.”10 The list of purported benefits is extensive including: improved government transparency, accountability, efficiency and legitimacy,11 economic development and innovation flowing from the re-purposing of data and PSI, greater trust in government, improved equity of access and citizen participation in public policy making, and service delivery improvements.12 Canada’s APOG was released in 2012 and includes three ‘activity streams’: open information, open data, and open dialogue. The APOG is based on two ‘foundational commitments’ and includes 10 additional commitments across its three main activity streams (see Figure 16.1). These three streams are: Open Information: proactively releasing information on government activities on an ongoing basis, making it more accessible for Canadians and easier to find – sharing knowledge; Open Data: making raw data available in machine-readable formats to citizens, governments, not-for-profit, and private sector organizations to leverage it in innovative ways – enabling value; and

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212  Jonathan Craft

Open Dialogue: giving Canadians an opportunity for two-way dialogue on government policies and priorities using Web 2.0 technologies – fostering engagement.13 At the heart of the APOG are the ‘open government directive’ and the ‘open government license.’ The open directive is transformational in that it represents a fundamental shift in the default orientation of government departmental activity from ‘closed’ to ‘open.’ The directive provides guidance to departments and agencies on the qualitative types of information to be provided as well as guidelines and standardized practices related to when, where, and how PSI is made available. Adoption of such an ‘Open Directive’ brings Canada in line with international best practices with the benefits, according to the OECD, including: increase returns on public investments in public sector information and increase economic and social benefits from better access and wider use and re-use, in particular through more efficient distribution, enhanced innovation and development of new uses; [and. . .] promote more efficient distribution of information and content as well as the development of new information products and services particularly through market-based competition among re-users of information.14 The second core commitment, the ‘open government license,’ commits the government to developing a new government wide licensing regime to replace the crown copyright that has been seen by advocates of open data and open government as complicating and limiting access for potential users.15 The government is on track to meet the APOG commitment having announced a new Open Government License in October of 2012 and a stated expectation of the new license taking effect in the spring of 2013. Together these two commitments offer considerable promise to increase government transparency and re-orient how government creates, manages, and makes PSI accessible. A cursory glance at Figure 16.1 reveals that there are a considerably greater number of activities based on the ‘vision’ rather than ‘voice’ elements. That is, together the open information and open data streams represent a clear emphasis on supply-side increases of public sector information as well as attempts to innovate, through ICT, how Canadians can access PSI and data. The very first commitment in the Open Information stream is a stated commitment to modernize the administration of access to information requests. The commitment is narrow in that the APOG outlines a three staged plan including the piloting of an online payment tool for individuals submitting access to information requests in the first year and subsequent implementation of standardized search functions for completed access to information (ATI) requests.16 The plan includes no proposed revisions or even reviews of the

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213  The Promise and Paradox of Open Government Figure 16.1 Canada’s Open Government Plan

Source: Canada, Canada’s Action Plan on Open Government, 5.

access to information act as many have called for.17 As is argued below, advances in the open data stream without concomitant reforms to Access to Information legislation and practices are detrimental to, and fundamentally limit any claim of open government in Canada. Five additional initiatives under the open information rubric are detailed. Fundamentally, they consist of reorienting the ways by which government supplies PSI through digital and web 2.0 platforms. Despite being listed last in the APOG, a key commitment within the Open Information stream is for “a new user-centric, consolidated web presence for the Government of Canada … which will include a one-stop, federated search window to government information to provide simultaneous searching of federal web pages, data, and publications.”18 The other key vision based commitments included in the APOG stream are similar in their intention but target specific forms of PSI. For instance, the APOG includes a commitment to piloting a ‘virtual library’ to provide greater web enabled search functionality of public government documents. Additionally, it commits to broadening access to government records through increased access to archived federal documents held by Library and Archives Canada. APOG also commits the government to issuing a new mandatory government wide policy to ensure greater consistency in how government documentation is classified.

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The commitment spells out the government’s intention to make existing documentation within archives of the Government of Canada available online through Web 2.0 platforms in user friendly formats. Similarly, the Open Information stream includes concerted efforts to reorient the government’s record keeping practices through GCDOCS a proposed initiative to implement a new electronic records regime in some departments with a gradual standardization. Finally, the APOG also includes the International Aid Transparency Initiative (IATI). Again this is presented as a staged initiative involving first year efforts to coordinate improved access to information related to Canadian aid spending. The first stream of activity, open information underscores the importance of information to any transparency and open government initiatives. Some measures have been taken by the Conservatives in addition to those committed to in the APOG that deserve mention. Notably, the 2006 Federal Accountability Act which broadened the number of departments and agencies covered by the ATIA. Secondly, the Accountability Act also resulted in the codification of the so-called “duty to assist clause” that obliges government information officers to be as helpful as possible. Along with continued efforts to expand and standardize proactive disclosure practices launched by previous administrations, the APOG commitments to electronic payment methodology and searchable functionality of completed ATAI requests are marked improvements. However they represent the low hanging fruit of ATI reforms and do not address more fundamental issues related to delays and denials and other key substantive limitations in the scope of access for Canadians to their public sector information. The second key stream of the APOG, open data, is new territory for the Canadian government and is a core component of the modern open government agenda. The APOG open data stream includes two key commitments the most prominent being the launch of the data.gc.ca website as a platform or ‘portal’ for those seeking access to machine readable Government of Canada data sets. The pilot data.gc.ca platform was launched in 2011 with a limited number of data sets and is expected to continue to grow as the government moves towards a new 2013 Open Government Platform (OGPL) for its data. gc.ca portal based on the collaborative India-American open source platform. The second key commitment under the open data stream involves the disclosure of ‘resource management data’ in machine readable format. The plan notes that this data is collected as part of the government’s statutory obligations but that most is not currently available online or has not been made accessible in searchable formats. The APOG commits to improve the transparency and access to this stream of data, incrementally providing a greater quantity of it and facilitating the implementation of more sophisticated tools for data search and visualization.19 This is another layer of modern open government approaches that emphasize increased accessibility to government data in ‘machine readable’ formats. The promise of open data, whether related to management performance or

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215  The Promise and Paradox of Open Government

any number of government activities or services, must include voice and vision components. One the one hand, this involves facilitating the availability of informational interactions through greater disclosure PSI and but also increasing interaction based channels through standardization and machine readability. At the time this chapter was being written the data.gc.ca portal featured 13,069 General Datasets, and 260,296 Geospatial Datasets. As per Figure 16.2 below, the number of sessions and visitors to the data portal has continued to climb. There is little doubt that a strong appetite exists for machine readable data sets in Canada. Treasury Board Secretariat confirmed via correspondence with the author that as of September 29, 2012 the open data portal had 999,779 user sessions with over an estimated 150,000 data set downloads. As per Table 16.1 below there are a variety of data sets available with those from citizenship and immigration being the most downloaded. The final open dialogue stream of the APOG includes two core components Consulting with Canadians and Open Regulation. The Consulting with Canadians commitments represents the APOG’s lead initiative to facilitate a web 2.0 platform for online consultations with Canadians. The APOG details the intention to standardize such practices through a single set of practices and universal consultative platform with the expectation for additional government wide standardization of ICT tools to be made available. The second core initiative, Open Regulation, commits to increased access and public engagement in government regulatory activity with the APOG committing to compel federal regulators to post their ‘forward regulatory plans’ online to make them more transparent as well as “to post service standards and policies that clarify when stakeholders can count on receiving guidance in writing.”20 Open governments’ promise, as noted at the outset, is heavily tied to its ability to empower citizen participation in governance activity. The promise of such web-enabled consultative practices is argued to be considerable but received mixed responses from academics. Some cite its ability to reduce costs for consultation, its support for many-to-many conversations, and greater transparency through documented consultation. Others note that it may serve to legitimize the loudest voices or those with access to means to participate through open government channels.21 Attempts to secure basic descriptive statistics and information on the ‘Consulting with Canadians’ initiative and open dialogue stream were unsuccessful. Initial attempts through the government’s online consulting with Canadians ‘web form’ were returned citing a technical problem with their system. Follow up phone calls and correspondence with Treasury Board Secretariat officials and the president’s office were met with responses that information was not available.22 In a telling exchange with the Treasury Board President’s Director of Communications the author’s request for basic descriptive statistics on the Consulting with Canadians initiative and costs was

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Figure 16.2 Visit summary first 65 weeks of data.gc.ca

Number of Sessions

25000 20000 15000 10000 5000 0

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 Week Ending

Source: Provided to the author by the Treasury Board Secretariat in response to request #50422.

Table 16.1 The ten most downloaded data.gc.ca datasets Data Set Title

Department of Origin

Total Downloads

Permanent Resident Applications Processed Abroad and Processing Times – English Version Overseas Permanent Resident Inventory – English Version

Citizenship and Immigration Citizenship and Immigration

Permanent Resident Summary by Mission – English Version

Citizenship and Immigration

2,602

Permanent Resident Applicants Awaiting a Decision – English Version

Citizenship and Immigration

1,488

Permanent Resident Visa Applications Received Abroad – English Version

Citizenship and Immigration

1,465

Canada – Total entries of foreign workers by province or territory and urban area – English version

Citizenship and Immigration

960

Canada – Permanent and Temporary Residents – English version

Citizenship and Immigration

870

Civil Aircraft Register Database

(Transport Canada)

850

Sales of commodities of large retailers – English version

(Statistics Canada)

811

Canada – Permanent residents by source country

Citizenship and Immigration

797

8,917 4,762

Source: Provided to the author October 5, 2012 by Treasury Board Secretariat officials in response to request #50422.

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met with the terse response of “fingers crossed” that information would be provided. In the end no information was provided by the time this chapter was submitted some two months after the initial request. This underscores the potential for rhetoric on open government to far outpace capabilities. With even such a basic information request seemingly unmanageable what are Canadians to expect when seeking to engage in more complex dialogic and consultative interactions? The answer may be that they too should keep their fingers crossed.

the paradoxes of open government: lack of atia reforms and realpolitik Plans, strategies, and Conservative government claims of open government face two clear paradoxes. The first is that the APOG, while it commits the government to explicit measures tied to improved access, participation, and transparency, makes no commitments to substantive ATIA reforms. Second, the rhetorical claims of government openness and transparency inevitably clash with the likely deployment of parliamentary and communications tactics used by governments that are counterproductive and antithetical to open government principles (e.g. openness and transparency). Related to the first paradox the Access to Information Act provides “a right of access to information records under the control of a government institution in accordance with the principles that government information should be available to the public, that necessary exemptions to the right of access should be limited and specific and that decisions on the disclosure of government information should be reviewed independently of government.”23 Yet, considerable scholarly and expert evaluations continue to point to a growing culture of secrecy that dominates government.24 Criticisms of ATI performance certainly predate the Conservatives with an “internal law of administration” having previously been documented that undermines the principle of equal treatment at the core of the ATIA.25 Studies have found a systemic problem that goes beyond political elites seeking to shield government from potential embarrassment to a culture of public service complicity in access to information obfuscation, delay, and denial. Analysis has detected evidence of a “clear connection” between the chances of a request being refused based on the sensitivity of the request and the professional status of the requester. Finding that “requests by the media or opposition parties had a significantly longer processing time, as did those that were politically sensitive; that is, likely to embarrass the minister.26 Despite listing open information as its first activity, the APOG’s lack of attention to ATIA reform is paradoxical given that, as the OECD notes, “Access to information is a precondition for public scrutiny and a basic building block for open government.”27 Current evaluations deem Canada’s ATIA standards

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to have fallen behind provincial counterparts in scope given that federal legislation does not include institutions such as the House of Commons and Senate or the judiciary.28 Further, operationally the administration of the act has also been criticized for delays and lack of compliance. Most recently in a 2012 letter to the Treasury Board President, Canada’s Information Commissioner noted that based on official Treasury Board Secretariat statistics “Only slightly more than one half of all access requests made to federal institutions are completed within the thirty day time limit prescribed by the Act. Contrary to the Act’s presumption of disclosure, less than one fifth of all requests result in all information being released.”29 How can such standards and practices be in keeping with open government principles? In an oft quoted decision by Canadian Supreme Court Justice Laforest in the Dagg v. Canada (Minister of Finance), [1997] 2 S.C.R. 403 the importance of access to information is well stated, “The overarching purpose of access to information legislation is to facilitate democracy by helping to ensure that citizens have the information required to participate meaningfully in the democratic process and that politicians and bureaucrats remain accountable to the citizenry.” While the government, through APOG, has committed to limited administrative reforms to ATIP much greater and broader reform is required. As it stands ATIA poses a significant risk for the legitimacy of the open government agenda in Canada. Recent reviews of the Harper administration’s record on ATI are not favorable suggesting a growing culture of secrecy and control.30 W.T. Stanbury has argued: As Harper has led a government which continued to play these games [resist transparency and engage in damage control by ignoring response deadlines, blacking out the embarrassing bits, conducting business orally, excluding records and institutions from the coverage of the ATIA, and keeping the system’s watchdog overworked and under-funded] with alacrity ... His effort to reform the ATIA Act made it worse – with the exception of expanding its scope to some Crown Corporations. There is a chasm between what Harper promised before coming to office and what he has delivered on the vital matter of access to information.31 Canada was once a leader on access to information legislation but as it stands the legislation and its administrative veracity are now in clear disrepute. As the above quotations from the OECD and the Supreme Court of Canada make clear, open government has to involve substantive and meaningful access to PSI not simply reforms to how payments are made when filing requests. The second clear paradox is the inability of the APOG to curtail parliamentary or communications tactics that serve to undermine open and transparent government. Critics have argued that the Harper administration’s use of parliamentary tactics and communications management practices have p ­ roduced

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opaque governance. On the communications and media relations front the Conservatives have been subject to criticism that their media relations practices are heavy handed, overbearing, and reduce access to government. Such practices have earned the Harper Conservatives multiple Canadian Association of Journalists ‘Code of Silence’ awards, bestowed upon Canada’s most secretive government, department, or agency. Others have pointed out the government restrictions related to the disclosure of cabinet meeting dates and the elimination of cabinet scrums facilitates ministerial avoidance of journalistic encounters are unprecedented. Others have noted the various bureaucratic tactics aimed at restricting and controlling government communications undermining government transparency and openness.32 On various matters of parliamentary business and policy Conservative tactics have also been rebuked. Leading parliamentary scholars and experts have been highly critical of the Prime Minister’s prorogations of parliament in 2008 and 2009 and repeated use of omnibus budget and implementation bills. On the latter, Ned Franks has argued that such unprecedented legislative practices “subvert and evade the normal principles of parliamentary review of legislation.”33 On the former, Errol Mendes has called the prime minister’s behavior undemocratic and unconstitutional.34 Others have pointed to the Conservatives refusal to disclose cost estimates to the parliamentary finance committee for proposed procurement of F-35 fighter jets or estimates of costs related to its crime legislation.35 Then Speaker of the House Milliken ruled, “on its face, the government withheld information from a parliamentary committee ... There is no doubt that the government had failed to comply with a parliamentary committee’s demand for costs related to the Conservatives’ crime bills ... This is a serious matter that goes to the heart of the House’s undoubted role in holding the government to account.”36 More recently the government has been engaged in a longstanding and contentious battle with Canada’s Parliamentary Budget Officer related to his requests for more detailed information pertaining to government expenditure reduction initiatives. Such practices highlight the paradox of attempts at improved transparency in the face of the realpolitik of secrecy and control.37

conclusions This chapter has argued that the APOG represents a tremendous opportunity for Canada to catch up to international best practices related to open government. It has underscored the promise that open government and the APOG more specifically hold for how citizens interact with their government, as well as the improved transparency and accessibility of the Canadian government that it can foster. However, as we have seen there are clear paradoxes that are intimately connected to Canada’s attempts at implementing an open government agenda. Namely, the APOG’s lack of focus on much needed ATIA reforms

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and the ­continued political tactics that breed cynicism and make any claims of government transparency and openness absurd. The central thesis advanced has been that without meaningful and substantive reforms to access to information and measures to truncate obfuscation and secrecy through communications and parliamentary procedure, open government will likely be only partially realized at best. While the government deserves high marks for making progress though the APGO related to its open data stream, without more meaningful vehicles for voice-related activity and improved access to information legislation and practices, open government will fail to meet reasonable tests of responsiveness and accessibility. As a 2012 signatory to the International Open Government Partnership, Canada has committed to take concrete steps as part of their action plans to “stretch” beyond current practices. If the current Conservatives are seeking opportunities to rise to the challenge they need only look at their 2006 election platform or the consecutive reports from Canada’s Information Commissioners as a good starting point for the yet needed reforms.

notes 1 See Taewoo Nam, “Citizens’ Attitudes Toward Open Government and Government 2.0,” International Review of Administrative Sciences 78, 2 (2012): 246–368. 2 Web 2.0 can be defined as “the ability of the Internet to connect people and communities to amplify collaboration, sharing, and innovation.” See Jeffrey Roy, “The Promise and Pitfalls of Digital Transformation,” in Roberto Leone and Frank Ohemeng (eds.), Approaching Public Administration: Core debates and Emerging Issues (Toronto: Emond Montgomery, 2010): 279–88. 3 The OECD defines PSI as “information, including information products and services, generated, created, collected, processed, preserved, maintained, disseminated, or funded by the Government or public institution.” See Elizabeth F. Judge, “Enabling Access and Reuse of Public Sector Information in Canada: Crown Commons Licenses, Copyright, and Public Sector Information,” in Michael Geist (ed.), From “Radical Extremism” to “Balanced Copyright”: Canadian Copyright and the Digital Agenda (Toronto: Irwin Law, 2010), 601. 4 See Daniel Lathrop and Laurel Rumma, Open Government: Collaboration, Transparency, and Participation in Practice (Sebastopol, CA: O’Reilly Media, 2010). See alsoDavid Eaves, “Using the Tools of the 21st Century: Open Data and Wikis,” in Roberto Leone and Frank Ohemeng (eds.), Approaching Public Administration: Core debates and Emerging Issues (Toronto: Emond Montgomery, 2010): 309–17. 5 See Harlan Yu and David G. Robinson, “The New Ambiguity of “Open Government,” UCLA Law Review 178 (2012). 6 See Lathrop and Rumma, Open Government Collaboration. 7 Yu and Robinson, “The New Ambiguity,” 181.

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221  The Promise and Paradox of Open Government 8 See OECD, OECD Guiding Principles for Open and Inclusive Policy Making. Background document. Expert meeting “Building an open and innovative government for better policies and service delivery” (Paris: OECD, 2010). 9 See Albert J. Meijer, Deirdre Curtin, and Maarten Hillebrandt, “Open Government: Connecting Vision and Voice,” International Review of Administrative Sciences 78, 1 (2012): 10–29. 10 See Beth Simone Novek. Wiki Government: How Technology Can Make Government Better, Democracy Stronger, and Citizens More Powerful (Washington: Brookings Institution Press, 2009). 11 See Taewoo Nam, “Citizens’ Attitudes”; and Meijer, Curtin, and Hillebrandt, “Open Government.” 12 See Stephanie Wojcik, “Open government and open data,” in Kersting N. (ed.), Electronic Democracy (Barbara Budrich Publishers and Budrich University Press, 2012): 125–51. 13 See Canada, Canada’s Action Plan on Open Government (Government of Canada 2012), 6–8. 14 Judge, “Enabling Access,” 604. 15 Ibid. 16 Canada, Canada’s Action Plan on Open Government, 6. 17 See Anne-Marie Gingras, “Access to information: An Asset for Democracy or Ammunition for Political Conflict, or Both?” Canadian Journal of Public Administration 55, 2 (2012): 221–46. See also Information Commissioner of Canada, “Strengthening the Access to Information Act to Meet Today’s Imperatives” (Ottawa: Minister of Public Works and Government Services Canada, 2009). 18 Canada, Canada’s Action Plan on Open Government, 7. 19 Ibid., 8. 20 Ibid., 9. 21 See Wojcik, “Open Government.” 22 The response from Treasury Board Secretariat Officials was received in response to request #38301. The email from the President of the Treasury Board’s office was received October 26, 2012. 23 See R.S.C. 1985, c. A-1, s. 2[1]. 24 See Mike Larsen and Kevin Walby, Brokering Access: Power, Politics, and Freedom of Information Process in Canada (Vancouver: UBC Press, 2012). See also Gingras, “Access to Information.” 25 See Alasdair Roberts “Administrative Discretion and the Access to Information Act: An ‘internal law’ on Open Government?” Canadian Public Administration 45, 21 (2003): 186. 26 Roberts, “Administrative Discretion,” 189. 27 See OECD, “Open Government,” 36; and OECD, Modernising Government: The Way Forward (Paris: OECD, 2005). 28 Information Commissioner of Canada, “Strengthening the Access to Information Act,” 16.

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222  Jonathan Craft 29 See Information Commissioner of Canada, Letter on open government for the President of the Treasury Board (Information Commissioner of Canada, 2012). 30 See Gingras, “Access to Information.” 31 W.T. Stanbury, “The Chasm between what Harper promised on access to information and what we got,” The Hill Times (Ottawa), 29 November, 2010. 32 See Gingras, “Access to Information”; and also Laurence Martin, Harperland: The Politics of Control (Toronto: Viking Canada, 2010). 33 C.E.S. Franks, “Omnibus bills subvert our legislative process,” The Globe and Mail, 14 July 2010. 34 E.P. Mendes, “Prorogation Redux: Harper in Contempt of Parliament,” Toronto Star, January 5, 2010. 35 For a summary see Gingras, “Access to Information.” 36 Peter Milliken, “Comments in the House of Commons” Hansard 9, 2011. 37 See Jeffrey Roy, “The Promise and Pitfalls.”

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17 The Policies and Politics of Federal Public Transit Infrastructure Spending jesse steinberg

introduction This chapter investigates both how and why Ottawa spends on public transit infrastructure. These are interesting questions not least because prior to 2000 Ottawa did not spend on public transit. This analysis comes at an important moment in the evolution of transit policy in Canada. Over the last ten years new forms of innovative federal funding and tri-level partnerships have helped to spur a new generation of large-scale public transit infrastructure projects. In 2001, total capital expenditures on public transit in Canada were $912 million, but by 2010 capital spending had reached a total of nearly $4.5 billion.1 This re-engagement in transit policy by government at all scales reflects a complex set of structural changes in the nature of urban transportation and mobility, as well as changes in how policymakers understand the challenges of providing and managing transportation infrastructure. A perceived ‘crisis in urban mobility’ is prompting policymakers to look for new technological and regulatory strategies to manage the movement of people and goods through metropolitan space. Over the last 15 years, political support for transit infrastructure spending has broadened as more actors have come to see mass transit as a technological fix for various challenges associated with urban mobility. At a rhetorical level it has become typical for policymakers and advocates to describe public transit policy in ‘holistic’ terms, emphasizing its economic, environmental, and social benefits. For example, the federal government’s 2007 Building Canada plan explains that,

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Sound investments in public transit can improve mobility and help get people out of their cars, which reduces traffic congestion, greenhouse gas (GHG) emissions and air pollution. In addition to the environmental value, these investments benefit the economy and quality of life in cities. Well-planned public transit systems that are integrated into the urban form can provide a fast, effective and economical transportation option for city residents, as well as broader access to jobs, education, health care facilities and recreation facilities. And for many users, public transit is the only affordable option.2 This perspective offers a kind of post-political vision of urban society with investments in transit helping to create more economically efficient, environmentally benign and socially inclusive cities. Yet despite the consensual quality of this rhetorical framing, the practice of federal transit policy has proven to be more complex and conflicted. The object of this chapter is to draw out this tension between rhetoric and reality. It begins by briefly describing how the ‘holistic’ framing of public transit contributed to its rise on the federal agenda, and in particular it will discuss how transit fit within the broader progressive-competitive urban agenda. Second, the chapter will outline the institutional architecture of federal transit infrastructure spending and explain the framework of rules and conditions that govern federal transit policy. The final section will make some observations about the logic of Conservative federal transit spending. While the Harper government has retained the language of the progressive-competitive urban agenda, it has not retained an interest in the policy framework. In practice, the federal government appears to be indifferent as to the urban policy dimensions of transit spending. Instead, transit spending has been used to pursue a much narrower agenda based on expanding the party’s base of support and reforming the practice of local procurement to encourage the wider use of public-private partnerships in the transit sector. While the government has had some success in this, its policy has also produced conflicts and tensions that undermine many of the potential policy benefits of expanded public transit service.

mobility and a new urban agenda Public transit worked its way onto the federal agenda as part of a wider policy concern with the state of Canadian cities. The ‘cities agenda’ drew the attention of federal policymakers to the urban dimensions of a range of existing federal concerns, including competitiveness and innovation, climate change, and labour market and social policy. This agenda had diverse intellectual and political roots, but it ultimately cohered around a ‘progressive-competitive’ vision of Canadian urban society.3 Progressive-competitiveness took for granted

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the importance of creating a competitive environment for investment in a context of intensifying interspatial competition, but argued that competitiveness in the ‘new economy’ could be reconciled with environmental sustainability, greater ‘social cohesion,’ and a high quality of life for residents. This conception of competitiveness tied economic development policy to a much wider set of social and environmental factors and offered an intellectual basis for a more ‘holistic’ approach to urban policymaking. Urban competitiveness in this sense could not be reduced to local business costs, but instead required consideration of place-based factors like infrastructure, local amenities, and quality of life. Transit and the Progressive-Competitive Agenda Within this policy framework the obsolescence of the post-war urban development and infrastructure paradigm was seen to be a cause of many of the economic, environmental and social problems plaguing Canadian cities. This paradigm was based on suburbanization, functionally segregated landuse planning, public investments in road and highway infrastructure, and the institutionalization of automobile-oriented lifestyles. While this paradigm had been at the heart of the post-war growth model, there was a belief, including among many urban planners, that it had been developed to its useful limits. Three inter-related externalities were identified. First, because of the insatiable demand for transportation infrastructure generated by sprawling and segregated development patterns, urban transportation networks were experiencing strain. This strain translated into rising road congestion, longer commute times, geographically constrained labour markets, delays in transporting goods, and diminished competitiveness. Second, the same urban travel patterns responsible for rising road congestion were having profound environmental consequences. Consistent annual increases in vehicle-kilometers travelled meant that personal transportation had become one of the leading causes of rising GHG emissions.4 Within the progressive-competitive framework, these environmental impacts were a concern in their own right, but were also a problem because of their effect on urban and regional competitiveness, particularly in terms of attracting talented and ‘creative’ workers.5 Finally, the geographical restructuring of labour markets, trends towards residential segregation and gentrification, and an increasingly automobile-dominated transportation system were combining to create new patterns of urban exclusion.6 Investments in mass transit were seen in this context to be an elegant solution to a number of inter-related problems. First, reflecting a ‘new realism’ in transportation planning, investments in transit infrastructure were seen as a more viable public sector strategy for expanding capacity in urban transportation networks.7 Where investments in road infrastructure tended to activate

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latent demand and perpetuate a pattern of decentralization, mass transit would encourage more efficient settlement patterns and lifestyles. Second, the transition from sprawled, functionally segregated, and automobile dominated cities to denser, mixed-use, and transit-oriented urban environments was argued to not only be more environmentally sustainable, but also essential for creating the kinds of amenity rich places that could effectively engage in the new global competition for ‘talent.’8 Finally, investments in transit recognized that public transit provided an essential service for those who for reasons of income, age, or ability did not have access to a personal vehicle. Without access to affordable transit it would not be possible for many to access work, shop, organize childcare, or perform many of the activities that constitute meaningful inclusion in a community.

transit infrastructure, the new deal, and open federalism Members of the Liberal caucus were instrumental in articulating this progressive-competitive vision of Canadian urban society and in propelling urban policy in general, and transit policy in particular, onto the federal agenda. And while internal divisions resulted in a series of tentative first steps, Paul Martin’s 2004 New Deal for Cities and Communities provided a framework in which federal transit spending could expand in scale. There were a number of dimensions to the New Deal, but the biggest spending commitments involved two infrastructure financing instruments. The Canada Strategic Infrastructure Fund (CSIF) continued the practice of funding municipal infrastructure through omnibus-type tri-level infrastructure programs. Money from this fund was used to fund large-scale projects through partnerships with provincial and municipal governments. The second instrument, the Gas Tax Fund, was a new financing instrument which committed the equivalent of a portion of the federal fuel excise tax for sustainable infrastructure projects. These infrastructure programs provided the first significant infusion of federal money into public transit infrastructure, with spending climbing from $72 million in 2004 to $223 million in 2005 and $620 million in 2006.9 Under the Liberals funding from the CSIF made its way into Vancouver’s Canada Line, York Region’s Viva project, and improvements to Ontario’s GO Transit commuter system. When the Martin Liberal government was displaced by the Harper Conservatives in 2006 there was a concern that the nascent federal urban agenda would be set aside in favour of other priorities. The Conservatives came into office promising a new approach to intergovernmental relations based on the idea of ‘open federalism’. Principles of open federalism included a commitment to a stricter separation of jurisdictional functions and the limited use of spending to influence behaviour in areas of non-federal responsibility. In particular, it denied an explicit role for the federal government in

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municipal issues. Insisting that cities were areas of exclusive provincial responsibility, the government rejected the kind of multi-level, ‘joined-up’ governance imagined by the New Deal.10 One municipal policy concern that did resonate with this agenda was the idea of a vertical fiscal imbalance. Local governments had long argued for a rebalancing of the fiscal federation in order to provide municipalities with revenues commensurate with their responsibilities. The most visible expression of this imbalance was the growing ‘infrastructure deficit’ caused by a combination of growing responsibilities and limited revenues.11 Whereas in 1961 local governments owned approximately 30% of public infrastructure, by 2005 municipalities had become responsible for close to 60% of this stock.12 As the scale of infrastructure spending needs grew, municipalities increasingly found that they lacked the fiscal resources needed to maintain, renew or reinvest in local infrastructure systems. For example, in 2007 the estimated cost of maintaining and upgrading existing municipally owned transit infrastructure was an eye-opening $22.8 billion.13 Federal infrastructure programs thus provided the Conservatives with an opportunity to follow through on the principles of open federalism by redistributing federal resources to local governments in order to allow them to meet their jurisdictional responsibilities. However, rather than a principled ‘disentangling’ of intergovernmental relations, the Conservatives have instead pursued a kind of ‘strategic federalism’. The Institutional Architecture of Transit Infrastructure Spending Federal public transit spending has flowed through a mix of five infrastructure funding programs and instruments. In form, Conservative transit infrastructure spending has followed the model established by previous Liberal governments, though with some notable institutional innovations. First, the Harper government extended, and then made permanent, the Gas Tax Fund, which provides $2 billion per year to municipalities for environmentally sustainable municipal infrastructure. While this money, distributed on the basis of provincial population, can be applied to a number of different spending priorities, including wastewater infrastructure, solid waste management, and local roads, it has had a significant impact on the transit sector because most large cities, including Toronto, Ottawa, Vancouver, Edmonton, and Calgary use all or nearly all of their gas tax contributions for transit capital spending. The City of Toronto, for example, received over $150 million in capital funding in 2010 through the gas tax.14 Second, in 2006 and 2008 the government decided to flow a portion of ‘excess’ surplus into an instrument called the Public Transit Capital Trust. Adapted from the Liberal Public Transit Fund, this ad-hoc funding mechanism represents the only instance of dedicated transit funding. In total, $1.4 billion flowed through this trust and was distributed to provincial governments on a per capita basis.

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Most significantly, the government has also continued the practice of delivering infrastructure through omnibus programs financed through tri-level partnerships, (a model that was established by the Chrétien Liberals). As part of the 2007 Building Canada Plan the government established the $8.8 billion Building Canada Fund (BCF), which makes money available for a variety of different categories of infrastructure spending, including highways, transit, water and wastewater, broadband infrastructure, and tourism among others. Unlike the Gas Tax Fund, the BCF is an application-based program. While money is distributed on the basis of provincial population the federal government maintains a role in evaluating, selecting, and managing projects through federalprovincial management committees established through funding agreements with each province. This provides the government a forum through which to influence project selection. This is significant because the BCF has been the primary new funding instrument for large-scale transit projects since 2007, including investments in the Toronto-York Spadina subway extension, the Evergreen Line in metropolitan Vancouver, phase 2 of York Region’s Viva rapid transit system, improvements to Ontario’s GO Transit commuter rail service, new LRT systems in Ottawa and Kitchener-Waterloo, and light rail extensions in Edmonton and Calgary. The fourth instrument, the Public-Private Partnership Fund, is the Conser­ vatives’ most significant infrastructure programming innovation. Established in 2007, the $1.25 billion fund is administered by a new crown corporation, Public-Private Partnerships (PPP) Canada. Its direct impact on the transit sector has been limited thus far, contributing relatively small sums to build stations and maintenance facilities. However, as will be discussed, the indirect impact of the Fund is beginning to be felt as local managers adapt their priorities in order to access funding. The last, and least significant instrument, has been the Infrastructure Stimulus Fund, which provided small amounts of money for transit projects between 2009 and 2011. While there had been hopes that stimulus spending could be used to make unique contributions to local public transit systems, the program ultimately had only a marginal impact on the sector. Under the Conservatives, the federal government has made significant investments in transit infrastructure. Between 2006 and 2012, the government committed close to $5 billion to local transit projects, leveraging $13 billion in new spending. As a result, in 2012 over $25 billion were committed to ongoing transit projects.15 The impact of federal spending can be seen not only in the total value of investments, but also in the scale of the projects under development. Many of these are truly ‘mega-projects’ which will have transformative effects in local communities. In Ottawa, for example, the federal government has committed $600 million to a project that is estimated to cost $2.1 billion. In Kitchener-Waterloo, the federal share of the region’s new light rail line is $265 million. In metropolitan Vancouver, the federal government invested over $400 million in the extension of the Skytrain system, and in

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Toronto, the government has committed close to $700 million to the $2.6 billion Spadina subway extension.16

the objectives of federal transit policy Given the scale of these projects, it is clear that federal spending will have a significant impact on the evolution of Canadian urban transportation and transit systems. What is less clear, however, is what this precise impact will be. The progressive competitive urban agenda offered a policy vision of urban society in which investments in transit would help to create more economically efficient, environmentally benign and socially inclusive cities, (though its ability to do this was, of course, highly contested). While the Conservatives have retained this holistic policy framing, it is clear that the government’s transit policy is in practice characterized by an indifference to the urban policy dimensions of transit spending and the contribution that transit infrastructure might make to the restructuring of Canadian urban society. Given the Conservatives’ professed discomfort with the idea of federal urban policy, this indifference is of course not surprising. However, rather than abandon federal transit spending or adapt federal infrastructure programs to the principles of open federalism, the government has instead preserved the existing framework and used money to pursue a kind of ‘strategic federalism’. This involves the selective use of spending to influence local outcomes in an effort to both expand their base of electoral support and to encourage a shift towards public-private procurement in the transit sector. While the government has been largely successful in this, its policy has also produced a series of conflicts and tensions that undermine many of the potential policy benefits of expanded public transit service. The Politics of Transit Infrastructure Spending The application-based funding model for tri-level infrastructure projects encourages the politicization of spending. For example, the selection of projects within the Building Canada Fund (BCF) occurs via federal-provincial management committees. These committees provide a forum through which politicians can influence the decision-making process and steer spending. The concern is that federal politicians will select projects on the basis of narrow electoral calculations rather than according to transparent policy criteria, (which might include ridership projections, cost-benefit analyses, consideration of development potential, or expected benefits for vulnerable residents). These concerns are not unfounded. In his analysis of infrastructure spending under Liberal governments, Hilton found that policy rationales like ‘sustainability’ and ‘quality of life’ were called upon to disguise a quite crass kind of retail politics.17 Thus it is not surprising that the Liberal urban agenda, which

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was pursued most vigorously by caucus members representing urban constituencies, (particularly in the Toronto region), would focus the bulk of its spending on infrastructure programs that promised a high-level of political visibility. When the Conservatives came to office in 2006 there was a belief that they would turn away from urban-oriented policy areas in part because their electoral constituency was located predominantly outside of large Canadian cities. However, the changing geography of public transit has presented the Conservatives with opportunities to use transit infrastructure spending as an instrument for expanding their electoral base. In particular, the Conservatives have taken advantage of the growing demand for transit in suburban regions where commuters increasingly struggle with the journey-to-work.18 The shifting center of gravity in federal transit spending has been particularly apparent in the Toronto region where federal contributions have been focused almost exclusively on suburban commuter systems in places like Mississauga, Brampton, and Vaughan. The politicization of transit infrastructure spending is problematic in two respects. First, it is difficult to assess the value or policy implications of projects when government refuses to engage in transparent project evaluations. For example, in Kitchener-Waterloo (where in 2008 the Conservatives won two ridings by a combined 356 votes), the federal government contributed $265 million to an $818 million regional light rail line that many considered to be unjustifiably ambitious. While it was clear that the federal contribution was politically motivated, by committing to the project only two days after local approval and by withholding details of its evaluation, the government made clear it that was indifferent as to the actual policy implications of the project.19 This policy ambivalence is of particular concern when federal spending distorts or interferes with local planning. This was the case when the Conservatives committed $697 million to the extension of the Spadina subway into York Region. At the time a number of Toronto councillors argued that the project had been given priority because it served a strategically important constituency, and that this had come at the expense of other projects that local politicians had determined were more urgently needed.20 The federal government’s continued use of application-based instruments like the BCF, which are clearly obtrusive, entangled, and prone to politicization, suggests that, at least in this respect, its principled approach to open federalism has given way to a more strategic and opportunistic kind of federalism. The Conditions of Federal Transit Funding: P3s and Downloading The conditions that federal infrastructure programs attach to contributions have both direct and indirect effects on how municipal actors balance competing political values and policy priorities. One area of contention has been federal leveraging of cost-shared programs to expand the use public-private

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partnerships in the construction, maintenance, and operation of transit infrastructure and service. While Liberal infrastructure programs also tried to influence local spending in this direction, the Conservatives have expanded on the agenda in two ways. First, all projects financed through the Building Canada Fund that involve $50 million in federal funding are required to be considered for P3s. This requirement is written into each individual provincial funding agreement.21 Second, as part of its suite of infrastructure programs, the government created the $1.25 billion P3 Canada Fund. Money from this fund can only be accessed for projects that include extensive private participation. Public-private partnerships are billed as an important development instrument in a context of public sector austerity because these arrangements can incorporate private sector financing and redistribute risk. However, because their ability to deliver value-for-money or to incorporate public-sector values like equity and transparency is contested, some cities have been reluctant to experiment with these procurement models. Federal preferences for publicprivate delivery can erode these local concerns by making funding conditional on a certain level of private-sector participation. The case of Edmonton’s southeast light rail line is illustrative in this respect. Here council determined that while it would engage private partners in the construction process, the city’s public operator should be responsible for ultimately operating the line. When the city engaged the federal government and was informed that only a procurement involving privately operated service would be eligible for funding it yielded, reasoning that a privately delivered service would be better than no service at all.22 To the extent that the federal government continues to use conditional funding to encourage the wider use of P3s, the effect will be to coerce local politicians and managers to use these procurement and delivery models, irrespective of whether this conflicts with other public priorities (such as equity, transparency, or accountability). Another condition that attaches to federal infrastructure funding, including for public transit projects, is that money be spent only on capital developments and not on the operation of assets. This capital spending is required to be incremental, meaning that spending must be in addition to investments already planned. This requirement is meant to ensure that new federal money adds to, rather than displaces, spending by other governments. This requirement has significant distributional consequences, both within cities and across scales, and by conditioning how local actors balance political values and policy objectives it limits the ability of municipalities to develop inclusive and affordable public transit systems. While federal support for transit capital investments enable local governments to develop large and strategically important projects, federal infrastructure programs offer no support for the operation of these infrastructures. In the transit sector this is significant because the operating subsidies required to deliver service have risen dramatically over the last 40 years as service has spread

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into less dense and less well patronized areas. Measured in 2010 constant dollars, total public subsidies for transit in 1970 were approximately $570 million per year. By 2010, operating subsidies alone had reached $2.8 billion per year.23 In Canada there are in effect no transit routes for which fares cover the costs of operation. For example, the Toronto Transit Commission, which operates the most cost effective system in North America, still requires over 20% of its operating budget to be funded through public subsidy. By implication, spending on capital infrastructure tends to increase the public subsidy needed to sustain transit systems. In practice, then, limiting federal support to incremental capital spending has had the effect of downloading certain kinds of budgetary crises onto the local scale. While municipalities benefit from the development of large, strategically important projects, they are also responsible for finding the ‘efficiencies’ needed to operate expanded systems. This has resulted in perverse cases where a city is simultaneously developing a new mega-project while also engaging in cost-cutting exercises.24 The need to engage in these cost-cutting exercises, which typically involve downward pressure on public sector wages, sharp increases in user fees, and selective service reductions, of course limits the ability of local operators to provide affordable and inclusive service.

Federal Transportation Policy and the Environment The federal government’s lack of interest in the contribution that transit might make to the restructuring Canadian urban society is also reflected in how it situates transit spending in relation to its broader transportation policy. The holistic framing of transit policy suggests that transit infrastructure will help to reform development patterns, restructure urban transportation systems, and encourage less energy intensive lifestyles. In practice, however, investments in transit cannot encourage these kinds of structural shifts if they are combined with parallel investments in road-based infrastructure. For example, between 1983 and 2006, transit service kilometers rose from approximately 650 million to almost 1 billion kilometers, yet had a negligible impact on ridership.25 The reason for this is that the expansion of transit service coincided with a period of sustained road and highway building with both forms of transportation infrastructure used to support the suburbanization of residential and employment land uses. The Martin Liberals tried to alter this trend by discouraging municipalities from using federal money for road and highway infrastructure. The Conservatives, however, have reverted back to the practice of investing in transit alongside (rather than as an alternative to), other transportation infrastructure. This is evidenced by the fact that only 22% of funds distributed from the Building Canada and Infrastructure Stimulus funds went to public transit,

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whereas 35% of funds went to other transportation projects, including roads and highways.26 Within this framework, transit is treated as just another form of transportation infrastructure and not as an instrument for encouraging structural change in the transportation system. In this sense, transit investments sit as part of a more traditional strategy for increasing capacity in the urban transportation system and promoting a more efficient space-economy.

conclusions This chapter has explored the tension between rhetoric and reality in federal public transit infrastructure spending. While the Harper government has retained the language of the progressive-competitive urban agenda, it has not retained an interest in the policy framework. The practice of federal transit policy suggests that the government is indifferent as to the urban policy dimensions of transit spending. The chapter has also argued that the federal Conservatives have pursued a much narrower agenda based on expanding the party’s base of electoral support and encouraging the wider use of public-private partnerships in the transit sector. While it has had success in this, its policy has also produced conflicts and tensions that undermine many of the potential policy benefits of expanded public transit service.

notes 1 Canadian Urban Transit Association, Summary of Canadian Transit Statistics (Canadian Urban Transit Association, October 2011). 2 Government of Canada, Building Canada: Modern Infrastructure for a Strong Canada (Government of Canada, 2007), 18 3 For a discussion of the policy context in which this agenda was developed see Jeanne Wolfe, “A National Urban Policy for Canada? Prospects and Challenges,” Canadian Journal of Urban Research 12, 1 (2003). 4 See Paul Steenhof and Bertram McInnis, “A comparison of alternative technologies to de-carbonize Canada’s passenger transportation sector”, Technological Forecasting and Social Change 2, 6 (2008). 5 See National Roundtable on the Economy and the Environment, “Environmental Quality in Canadian Cities: The Federal Role,” State of the Debate on the Environment and the Economy (2003). 6 See External Advisory Committee on Cities and Communities (EACC), From Restless Communities to Resilient Places: Building a Stronger Future for All Canadians (EACC 2006) 7 Thus for example the 2002 Speech from the Throne and the Prime Minister’s Caucus Task Force on Urban Issues both framed federal investments in transit infrastructure

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234  Jesse Steinberg as an instrument for mitigating the costs of urban congestion. See Canada, Speech from the Throne to Open the Second Session of the 37th Parliament of Canada (September 30, 2002); and Prime Minister’s Caucus Task Force on Urban Issues, Canada’s Urban Strategy: A Blueprint for Action (November 2002). 8 National Roundtable on the Economy and the Environment “Environmental Quality in Canadian Cities.” 9 Canadian Urban Transit Association, Summary of Canadian Transit Statistics. 10 See Robert Young, Open Federalism and Canadian Municipalities: A Briefing Note (Institute of Intergovernmental Relations, Queen’s University, 2006). 11 For a discussion see Robert Hilton, Building Political Capital: The Politics of ‘Need’ in the Federal Government’s Municipal Infrastructure Programs, 1993–2006 (Carleton University, 2007). 12 Francine Roy, “From Roads to Rinks: Government Spending on Infrastructure in Canada, 1961–2005,” Canadian Economic Observer (Statistics Canada, September 2007). 13 Saed Mirza, “Danger Ahead: the Coming Collapse of Canada’s Municipal Infrastructure,” A Report for the Federation of Canadian Municipalities (Federation of Canadian Municipalities, 2007). 14 Toronto Transit Commission, 2010 Annual Report (City of Toronto, 2010). 15 Renew Canada, Top 100: Canada’s Biggest Infrastructure Projects (Renew Canada, 2012). 16 A list of current projects is available at http://www.tc.gc.ca/eng/programs/ surface-transit-projects--221.htm#Calgary 17 Robert Hilton, Building Political Capital. 18 On this see Richard Soberman, Delivering Transit Service in the GTHA: Where We Are Is Not Where We Want to End Up (Residential and Civil Construction Alliance of Ontario, November 2010). 19 See Jeff Outhit, “Road Ahead: Feds hide rail transit reviews,” The Record, September 22, 2012. 20 See Tess Kalinowski, “’Frustrated’ TTC chair says money for line extension looks sexy but should go to further regional transit links,” Toronto Star, March 7, 2007. 21 See for example, Governments of Canada and Ontario, Canada-Ontario Infrastructure Framework Agreement (July 24, 2008). 22 See Elise Stolte, “Council set to privatize southeast LRT line,” Edmonton Journal, October 16, 2012. 23 See Transportation Act Review Panel, Vision and Balance: Report of the Canada Transportation Act Review Panel (June 2001), 217–20; and Canadian Urban Transit Association, 2010 Summary of Canadian Transit Statistics (Canadian Urban Transit Association, October 2011). 24 For example, in 2011 transportation planners in Ottawa were simultaneously planning for the city’s new downtown light rail project and instituting a ‘network optimization’ plan that resulted in dramatic cuts local service.

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235  Federal Public Transit Infrastructure Spending 25 Transportation Act Review Panel, Vision and Balance; and Canadian Urban Transit Association, 2010 Summary of Canadian Transit Statistics. 26 Infrastructure Canada, Building a Better Canada Together (Infrastructure Canada, June 2012), available at http://www.infrastrure.gc.ca/alt-format/pdf/ FCM_2012-eng.pdf

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18 The Aboriginal Health Transition Fund: Partnerships to Integrate and Adapt Health Services for Aboriginal Peoples cheryl sutherland, carey hill, and hannah rogers

introduction Improving health outcomes for Aboriginal people in Canada is a long-term goal of Health Canada. Over the past decades, there have been reductions in mortality and morbidity rates between Aboriginal and non-Aboriginal Canadians,1 yet differences in general health, including susceptibility to chronic diseases, and in access to health services, stubbornly persist. National, provincial and territorial commissions2 have recommended increased co-­ ordination of health services for Aboriginal people in Canada and expanding access to health services as a means to improve their health. The Aboriginal Health Transition Fund (AHTF)3 was a $200 million, sixyear Health Canada fund announced in 2005 that aimed to increase integration of federally and provincially/territorially funded health services for First Nations and Inuit. It also encouraged provinces and territories (P/T s) to adapt their existing health services to better meet the needs of First Nations, Inuit and Métis (including those living off-reserve and in urban settings). Further, the Fund aimed to improve access to health services and to increase the participation of First Nations, Inuit, and Métis (FN/I/M) in the design, delivery and evaluation of health programs and services. This chapter reviews the policy background to the Aboriginal Health Transition Fund, its evaluated outcomes and the implications for future policy in First Nations, Inuit and Métis health services. The AHTF was deliberately designed as a transitional fund to initiate change. Health Canada hoped it would create links that would improve integration among health service ­providers working in interdependent but disjointed and disconnected health

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237  The Aboriginal Health Transition Fund

systems. Furthermore, Health Canada anticipated that organizations planning and delivering health services would see the value in working collaboratively once links were established between Aboriginal communities and regional and P/T s, and maintain and expand these new connections to further enhance service delivery. The AHTF is an example of a strategic time-limited fund used to promote the policy objective of more integrated, collaborative, culturally responsive approaches to Aboriginal health care in Canada. Shortterm investments were made to stimulate system changes. AHTF proponents say the program opened doors and initiated important dialogues, so from this perspective it was a success. Evaluations confirm that this large-scale initiative enabled Aboriginal people to be more engaged in health service planning activities. Under the AHTF, for the first time, some Aboriginal communities worked in a structured manner with their counterparts at the local, regional, provincial or territorial level. Most AHTF projects helped forge new working relationships and formal partnerships among health service delivery agents, thereby promoting new ways of collaborating in health service planning and delivery for Aboriginal populations.

policy context: health care for first nations and inuit in canada The Canadian health system has been, and continues to be, fourteen interdependent systems of responsibilities resting with the federal, provincial and territorial governments. While the federal government provides some funding to the provinces and territories for hospitals, physician services, and other aspects of the health system, Health Canada funds and provides additional health services to status First Nations and registered Inuit. The policy foundation for delivery of health services to First Nations is the federal Indian Health Policy of 1979,4 which stems from the historic federal role in the provision of such services as well as the federal jurisdiction generally over Indians, and lands reserved for Indians, under section 91(24) of the Constitution Act, 1867. The 1979 Indian Health Policy sets out three pillars for the improvement of health of Indians (now known as First Nations) and for the effective management of a quality health care system: community development; the traditional relationship of First Nations to the federal government; and an inter-related Canadian health system. In this context, community development includes activities to support socio-economic, cultural and spiritual development essential to achieving well-being. The traditional relationship of the Indian people to the federal government describes the federal government as advocate for the interests of these communities to the larger Canadian society and institutions, and supports the capacity of communities to achieve their aspirations, notably “to have greater involvement in the planning, budgeting and delivery of health programs”.

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238  Cheryl Sutherland, Carey Hill, and Hannah Rogers

The section on the inter-related Canadian health system describes federal, provincial and territorial and community roles. Public health, health promotion and environmental health in First Nations communities are considered as federal roles, while diagnosis, treatment and rehabilitation are significant provincial and private roles. First Nations and Inuit communities have a significant role in health promotion and in the adaptation of health services delivery to the specific needs of their community. The current policy framework is also the result of treaties; modern land claims agreements, self-government agreements and federal-provincial/territorial agreements that have further defined the respective roles of the various parties.

why an aboriginal health transition fund? There are considerable health disparities between Aboriginal people in Canada and the general Canadian population. Rates of some chronic and communicable diseases are known to be higher among First Nations, Métis and Inuit than among non-Aboriginal Canadians, as are risk factors for poor health.5 Suicide rates among northern Inuit and First Nations communities are significantly higher than in the general population.6 First Nations infant mortality rates remain approximately twice as high compared to infant mortality rates for the non-First Nations population. Infant mortality rates within Inuit-inhabited regions are approximately four times higher compared to the general Canadian population. For Aboriginal Canadians, access to health programs and types of services depend on whether they are recognized as status Indians or registered Inuit, live on reserve or in Inuit settlements, and the distance of these communities from urban centres. To further complicate matters, available health services are not consistent among provinces and territories. These differing systems and entitlements result in complex health service delivery environments with gaps for Aboriginal people seeking health services. Community, provincial, territorial, and federal health service providers do not share the same service standards, pay the same wages, or design complementary services. To illustrate, when First Nations patients are discharged from provincial facilities without notification to their community health centres which will be responsible for providing after-care, there is a risk of disease complications, inadequate supports and gaps in care. Some AHTF projects helped to raise awareness among provincial and territorial healthcare providers of the need for co-ordination with Aboriginal community health service workers and the available community resources. Increased awareness led to improved planning with First Nations community centres, and case management for followup care such as medication and wound management. Furthermore, while the AHTF funding was not intended to fill gaps in services through the launch of new services or large capital investments, the

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AHTF demonstrated that incremental changes in how services are delivered in an integrated or adapted way can increase effective utilization of these combined or adapted services.

AHTF Overview: Integration, Adaptation, and Pan-Canadian Activities The AHTF was a national initiative over six years7 intended to create and enhance partnerships for integration of health service delivery among First Nations communities and organizations, Inuit land-claims organizations and national organizations, provincial and territorial ministries of health and regional health authorities; and Health Canada. It also funded projects for inclusion of First Nations, Inuit, and Métis [FN/I/M], regardless of status or residence, in P/T health services delivery planning. It was clear that significant disconnects among health service providers/clients at the federal, provincial, and FN/I/M community level were inhibiting health service delivery. The funding was provided in three streams: Adaptation, Integration, and Pan-Canadian. The AHTF’s adaptation envelope was designed to increase the availability and appropriateness of P/T health services and programs responding to the health needs of all Aboriginal peoples, including urban, Métis and non-status peoples. Adaptation projects were implemented by the provinces or territories directly or through a contribution agreement with the respective Ministry of Health. With respect to integration projects, the AHTF defined integration broadly as a tool for improving co-ordination and collaboration among First Nations and Inuit communities, P/T, and federal health services systems to more equitably, efficiently, and effectively serve the health needs of First Nations and Inuit. Integration projects were implemented through a contribution agreement between Health Canada’s regional offices and project leads. The Pan-Canadian envelope8 was intended to increase the participation of national and regional Aboriginal organizations (NAOs) in health system design. It funded these organizations to engage in planning as well as to undertake integration and adaptation projects themselves. In each envelope, through engagement of Aboriginal groups within a P/T or Health Canada region, partners created a plan outlining priorities and anticipated projects. In some cases this was the first time such engagement had taken place. Engaging new partners and preparing the ground for working collaboratively became a critical and time-consuming task. One challenge to implementation was the length of time required to establish such relationships, which ended up delaying the progress and completion of many projects. However, nurturing sound partnerships and relationships was considered key to the AHTF’s success. Beyond broad requirements,9 AHTF partners were permitted significant scope to determine priority areas, some of which linked social services with

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240  Cheryl Sutherland, Carey Hill, and Hannah Rogers

health services, reflecting the structure of many P/T ministries of health and social services.10 Flexibility was key to the initiative’s success: priorities for funding were set regionally, not nationally; plan approval processes and contribution agreements were streamlined in response to partner concerns. Flexibility in the multi-year funding agreement allowed recipients to request unspent funds to be carried into the next year, rather than to be lapsed annually. This provision recognized the considerable time required for initiating, developing and formalizing agreements and partnerships in complex environments subject to organizational restructuring and shifting priorities. Flexibility clearly contributed to the successful completion of projects.

Different Approach for the Territories Historically, the federal government delivered health care to all territorial residents, including First Nations and Inuit who make up the majority of the population. This federal role can be attributed to the dispersed population and the lack of capacity and infrastructure in territorial governments to deliver health care in the early years. Starting in the 1980s, health services were devolved from the federal government to the territorial governments, which then assumed the delivery of health services to their entire population, including Aboriginal people.11 Given this historical context, integration under the AHTF was defined differently for the territories; projects often enabled Aboriginal people to engage in service design to reflect local community needs. Frequently, integration entailed formalized involvement of Inuit and First Nations land-claims organizations in planning services with territorial governments, especially developing cultural frameworks reflective of Inuit or Dene traditions.

outcomes The AHTF included 312 projects in total, distributed across every province and territory12 (see Table 18.1). Approximately 480 First Nations communities were involved as leads or partners in AHTF projects. This involvement was sometimes direct and sometimes through First Nation provincial/territorial organizations (P/TOs)13 or regional organizations.14 There were national Inuit projects as well as projects in the four Inuit regions — Inuvialuit (Northwest Territories), Nunavut, Nunavik (Northern Quebec) and Nunatsiavut (Labrador). In addition, there were Métis-led projects in British Columbia, Saskatchewan, Manitoba, and Labrador.

Results Achieved An interim evaluation was conducted in 2009 which included 76 key informant interviews with national Aboriginal organizations, P/T s, Health Canada

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241  The Aboriginal Health Transition Fund Table 18.1 AHTF Project Distribution in Each Province and Territory Province or territory British Columbia Alberta Saskatchewan Manitoba Ontario Quebec New Brunswick Nova Scotia Prince Edward Island Newfoundland and Labrador Nunavut Northwest Territories Yukon

Integration Envelope

Adaptation envelope

Pan-Canadian envelope

Total*

45 29 7 12 9 36 3 8 2 5 1 6 2

30 4 14 10 31 15 7 4 1 5 2 2 4

2 1 2 1 1 3 0 2 0 0 0 2 1

77 34 23 23 41 54 10 14 3 10 3 10 7

*Note that the total is not 312, as there were also national Inuit projects which are not reflected in this chart.

regions, and P/TO s. It also involved case studies including some site visits by the evaluators. The AHTF final meta-evaluation was conducted in 2011 and included 35 key informant interviews, observation of five regional events, six case studies, and reviews of 70 project-level and 15 P/T and regional evaluations. These evaluations form the basis for the knowledge about the outcomes of the AHTF and lessons about integrating and adapting health services. While the ATHF was launched with evaluation and measurement as a requirement at all levels, from individual projects to a national evaluation, the meta-evaluation notes that there were some serious limitations. First, there was little baseline data available at the project level, for example, to be able to determine whether ATHF significantly increased access to health services. Many project evaluations did not capture the essential data required to determine whether the ATHF made widespread change in the health system.15 Second, since such improvements may not be measurable for several years, the degree to which systems have improved fell outside the scope of the metaevaluation. The succeeding initiative, the Health Services Integration Fund, will track progress in service integration and verify whether AHTF projects and deliverables continue. Despite the shortcomings noted, however, project proponents commented favourably on the value of the program in creating precursors for system change. For example: “Overall, the AHTF has been a catalyst; the timing has been excellent for ... innovation for the promotion of policy, planning and services to better meet Inuit health needs in most projects. New and enhanced organisational connectedness is a major opportunity for integrated health systems that are adaptive and responsive to Inuit needs in the future.”16

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242  Cheryl Sutherland, Carey Hill, and Hannah Rogers

Relevance The meta-evaluation primarily assessed the relevance and effectiveness of the AHTF. The working paper on key informant interviews indicates that the AHTF effectively responded to issues around Aboriginal health system delivery: the AHTF brought people in the health system together to focus on the continuum of services to Aboriginal people and to work together. And the AHTF served as a platform upon which to develop dedicated strategies for addressing needs and gaps and to demonstrate that there are many feasible solutions to health system integration and adaptation issues.17 Analysis of the project and plan-level evaluation reports suggested that the AHTF was also responsive to demonstrable health needs of FN/I/M communities and people: AHTF projects were often community-based and developed by proponents through priority setting exercises, frequently involving extensive community meetings.18 Among key informants, the AHTF was felt to be more closely aligned with the priorities of First Nations and Inuit communities, less so those of Métis and urban Aboriginal communities.19 Nonetheless, Métis regional evaluations concluded that the AHTF filled an important gap and helped “bring Métis to the table” in some P/T s. Given that projects were developed as a result of the determination of joint priorities identified in national Aboriginal organizations, Health Canada regional or P/T AHTF plans, those priorities were expected to be relevant to the aims and needs both of Aboriginal communities and organizations, and P/T governments. Generally, the AHTF intermediate and long term objectives were found to closely align with the overall objectives and priorities of P/T s and regional authorities.20 The AHTF has been a catalyst for several provinces to develop Aboriginal health frameworks, including Nova Scotia and Prince Edward Island. It gave the various parties impetus to develop ongoing working relationships. Project participants wanted the work to continue and additional funding to be made available to them so they could advance their activities following the end of the AHTF.

Better Understanding of Health Systems The AHTF offered all parties a better understanding of the various health systems and health delivery agencies with which they need to collaborate to improve service delivery. This understanding of health systems was gained through discussions of roles, responsibilities and structures of organizations involved in providing health care to Aboriginal communities. Some AHTF projects had an initial phase of mapping current programs and services,21 as a means to identify potential gaps, and highlight areas where efforts could be better co-ordinated.

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243  The Aboriginal Health Transition Fund

One of the frequent outcomes of this exercise was a commitment to publicize services available in neighbouring clinics and health centres. The AHTF brought together disparate groups that were previously unaware of the barriers and constraints each faced and created a platform for continued dialogue.22 For example, in Nova Scotia, District Health Authority staff visited communities, took part in cultural events, and learned about the demands the communities faced in providing health care to their members.23 The AHTF helped correct the mistaken notion held by some provincial health staff that First Nations living on-reserve and Inuit living in remote and isolated communities have access to an independent, parallel health system equipped with federally funded physicians, specialists and emergency rooms to provide acute care to this population. In fact, services such as hospitals, speciality care and health promotion services are provided by P/T s to these populations just as to non-Aboriginal citizens. However, the services are generally accessed with some difficulty and expense, due to distance, cultural barriers, and lack of knowledge of available services.

Performance – Integration For the purposes of the AHTF implementation, integration was considered along a continuum ranging from increased communication between providers in different jurisdictions, to coordination of processes, to the combining of two systems and creation of new health authorities. Integration built upon the experience and research conducted under the Health Integration Initiative,24 under Health Canada’s Primary Health Care Transition Fund (2000–06). Work undertaken within the integration envelope involved integration between federally funded and provincially-territorially funded health services for First Nations and Inuit peoples. For example, in Gesgapegiag First Nation in Quebec, residents negotiated full access to provincial outpatient services and a crisis intervention protocol. Addictions services are integrated with the provincial health care system through meetings of respective managers and addictions workers, and use of case management and shared client information. There is a better understanding of Mi’kmaq needs following cultural awareness training for 310 provincial and community staff. As the summative evaluation of the AHTF notes, integration within the AHTF often involved joint health planning. As a result, the quality and frequency of communication improved from ad hoc or strictly reactive contact to regular, systematic and proactive communication among partners. All partners agreed that communication across all levels of care and systems is key to patient well-being.25 Table 18.2 explains the characteristics of relationships before and during the AHTF. Most AHTF project proponents reported that the transition from tenuous to formalized relationships took significant time and effort. One of the

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244  Cheryl Sutherland, Carey Hill, and Hannah Rogers Table 18.2 Relationships Before and During the AHTF Before AHTF

Current Status

Inconsistent relationships

Formalized relationships through MOUs and protocols in Saskatchewan, Quebec, Nova Scotia Regular annual meetings between Chiefs and provincial health organizations (Alberta) Continued relationship building Aboriginal Health Improvement Committees in seven communities (BC) Joint work to reduce diabetes (MB Interlake RHA)

Ad hoc meetings Sporadic engagement Unstructured relationships among local health services leaders and FN community leaders No collaborative work to address specific health issues

Collaborative work on cancer care (MB – Norway House)

l­ essons learned by the AHTF participants was that building strong partnerships takes time and regular communication is critical. It should be noted that while partnerships were developed in all projects, these changes were not expected to be sustained in some cases, given the shifting priorities, changes in leadership in FN/I/M communities and turnover in staff at regional health authorities. The AHTF interim evaluation noted that integration and adaptation were not mutually exclusive objectives and their differences were not clear-cut. If one thinks of integration as primarily about joint health planning, then aspects of adaptation – such as greater participation of Aboriginal peoples – also supported integration. Table 18.3 suggests how doing business in the realm of Aboriginal health changed as a result of the AHTF. Some of these examples are adaptation examples; however, they involve elements of integration in terms of service delivery. A telling example of a type of project which blended adaptation and integration were those that explored the value of Aboriginal patient navigators, staff that can provide help to Aboriginal peoples to navigate the health system, with their cultural knowledge as well as knowledge of systems and processes. Not only are they adapting services but they also raise awareness about Aboriginal health needs. In this way, they are integrated into the inner workings of the hospital. As one project report noted “The navigator role was established in one hospital to assist patients in providing understanding of conditions, procedures, purposes and effects [and a] video explaining the hospital’s triage system in the Cree language was a beneficial adaptation.”26 It should be noted that their use was highly successful: both British Columbia and Newfoundland and Labrador continued the service after AHTF funding ended. There were specific instances that demonstrate actual integration in the delivery of services (not simply the planning of delivery of services). Examples cited include:

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245  The Aboriginal Health Transition Fund Table 18.3 Ways of Doing Business in Aboriginal Health Before AHTF

Current Status

Few formal structures or processes for high level engagement between regional health authorities and Aboriginal partners Fragmented service delivery and planning

Formalized structures and processes

Direct participation of Inuit in Greater Nunavut in the design and delivery of health services has been limited even though the public government is comprised of 50% Inuit Challenging working relationships between government and Inuit organizations Few Aboriginal patient navigators in provinces

Lack of Aboriginal health data

Mental Health and Addictions Framework did not include culturally relevant wording and direction (Nunavut)

•

•

Common tables to bring common topics of common interest (BC) Public engagement and community consultation processes

Constructive working relationships (Nunavut) Some provinces create positions (some ­temporary, some permanent) for Aboriginal patient navigators (BC, NS, MB, NL) Some projects are capturing health data that may be made available to provincial ministries (For example, Our Health Counts in ON) Fully adapted mental health and addictions services

For the first time [BC] Northern Health Authority’s visiting psychiatrist, and the accompanying resident, offered sessions in Skidegate. That meant [First Nations] clients had the option of seeing the psychiatrist in their own community. This provided an improvement in service delivery.27 Overall the [Métis Community Health Co-ordinator Initiative] improved the integration of federal and provincial funded health services and led to the adaptation of services for Métis that are more culturally appropriate.28

Performance – Adaptation Similar to integration, adaptation may also be understood to occur along a continuum (See Table 18.4) from “surface level” adaptation to “deep” adaptation. “Surface level” adaptation might involve offering interpretation services by individuals who understand Aboriginal languages or hiring more Aboriginal staff, whereas “deep level adaptation” would include changing behaviour and service delivery through new policies and approaches, an enduring commitment to culturally competent care, and enhanced levels of participation by Aboriginal peoples.

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246  Cheryl Sutherland, Carey Hill, and Hannah Rogers Table 18.4 Adaptation Before and During the AHTF Before AHTF

Current Status

Few cultural competency activities undertaken

Cultural training of staff across a number of levels in the organization from front line staff to senior management as well as increasing the number of hours of training for medical students with training targets of 6,000 annually (BC) Aboriginal lens is applied in the program planning of RHA programs and services Partners and affected parties demonstrate increased awareness of the concepts (population health approach) and barriers (lack of working relationships, system clarity and consistent leadership) to adaptation (NS, SK, ON) Service provider knowledge of Aboriginal health perceptions is increasing as is satisfaction with service

No Aboriginal lens is used Lack of awareness among partners and affected parties of the concepts, barriers and enablers to adaptation

Some regional health authorities were unaware of the Aboriginal population’s issues in accessing care

A review of plan-level and project-level evaluations suggests the AHTF made significant gains in the area of adaptation. Provincial and territorial health boards are changing to more accurately reflect the populations they serve, by including more representatives from the resident Aboriginal populations. To bring a lens on Aboriginal health needs, some of the Atlantic provincial health ministries now have dedicated Aboriginal health policy analyst positions, where before the AHTF, these positions did not exist. New positions, such as Aboriginal patient navigators and Aboriginal doulas to assist in prenatal care, have been created to improve access to P/T services in several provinces. Several projects developed training curricula to improve cultural competency among health service providers. Such training is expected to be delivered on an ongoing basis in British Columbia and Nova Scotia. Meanwhile, some provinces and regional health authorities now staff Aboriginal liaison positions to assist FN/I/M community members in finding their way in the provincial health system, particularly for maternal health care and chronic illness management. A majority of AHTF projects were led by Aboriginal people. This leadership is evidence of increased participation of Aboriginal people in the design, delivery and evaluation of health services, one of the expected outcomes of the AHTF. The meta-evaluation report noted this was an area where the AHTF made a difference.29 In addition, two Atlantic provinces reported increased Aboriginal engagement through the development of Aboriginal health policy frameworks.

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247  The Aboriginal Health Transition Fund

Nova Scotia developed an Aboriginal Health Policy Framework as part of its adaptation plan and relied on an interest-based approach. Newfoundland and Labrador developed an Aboriginal Health Policy Framework that will provide structure and protocols for ongoing participation in decision-making around Aboriginal health and policy directions. While this framework was not funded by AHTF, per se, it occurred in tandem with AHTF projects and forms part of the province’s current engagement approach. Engagement with political leadership has been essential. The Vancouver Coastal Health Authority strengthened Aboriginal engagement in its planning processes by including Aboriginal organizations and communities in its community engagement strategy through two methods: use of modern technology, and consistent physical presence in the urban and rural communities and organizations it serves. In the Yukon, prior to the AHTF, no forum existed for regular meetings and exchange of information among the federal and Yukon governments, Yukon First Nations, and the Council of Yukon First Nations. Now there are regular meetings and exchanges between these governments and organizations. •

•

There was a general agreement that as a result of the AHTF [in Saskatchewan] the capacity to adapt health services to meet the needs of First Nations and Métis populations had improved. Capacity had been increased by increasing the capacity within the health system to “think about how the province still needs to adapt or can adapt.”30 The Ontario Aboriginal residential in-patient treatment project at the Centre for Addiction and Mental Health resulted in new treatment approaches incorporating elders and traditional values. It contributed to a culture shift in the hospital (and changes to the layout). Reports on Aboriginal health needs were developed.31

Adaptation can be understood as designing or delivering health care services to FN/I/M with increased knowledge of their cultures and circumstances. In part, AHTF projects adapted services and programs, by addressing misconceptions and learning about cultures. As one project proponent explained, Most of the provincial partners had not had a lot of contact with First Nations communities or their services, and there were a lot of misconceptions. The project served to address these misconceptions and to increase understanding of cultural differences and values towards client services.32

Partnerships AHTF confirmed that responding to the complexity of Aboriginal health service delivery, and streamlining and improving care, requires collaboration and cooperation among a wide range of funders and delivery. Partnerships are

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248  Cheryl Sutherland, Carey Hill, and Hannah Rogers

the main legacy of the initiative. The meta-evaluation noted that much foundational work was accomplished. Partners began sharing information and working on issues together. Furthermore, in some instances, these discussions led to the establishment of multi-party arrangements, integration committees and formal working groups. Although these partnerships took much longer to create and nurture than anticipated and many projects were delayed due to the time needed to bring partners together and formalize working relationships, a new culture of collaboration developed as a result of many projects. However, evaluations observed that, without further funding, the gains may not be sustained to their full extent. The AHTF promoted practical, operational-level integration opportunities that enhanced knowledge to support more formal tripartite (federal-­provincialFirst Nations) processes which involve service integration at a policy and broad governance level. In addition, AHTF’s objectives complemented existing tripartite work (British Columbia) and prompted interest in tripartite processes in other regions. The AHTF successfully initiated a range of collaborative and supportive working relationships among Aboriginal people, P/T s and federal partners. Participants at regional knowledge translation events reported that P/T partners are now more willing to listen and engage First Nations and Inuit in service delivery. In New Brunswick and Nova Scotia, provincial health staff are now visiting First Nations communities, attending social and cultural events, and strengthening relationships with First Nations community members. This shift is nurturing willingness among First Nations communities to work with District Health Authority staff that show a greater interest in the overall well-being of the community.

Access to Health Services Improved The meta-evaluation noted that the AHTF made some gains in the objective of increasing access to health services. While “access” was not defined by the AHTF Secretariat, projects identified it as services offered closer to home (more available) and services that were more culturally relevant (more suitable). Services offered closer to home may increase utilization, while reducing delays in seeking care and reducing costs of medical transportation. For example, one project in Quebec researched the mechanisms and inter-­ provincial requirements which would facilitate access to health services closer to First Nations communities, across the border in a different province such as Ontario or New Brunswick. Access to health services also increased when AHTF projects reduced misconceptions held by the FN/I/M population about the availability and cultural appropriateness of health services at the regional, provincial or t­erritorial level.

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249  The Aboriginal Health Transition Fund

Culturally relevant services may be accessed more effectively by Aboriginal people, as Aboriginal people feel more respected and understood in their health system experience. Improving access can involve increasing awareness of what services are available: P/T informants stated that increased awareness of services has led to greater uptake by FN/I/M of programs in areas such as mental health and palliative care.33 Awareness of existing services and adaptation in the way these services are offered (such as hours or location) can increase usage of such services. In addition, the AHTF evaluations found that more direct contact and communications between health providers located in Aboriginal communities and P/T systems facilitated exchange of information and the inclination to co-ordinate services. The expectation is that by making more screening and health promotion opportunities available to Aboriginal populations, the downstream costs of acute care will be reduced. Several examples of improved access were identified by project proponents during regional knowledge translation events: •

•

•

•

There is now a formal referral process from the community of Listuguj to external services in both New Brunswick and Quebec, such as psychologists, social workers, counsellors, occupational therapists, special educators, addictions and family counsellors.34 Toronto Central LHIN [Local Health Integrated Network] hired an Aboriginal health co-ordinator and is collaborating across the health system with such local organizations as St. Christopher House. Odanak, Quebec, First Nation reported establishment of “service corridors” to increase accessibility and availability of specialized home services for seniors living on the reserve.35 The Southern Chiefs Organization in Manitoba was able to help two communities get nursing services from a Regional Health Authority.36

The AHTF dispelled misinformation about which health services were available to Aboriginal communities and created common goals about improving health services to Aboriginal people. The potential of mechanisms such as discharge plans, clear referral pathways and patient navigators to coordinate patient care between provincial/territorial and on-reserve and Inuit health centres was explored as a means to meet the complex health needs of Aboriginal people with low health status. District Health Authorities (DHA s), Local Health Integration Networks (LHIN s), Centres de Santé et Services Sociaux (CSSS), and Regional Health Authorities (RHA s) have demonstrated commitment to serving Aboriginal populations, which has encouraged more Aboriginal populations to trust in the potential of integrated services to meet their needs.

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The Inuit Experience The AHTF provided an opportunity for Inuit to demonstrate local capacity to manage programs, work across regions, and encourage territorial programs run in Inuit-majority areas to become more culturally appropriate. While there were concerns that the AHTF was too southern-focused and that additional costs related to transportation and shipping over large geographic areas were overlooked, proponents agreed that the AHTF contributed to the creation of important, new multi-party planning structures and models of community engagement in Nunavut, Nunavik in northern Quebec, the Inuvialuit region of Northwest Territories and Nunatsiavut in Labrador, which are likely to be sustained. According to the meta-evaluation, Inuit representatives also noted that the AHTF became more responsive to their needs over time.37

The Métis Experience There are limited examples of provincial Métis-specific services and a handful of federal health promotion programs specific to Métis people. Therefore, AHTF activity by Métis organizations consisted of adapting provincial services or working with partners such as urban Aboriginal, First Nations or Francophone organizations (as occurred in South Eastman health region in southern Manitoba, the Saskatoon Health Region in Saskatchewan, and in Ontario with the “Our Health Counts” data collection project led by the Ontario Federation of Indian Friendship Centres). Also, several provinces indicated their willingness to consider Métis health needs as distinct from those of First Nations, contrary to initial expectations by some Métis informants. Notably, Métis provincial organizations in British Columbia, Saskatchewan and Manitoba maximized the potential of the AHTF to develop working relationships and discussion tables with provincial Ministries of Health.

ongoing challenges According to De Jong and Jackson, communication, culture and commitments are effective elements in supporting the process as health care environments move towards integration38 and become responsive (or adaptive) to the cultural needs of FN/I/M. These elements are not only effective in advancing integration and adaptation efforts but also help to ensure success, as integration and adaptation are attempted and implemented. Several factors and conditions have been identified as instrumental in determining whether integration or adaptation will be successful in the long-term: readiness for change, quality of relationships, supports and resources, political willingness, the importance of community, consultation, having champions and/or navigators, external factors, timelines, and outcome-focused goals.

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Sustainability The meta-evaluation noted that most projects were optimistic that results would be sustained after AHTF ceased. However, the report also noted that frequently, there were no concrete plans in place to ensure sustainability. Although each project proposal required a sustainability plan, most lacked substantive details of how sustainability would be achieved. Sustained projects relied on evaluations of similar projects or research on the efficacy of their activities and service utilization. This suggests that in general, to attain sustainability, carefully developed evaluations and regular performance measurement are needed to illustrate improved reach and progress towards goals and also to demonstrate the value of projects.

Need to Improve Cultural Competency Among Healthcare Providers More and more, FN/I/M are expecting their service providers and policy makers to be aware of the history of colonialism and residential schools. The federal government has started to take cultural competency into account as programs and services are developed and implemented. For their part, P/T Ministries of Health recognize the need to train health staff in cultural competency. Several AHTF projects developed such curricula, referencing particular Aboriginal cultures as well as cultural safety and social determinants of health.39 “The intent of these workshops was to provide health service providers with greater understanding of First Nations culture, history, and traditions, to recognize the impact of colonization and recent trauma associated with residential schools, and to clarify misinformation about Mi’kmaq people and their communities. As one study commented, “many people were shocked by our information ... the residential school trauma is more recent than they thought.”40 Such cultural training is expected to continue, as the provincial adaptation plan evaluation in British Columbia suggests: Several of the Health Authorities are updating their orientation packages for new employees and making the cultural competency training mandatory for all new staff. This training increases awareness of cultural backgrounds and healthcare needs of Aboriginal peoples and hence it is seen as improving the quality of healthcare. It has led to system change in the very fact of its establishment. Changes in knowledge and attitudes of healthcare providers can be seen as a system change, even if not as tangible as some other kinds of change … This interplay of levels of systemic change is summarized in the following response: The staff is more aware of the actual challenges that are faced by Aboriginal Health.

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The training and community visits have opened their eyes. They must participate in outreach and do the training, as requirements of their job. Nobody has been begrudging about it. They are happy to learn about it.41 FN/I/M people believe that increasing cultural competency among health providers will improve the quality of health services – or at minimum, the patient’s experience of those services. Adapting services requires dedication and champions: while champions currently exist at some RHAs, ways must be found to institutionalize the knowledge of respective health systems and Aboriginal world views, and to transmit this knowledge on an ongoing basis.

Strengthened capacity Projects defined increased capacity as training in negotiation and facilitation, learning how to create effective health boards and organizational governance, and participatory research. One of the AHTF’s notable areas of achievement was to increase knowledge of the health system, the particular health needs of Aboriginal peoples and identify gaps in services. The AHTF has increased the ability of Aboriginal people to participate more effectively in planning, design and delivery of health services. However, challenges with staff recruitment and retention exist at all levels, among all parties involved in health services delivery. Health services integration to its fullest extent would involve negotiation of service agreements, implementation of protocols and policies, as well as design of health plans. These require significant levels of FN/I/M expertise and knowledge.

succeeding initiative Following the AHTF, the Health Services Integration Fund (HSIF) began in 2010–11. It is a smaller, more focused initiative of $65M over five years, solely for integrating federally funded health services with those of the provinces and territories. In response to the recommendations of the interim 2009 AHTF evaluation, the new Fund is streamlined and more decentralized than its predecessor. There is one funding stream, and no separate allocation for P/T s. Effectively, the new fund is “more integrated.” HSIF’s governance puts greater emphasis on decentralized decision-making by relying on regional advisory committees42 tasked to develop joint integration plans and priorities for a set funding allocation, manage a call for proposals, and support implementation of projects.43 Whereas the AHTF was intended to broadly test the appeal and application of multi-jurisdictional health service integration across the country, the HSIF encourages aggregate activities at the level of a regional or district health authority, rather than single communities. Many projects focus on governance,

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253  The Aboriginal Health Transition Fund

joint planning for service delivery, and integration of suites of programs. Less variety and fewer44 projects will support improved project monitoring and evaluation, since common performance indicators will be suggested and comparability will be possible. Significant infrastructure and capacity of personnel is needed for FN/I to engage in effective integration with provinces and territories. Balancing this reality with the call by some FN/I for per-capita funding for individual communities will continue to be delicate. Since provinces and territories do not have the staff or resources to negotiate community-by- community for individual health service plans, HSIF encourages several communities to work together on common objectives to achieve access to more and better services. Communities with small populations and minimal resources were encouraged to partner with other communities and regional organizations to benefit from the new initiative.

conclusions and implications The challenges of diverse delivery agents, siloed programming, and continued low health status in some communities, all underscore the need for innovation in First Nations and Inuit health care. With many communities consisting of populations of less than 5,000 in remote and isolated locales, health service delivery in First Nations and Inuit communities pose unique challenges that do not easily support economies of scale. Limited discretionary funding for FN/I/ to experiment with program delivery and design between programs, and between jurisdictions, compounds the challenge. Moreover, some AHTF funding recipients said that innovation is hampered by the federal five-year program and planning cycle45 and short term funding initiatives, which pose evaluation challenges and lack durability. Also, the time required to develop project concepts and obtain support of the required partners is considerable; most project evaluations noted that the AHTF implementation effectively lasted only three years, since project creation, approval and launch consumed the early years of operations.46 Consequently, effectively managing expectations among partners is central to ongoing success. As a means of improving continuity of care, quality of services, and increasing the health status of FN/I, integration of on-reserve and P/T health services remains a priority for Health Canada. At the same time, some partners such as Aboriginal organizations and P/T s harbour some skepticism about the limitations of the approach. FN/I community members do not identify service integration, as such, as a priority, but rather seek improved access to more comprehensive and effective health services. While governments seek to reduce duplication of services and maximize efficiencies among systems, all partners including federal, P/T governments and Aboriginal organizations are still concerned about gaps in health services for Aboriginal peoples and

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254  Cheryl Sutherland, Carey Hill, and Hannah Rogers

lack of parity with services provided to the general Canadian population in similar geographic areas. Service integration on its own will not resolve poor health status and complex health needs of some Aboriginal communities. Income inequity, poverty and chronic underemployment limit health outcomes. Negative determinants of health and shortages of resources cannot be offset by increased service integration. Therefore, attention to social determinants of health is fundamental to reducing mortality and morbidity. Beyond service integration, there is considerable work to be done to develop the economies and knowledge bases of Aboriginal communities, and to better align programming among federal, provincial, territorial and Aboriginal structures. This is in keeping with a general Aboriginal world view that encourages a holistic concept of health47 and population-health approaches to service delivery. Evidence gathered during the AHTF’s evaluation confirms that much of its success can be attributed to its flexibility. It did not define integration beyond the necessity to involve P/T s and Aboriginal groups within the geographic area. The meta-evaluation observed that, initially, there were issues around the concept of “integration” among partners. First Nations were concerned that it was a covert way for the federal government to download responsibilities to the provinces and territories or dilute its traditional relationship with First Nations and Inuit peoples. More recently, as projects identified important gaps and in some cases, approaches were modified to address the gaps, there was greater recognition that the AHTF addressed First Nations and Inuit priorities.48 Integration activities are now regarded as initiatives that bring all parties together to work to improve health outcomes for Aboriginal peoples. Over the last 15 years, the federal government has created various shortterm funds/initiatives to encourage innovation in primary health care and service delivery.49 These funds enable ideas to be tested and evidence for new approaches to be gathered. The AHTF seeded conditions for future Aboriginal health service integration – promoting readiness through developing trust, creating multi-party advisory structures, establishing communications among agencies, and increasing knowledge of respective roles and responsibilities of provincial, territorial, Aboriginal organizations and the federal government in health care for Aboriginal people in Canada. Key informants emphasized that the AHTF helped to develop many of the conditions necessary for future integration: these include identification of opportunities for future integration and strong working relationships characterized by understanding of respective realities and formalized governance and processes.50 It also encouraged partners to examine barriers between programs and misconceptions regarding respective roles and responsibilities in health services delivery. In requiring P/T s to engage urban and off-reserve Aboriginal representatives, the adaptation envelope highlighted these populations, encouraging bridging and continuity of care between FN/I communities and urban areas.

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Integrating current provincial, territorial and federally funded health programs and services to reduce gaps and duplication, adapting health services to be more culturally responsive to Aboriginal peoples, and identifying innovative ways of working together with Aboriginal people as leaders in designing and delivering health services were the objectives of the AHTF. According to the meta-evaluation, the short- and medium-term objectives were largely met. Overall, the Fund supported two aspects of Health Canada’s objectives: to ensure the availability of, or access to, health services for First Nations and Inuit communities; and to build strong partnerships with First Nations and Inuit to improve the health system. It raised awareness of jurisdictional barriers and areas where solutions must be found. Partnerships were fundamental to the success of individual projects and the initiative as a whole. Partnerships take considerable time to develop but their strength is an indicator of eventual success.

notes 1 Life expectancy at birth for Registered Indians in 1980, compared to the general population, was 10.9 years less for males and 11.0 years less for females. In 2001, life expectancy at birth for Registered Indians compared to the general population was 6.6 years less for males and 6.5 years less for females. http://www.hc-sc.gc.ca/fniahspnia/pubs/aborig-autoch/stats-profil-atlant/index-eng.php 2 The Royal Commission on Aboriginal Peoples Final Report (Ottawa, 1996), the Romanow Commission on the Future of Health Care in Canada, Final Report (Ottawa, 2002), the Standing Senate Committee on Social Affairs, Science and Technology (Ottawa 2002), the Fyke Commission, Final Report (Regina, 2001), and Clare Commission Final Report (Quebec City, 2011), among others, recommended improved co-ordination of health services, particularly health services for Aboriginal peoples where multiple jurisdictions deliver health services. 3 http://www.hc-sc.gc.ca/fniah-spnia/services/acces/ahtf-eng.php. For project integrating health services in First Nations and Inuit communities with those of P/T s, $80M was available; $80M was available for P/Ts to adapt their services to meet the needs of all Aboriginal people served, including FN/I/M communities and urban people; and $15M was available for projects by national and regional FN/I/M organizations. No funding allocation for urban organizations was made available. 4 Health Canada provides these health services as a matter of policy, using the Annual Appropriations Act to obtain Parliamentary approval. Although the Indian Act provides for certain regulation making powers relating to the health of Indians, no such regulations presently exist. 5 For example, diabetes rates are four times higher for First Nations adults (20.7 %) than they are for adults in the general Canadian population (5.2%) (First Nations Regional Health Survey 2008/10: 13). The mortality rates from circulatory system

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256  Cheryl Sutherland, Carey Hill, and Hannah Rogers diseases are higher among Métis men (247.9 per 100,000 population) and Registered Indian males (245.7 per 100,000 population) than they are among non-Aboriginal males (192.5 per 100,000 population). Health Reports, Vol. 20, no. 4, December 2009, Statistics Canada, Catalogue no. 82-003-XPE, 8. 6 57% of First Nation adults smoked daily or occasionally (First Nations Regional Health Survey 2008/2010, 11), compared to 17% of the general population (http:// www.hc-sc.gc.ca/hc-ps/tobac-tabac/research-recherche/stat/_ctums-esutc_2011/ ann_summary-sommaire-eng.php). Obesity rates among First Nations adults (40.2%)(First Nations Regional Health Survey 2008/2010, 9) are much higher than the general Canadian population (25.4%)( http://www.phac-aspc.gc.ca/hp-ps/hl-mvs/ oic-oac/adult-eng.php). 7 The AHTF was extended for one year to March 2011 at the request of partners to allow all projects to be completed. 8 Funding under the pan-Canadian stream was intended to support cross-jurisdictional, cross-Inuit, cross-First Nations, and cross-Métis approaches to integration and adaptation. 9 Projects were required to be completed by March 2011, address existing, not new services, and not require ongoing funding. Not all project submissions were approved. Some proposals had no integrative or adaptive aspect, while others ventured into unmapped jurisdictional areas, such as for-profit clinics. 10 For example, AHTF funded adaptation of training for prospective Innu and Inuit foster parents in the Inuit self-governing territory of Nunatsiavut in Labrador, with the strong support of Health Canada’s Regional office. Although the training was not strictly related to health, the difficult fact that the majority of children in foster care in Canada are Aboriginal made identification of prospective Aboriginal foster parents a priority for the Nunatsiavut Health and Social Services Department. 11 Laurel Lemchuk-Favel (Fav-com), Federal Health Funding to First Nations in the territories, a discussion paper (Health Canada 2007): 7. 12 The province of Alberta did not access adaptation funds despite a thorough engagement process; hence, adaptation funds were accessed by Alberta First Nations. In Quebec, the province invited the Nunavik Health and Social Services Commission to develop a plan to access adaptation funding for the Inuit in northern Quebec. In 2008, the province requested Health Canada to redirect the remaining adaptation funding allocation to Quebec’s First Nations, to expedite implementation of the projects. 13 “PTO” is a provincial or territorial organization including all or a large majority of First Nations communities as members. PTO listing taken from AFN membership page (www.afn.ca.). Union of BC Chiefs and Union of New Brunswick Indians did not receive project funding. 14 “Regional organization” is a treaty organization or aggregation of members over a broad geographical area, which does not necessarily include all First Nations communities in a province or territory.

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257  The Aboriginal Health Transition Fund 15 Brown Bell Molnar and Delicate Consulting, AHTF Meta-evaluation (summative evaluation) Report, Health Canada,2012) note that the inconsistent implementation of the standardized evaluation framework by project evaluators left gaps in information and lack of clarity on actual results achieved by some projects. 16 Inuit Tapariit Kanatami, The Pan Canadian Inuit Nunangat Response to the Aboriginal Health Transition Fund (2011). 17 Bell Browne Molnar and Delicate Consulting, 2011. AHTF Meta-evaluation Key Informant Interviews: Working Paper Ottawa: Health Canada,1, 7. 18 Bell Browne Molnar and Delicate Consulting, 2011. AHTF Meta-evaluation Analysis Paper: Working Paper 4, 5. 19 Bell Browne Molnar and Delicate Consulting, 2011. Working Paper 1, 7. 20 Bell Browne Molnar and Delicate Consulting, 2011. Working Paper 4, 7. 21 Ibid., 5. 22 Ibid., 6. 23 Atlantic Region Aboriginal Health Transition Fund (AHTF), Comprehensive Process and Outcomes Evaluation Report 2011, 132. 24 The AHTF followed the three-year Health Integration Initiative (HII), established in 2003 as a first step in addressing the gap in health status between First Nations and Inuit peoples and other Canadians through better integration of federally funded health services within First Nations and Inuit communities and those funded through P/T governments. The HII received $10.8 million from the Aboriginal Envelope of the Primary Health Care Transition Fund and consisted of eight integration projects with First Nations and Inuit, P/T s and Health Canada in British Columbia, Alberta, Manitoba, Ontario, New Brunswick, Nova Scotia, and Nunavut. 25 Kaufmann and Associates, AHTF Roundtable Report, Ottawa: Health Canada, 2009. 26 Maskwacis Health Services’ Health Transition Fund Project, Tipi Model Final Evaluation, (2011): 24. 27 South End Mental Health and Addictions Integration Project Evaluation, 2 BC. 28 Metis Community Health Coordinator Project, External Evaluation (2010): 45–6. 29 Bell Browne Molnar Delicate Consulting, AHTF Meta-evaluation (summative evaluation, 2012), 34. 30 Saskatchewan AHTF Adaptation Plan Evaluation. 31 Ontario AHTF Adaptation Plan Evaluation, xii. 32 AHTF Summative Evaluation, Quebec Region (2011): 25. 33 Bell Browne Molnar Delicate Consulting (2012), AHTF meta-evaluation (summative evaluation), 46. 34 Ibid., 39. 35 Ibid., 34. 36 Ibid., 34. 37 Ibid., 20. 38 I. De Jong and C. Jackson, “An evaluation approach for a new paradigm – health care integration,” Journal of Evaluation in Clinical Practice (2001).

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258  Cheryl Sutherland, Carey Hill, and Hannah Rogers 39 Algonquin Nation Programs and Services Secretariat, Project Piwaseha Final Evaluation (Timaskaming Reserve Quebec: Algonquin Nation, 2011): 25. 40 Morrison and Associates, Gesgapegiag Detoxification Service Integration Project. Fredericton New Brunswick. (2011): 19. 41 Heartbeat Consulting, Plan-level Evaluation of System Change as an Outcome of the British Columbia Implementation of the Adaption Envelope of the Aboriginal Health Transition Fund (Victoria: Ministry of Health, 2011): 27. 42 Committees include representatives from respective provinces or territories, First Nations or Inuit organizations depending on the region, and Health Canada. 43 In previous federal initiatives such as the Health Transition Fund (1996–2000) and Primary Health Care Transition Fund (2000–06), the Minister had final approval of projects. In the case of the AHTF, the FNIHB ADM approved plans and the AHTF Secretariat approved projects. For HSIF, following approval of the plans by the FNIHB ADM, Regional Directors approve projects. 44 Whereas some FNIH regions had more than 30 AHTF projects to monitor, the average region may have six. 45 First Nation organization and community representatives have frequently raised the issue of moving away from a five-year funding cycle at AHTF knowledge translation events. They argue that due to a lack of resources, the time it takes to get a proposal drafted and a project started can take up a significant percentage of the total amount of time allowed for the initiative to run. It also means that it is hard for communities and organizations to maintain qualified staff. 46 Bell Browne Mulnar and Delicate Consulting (2012): 47. 47 In the World Health Organization’s description, health is “a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity.” http://www.who.int/about/definition/en/print.html 48 Bell Browne Mulnar and Delicate Consulting (2012): 34. 49 Health Canada, Aboriginal Health Transition Fund Review of Evaluations of Health Transition Funds (Ottawa: Health Canada, 2008): 61. 50 Bell Browne Mulnar and Delicate Consulting (2012): 33.

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appendix a Canadian Political Facts and Trends

september 4 , 2012 The Parti Quebecois under the leadership of Pauline Marois wins the Quebec Election but with a minority government and in a tight three way split of votes. The pq won 54 seats (31.9 percent of the vote), the Liberals 50 seats (31.2  percent),and the new party, the Coalition Avenir Quebec (caq) 19  seats and 27.1 percent.Together the two non-sovereigntist parties captured 69 seats and 58.3 percent of the votes. september 5 , 2012 Royal Dutch Shell plc has begun the first project to sequester carbon from Canada’s oil sands. It involves a $950 million project to capture and bury greenhouse gas emissions. The project is led by industry but mainly funded by the Alberta and federal governments. september 7 , 2012 Prime Minister Stephen Harper increases his majority in the Senate by appointing five new Senators, two from Ontario, and one each from Quebec, Nova Scotia,and New Brunswick. Foreign Affairs Minister John Baird announces that Canada has closed its embassy in Iran and is expelling all remaining Iranian diplomats in Ottawa. september 20 , 2012 Parliamentary Budget Officer Kevin Page reiterates his criticisms of the Harper Government over its continuing failure to reveal the detailed nature of budget cuts announced in the 2012 Budget.

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260  Appendix A

Quebec Premier Pauline Marois announces in her first day in office four key measures: the cancellation of the previous Liberal government’s tuition fee increases; the repeal of a law restricting public demonstrations; the planned closure of Quebec’s only nuclear power plant; and the permanent prohibition of shale gas development in Quebec. september 24 , 2012 Reports indicate that the Harper government is developing a “strategic procurement” plan in military equipment purchasing. It will be a defence industrial policy aimed at supporting domestic firms with the potential to be leaders and innovators in their field. Canada and Great Britain announce a plan for embassy sharing. Centred on cost savings for each country but also extensions of diplomatic reach, Canadian diplomats will be able to share space at British embassies in countries where Canada does not have an embassy and vice versa for Great Britain. september 25 , 2012 The Federal Privacy Commissioner, one of Parliament’s watchdog agencies, announces that her office has significant privacy concerns regarding web leakage, the unauthorized sharing of data. Some of the most popular web sites were giving user information they had collected from individual Canadians to other companies without those users knowing about it or agreeing to it. September 27 , 2012 The Harper government makes public the text of Foreign Investment Prom­ otion and Protection Agreement between Canada and China. The treaty sets out investment rules for Canadians in China and Chinese investors in Canada. There are provisions for a dispute settlement tribunal but hearings would only be open to the public if both sides agree that it is in the public interest. Parliamentary Budget Officer Kevin Page publishes a report which shows that while the federal government’s fiscal position is basically sound, that of the provinces and municipalities is not. If the latter do not act soon to deal with their projected medium term debt, they will face serious fiscal problems. A Conservative Party MP’s private member’s motion to have Parliament study the legal rights of the fetus was defeated by a wide margin. But those who supported it included 10 members of the Harper Cabinet, including Status of Women Minister Rona Ambrose, as well as dozens of backbench Conservative MPs. September 29 , 2012 Omar Khadr, the Canadian held for over a decade (beginning when he was 15 years old), in the U.S. military prison in Guantanamo Bay, Cuba is returned to Canada. His case had been for years a pitched battle in Canada, especially between the Harper government which long opposed his return because he

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261  Political Facts and Trends

was a terrorist, and Canadian civil rights and legal advocates who argued for his rights as a Canadian citizen. October 1 , 2012 NDP leader Thomas Mulclair and interim Liberal leader, Bob Rae accuse the Harper Conservatives of failing to alert Canadians about meat from an Alberta packing plant that’s tainted with E. coli. The opposition cited Conservative budget cuts and poor communication with Canadians as chief concerns. The Conservatives responded by highlighting $156 million increase to the Canadian Food Inspection Agency’s budget. Speaking on behalf of the Prime Minister to the United Nations General Assembly in New York, Foreign Affairs Minister, John Baird strongly criticized the organization for spending “too much time on itself ”, and not enough time “looking outward”. In his remarks, Baird commented on the UN’s lack of “concrete steps” taken to address the crisis in Syria, stressing the need for binding sanctions against the country. October 2 , 2012 Justin Trudeau announced his candidacy for the leadership of the Liberal Party of Canada in his home riding of Papineau, QC. Trudeau joins Deborah Coyne who already announced her intention to run. Interim leader Bob Rae has said he will not enter the race. The new Liberal leader will be chosen in April 2013. October 4 , 2012 Disagreement continues in Ottawa over the “net-benefit to Canadians” of the proposed $15.1B takeover of Calgary-based Nexen, Inc by China National Offshore Oil Corp. (CNOOC). The takeover was approved by Nexen shareholders on September 21, and is awaiting government approval. Critics of the deal are concerned with foreign-ownership of the oilsands October 9 , 2012 The final hearings for the Enbridge Northern Gateway Pipeline project resume this week, amid protests by First Nations and environmental groups. The federal joint review panel hearings will take place in different locations across British Columbia into the new year. Opposition groups cite concerns about the environmental impacts of the project, and have also been critical of the review process itself saying that important information has not been made available to the public. October 18 , 2012 The Harper government announced plans to pass Bill C-428, the Indian Act Amendment and Replacement Act, that was initially tabled as a private members bill by Conservative Saskatchewan MP, Rob Clarke. The proposed bill

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262  Appendix A

would, among other things: allow First Nations to pass their own bylaws without federal ministerial permission, remove all references to residential schools in the Act, and repeal large sections of the Act that restrict trade between First Nations and non-First Nations people. October 21 , 2012 Parliamentary budget officer, Kevin Page, announced that his office “will be filing and serving legal notice on all non-compliant Deputy Heads”, following six months of requests to government departments to report on the savings and reductions measures in Budget 2012. As of October 16, only 19 of 82 de­ partments had complied with Mr. Page’s request. The Harper government maintains that Mr. Page is operating outside of his mandate and thus the federal departments are not required to comply with his requests. October 26 , 2012 Minister of Health, Minister of the Canadian Northern Economic Develop­ ment Agency, and Minister for the Arctic Council, Leona Aglukkaq is traveling to Northern Canada to meet with the territorial premiers and other stakeholders to identify top priority issues as Canada prepares for its two-year chairmanship of the Arctic Council, which will begin in May 2013. October 28 , 2012 Interim Liberal leader, Bob Rae called on Elections Canada to launch a formal investigation into Minister of Intergovernmental Affairs, Peter Penashue’s elections spending during the last federal election, citing spending “irregularities.” Penashue blamed inexperienced staffer, Reginald Bowers, for errors; however, reports indicate that Bowers was later appointed as a member of the Canada-Newfoundland Offshore Petroleum Board by the Conservative government in December 2011. Rae tells reporters, there is “no question” the election in Penashue’s home riding of Labrador was “bought” and called on Penashue to resign. November 1 , 2012 Prime Minister Harper is set to travel to India from November 4 to 9 to meet with Prime Minister Singh. Priority issues for the visit include: a nuclear agreement with India signed in 2010 that requires fine-tuning, and improving trade relations with the emerging economic giant. In particular, Canada hopes to export oil from Alberta and natural gas from the Atlantic provinces to India. November 5 , 2012 Statistics Canada reports that the recent employment trend toward more temporary and part-time jobs is making it increasingly difficult for many Canadians to qualify for employment insurance benefits. According to the

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263  Political Facts and Trends

latest data released by Statistics Canada , women and youth are most affected by this trend. November 6 , 2012 US President Barack Obama is re-elected for a second term in the White House, defeating Republican candidate, Mitt Romney. November 11 , 2012 Canadian National Railway Company and Canadian Pacific Railway Ltd. are in the process of building more oil terminals, which will allow them to transport crude oil by rail, beyond the destinations reachable by pipelines. As pipeline development projects are slowed by regulatory processes, both rail carriers are engaged in significant capital investment to fill the gap in oil transportation. In the last two years, the carriers have gone from hauling very little or no crude to between 30,000 (CN) and 70,000 (CP) oil carloads a year. CN and CP are each in the process of negotiating cross-boundary partnerships to facilitate the transportation of Alberta’s crude oil to American refineries. November 14 , 2012 Canada-EU trade negotiations continue this week in Ottawa before political leaders meet in Brussels later in November, with plans to conclude talks before the end of the year. The Canada-European Trade Agreement (CETA) is particularly complex, given the large scope of the deal, and the challenges associated with the volume of stakeholders: the European Commission negotiators represent twentyseven different states. Some of the more contentious elements of CETA range from agricultural tariffs to automotive manufacturing plants to drug patents. November 15 , 2012 Two letters addressed to the Prime Minister and the Minister of Aboriginal Affairs, written by Shawn Atleo, chief of the Assembly of First Nations reveal that Aboriginal leaders across the country are frustrated with what they perceive to be government inaction on issues the Prime Minister promised to address early this year: education, land claims, treaty negotiations, economic development and fiscal arrangements. Atleo also highlights concerns about Conservative policies with respect to the environment and criminal justice. November 19 , 2012 A copy of a new foreign policy brief, leaked to the press, reveals that Canada’s foreign policy will be aimed primarily at forging new trade relations with “key emerging markets” in Asia and South America and encouraging foreign investment in Canada’s resource sector. It is reported that the document ­indicates the government is willing to make economic arrangements even in cases where “political interests or values may not align.”

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264  Appendix A

November 22 , 2012 Canada’s Premiers are meeting in Halifax, NS this week to build a common economic plan that will help to address challenges felt across the country as a result of slow economic growth and increasing debt. Concerns about the federal deficit are heightened after Minister Flaherty released a higher-thananticipated figure of $26 billion. Despite an invitation by the Premiers to attend the meeting, Prime Minister Harper will not attend. Alberta Premier Alison Redford and Quebec Premier Pauline Marois are expected to meet to discuss the Enbridge pipeline, currently under review by the National Energy Board. The project would reverse the pipeline between Sarnia, Ontario and Montreal to transport crude oil from Alberta to the Suncor refinery in Montreal. November 26 , 2012 The Bank of Canada announces that Her Majesty the Queen had approved the appointment of Mark Carney as Governor of the Bank of England, effective July 2013. Mr. Carney was appointed Governor of the Bank of Canada on February 1, 2008 for a seven-year term. December 4 , 2012 Voting on the final group of amendments to the Conservative omnibus budget bill, Bill C-45 proposed by the opposition parties is struck down in the House of Commons. None of the recommended changes to the 400-page bill were accepted by the Conservative majority. Opposition MPs are saying that the Conservatives are using omnibus bills to subvert the democratic processes and avoid accountability. Treasury Board President, Tony Clement is accusing opposition party members of standing in the way of economic growth. December 7 , 2012 The Prime Minister announces that his government has approved the acquisition of two Canadian oil and gas producers by Asian companies. China’s CNOOC Ltd’s bid of $15.1 billion for Calgary-based Nexen Ltd. was approved, as was the $6 billion bid by Malaysia’s Petronas for Progress Energy Resources Corp. Although the details of the deals are confidential, the government stresses that each company has committed to operating commercially and transparently, and to maintaining Canadian employment levels and management. December 10 , 2012 Aboriginal protestors and supporters stage protests and marches across Canada in a national day of action, demanding recognition of Aboriginal rights, in response to Bill C-45, which protestors view as an attack on First Nations lands and treaty rights. The “Idle No More” movement is born.

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265  Political Facts and Trends

December 11 , 2012 Theresa Spence, Chief of Attawapiskat First Nation in northern Ontario announces she will be on hunger strike until the Prime Minister and the Governor General agree to meet with First Nations leaders to recognize and re-establish the treaty relationship between Indigenous peoples and the Crown. December 12 , 2012 The federal government cancels current plans to purchase a fleet of 65 Lockheed Martin F-35 fighter jets, following release of an independent audit report by KPMG, which projects a total cost of $45.8 billion over a 42 year period. This figure is four times the amount originally announced by the federal government. Alternative options for the controversial military procurement project will be considered in a comprehensive review. The purchase of a new fleet of fighter jets will be the largest military procurement since World War II. December 13 , 2012 Foreign Affairs Minister John Baird announces that Canada will not join the United States and one hundred other states in accepting the Syrian National Coalition as the sole legitimate opposition to the regime of Bashar al-Assad, citing a desire to see more evidence that human rights and freedoms will be respected under a new government. Canadian sanctions against Syria, throughout its two-year conflict, have been among the toughest in the world. Canada, along with a number of other Western countries including the United States, Britain and many European states, is refusing to sign a United Nations telecommunications treaty that would see increased government control over the Internet, including content, access, and commerce. December 14 , 2012 Immigration Minister Jason Kenney introduces some of the changes to refugee claims and processing that will be implemented under Bill C-31, the government’s omnibus refugee bill. Twenty-seven countries – twenty-five from the EU, the United States and Croatia – have been identified as “safe” for dealing with refugee claims in Canada. Claimants from these countries will be fast-tracked but will not be given the right to appeal a negative decision. Under the new bill, the Minister reserves the right to add countries to the list if the country is deemed to be democratic. December 17 , 2012 After two days of meetings on pension reform, provincial and territorial finance ministers and federal Minister of Finance, Jim Flaherty announce that due to economic uncertainty, more time is needed to develop a plan for a modest Canada Pension Plan increase. This announcement signals the potential for a significant national policy change.

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266  Appendix A

January 4 , 2013 The Prime Minister agrees to meet with First Nations leaders, coordinated by the Assembly of First Nations on January 11, 2013. Priority issues include: treaty relationships and rights, and economic development. Theresa Spence who is still on hunger strike is expected to attend. The Prime Minister announces that his government will renew the Automotive Innovation Fund, originally created in 2008. The government will invest $250 million over five years. Under the subsidy program, manufacturers are also expected to invest some of their own money into research and development projects. Statistics Canada releases the latest data from the Labour Force Survey, showing that the country’s unemployment rate has decreased to 7.1%, a fouryear low. Ontario, Manitoba, Saskatchewan, Newfoundland and Labrador and Prince Edward Island all experienced growth in the number of jobs, with Ontario posting the highest number. January 10 , 2013 Governor General, David Johnston agrees to hold a ceremonial meeting with First Nations leaders at Rideau Hall but will not attend the meeting on January 11th with the Prime Minister. January 14 , 2013 The Prime Minister announces a $400 million Venture Capital Plan, aimed at increasing private sector investment within the next decade. The Plan dedicates $250 million to establishing new funds led by the private sector; $100 million to recapitalizing existing large private funds; and $50 million for investment in up to five high-performing funds. January 21 , 2013 Minister of the Arctic Council Leona Aglukkaq addresses members of the Arctic Frontiers conference in Tromso, Norway, highlighting Canada’s priorities for its chairmanship of the Arctic Council beginning in May 2013. Canada’s first priority will be the development of natural resource development, with a focus on enhancing the relationship between the business sector and the Arctic Council. Safe shipping and oil spill prevention, sustainable community development and climate change, and improving the use of scientific research are among the other areas mentioned by Aglukkaq. January 23 2013 Chief Theresa Spence ends her hunger strike after six weeks camped on Victoria Island in Ottawa, following the commitment of members of the AFN and representatives from the the Liberal and NDP caucuses to support a thirteen point declaration of commitments identified by Spence. The declaration

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267  Political Facts and Trends

includes clauses related to improved communication between the Crown and First Nations, clear work timelines for short and long term priorities, like housing, land-use and resource sharing, and environmental concerns, funding for First Nations education and schools, and an inquiry into violence against Indigenous women. The Idle No More movement continues. January 26 , 2013 Ontario Liberal leadership candidate Kathleen Wynne becomes the province’s new Premier after defeating fellow candidate, Sandra Pupatello on the third ballot. Wynne, a former community activist, school trustee and liberal cabinet minister is now Ontario’s first female Premier. Wynne replaces long-time Liberal leader and former Premier, Dalton McGuinty. Wynne is being touted as Ontario’s “transportation Premier” and is expected to make efforts to repair the relationship with Ontario’s teachers, and improve relations within the Legislature as well. February 1 , 2013 A new pilot project has been announced by Public Safety Minister, Vic Toews that will test the effectiveness of electronic ankle bracelets worn by offenders who are released from prison, with conditions. Other uses of these devices include monitoring and supervision of immigrants and refugee claimants. February 4 , 2013 The Conference Board of Canada publishes a report, comparing Canada to 17 other developed countries on social indicators like poverty, government, and inequality. The report highlights Canada’s “unacceptable” child poverty rate, and the country’s gender-income gap as particular areas of concern. Overall, Canada ranked 7th out of 17 countries profiled. As planned, February 4 marks the day that the Royal Canadian Mint officially stops distributing the penny to financial institutions. Although the roughly 35 billion pennies still in circulation will remain legal tender, businesses will now begin to round cash transactions to the nearest five-cents, and retain the right to refuse pennies altogether. February 5 , 2013 The Conservative Party of Canada takes responsibility for commissioning a series of automated, or “robo” calls in Saskatchewan, after initially denying the party’s involvement. Canada-European Trade Agreement negotiations continue into 2013, despite plans to reach a deal by the end of 2012. One of the main areas of controversy centres around agriculture: Canada wants to increase its export of beef and pork to European markets and is willing to reduce high tariffs on dairy products in exchange. Ireland, a major EU cattle producer, has threatened to break down negotiations if Canada is given the market access it is requesting.

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268  Appendix A

Environment Commissioner, Scott Vaughan, tables his final report in the House of Commons. The chemicals used in fracking, or the hydraulic fracturing process, were a top concern cited in Vaughan’s report. Fracking is a process through which underground rock formations are broken apart by the injection of chemicals and water, releasing gas and oil. Although provinces are responsible for oil and gas regulation, the federal government retains responsibility for toxic substances. Vaughan warns that “environmental protection may not be keeping pace with resource development” in Canada. February 7 , 2013 A Canada West Foundation report, commissioned by the Saskatchewan government, says that pipeline delays and uncertainty may result in Canada foregoing $1.3 trillion in economic output, $7.4 million person-years of employment and $281 billion in tax revenue by 2035. According to the report, each stalled pipeline project means a loss of $30-70 million a day to the national economy. Conservative Senator, Patrick Brazeau, is removed from caucus, following his arrest on sexual assault and assault charges. February 8 , 2013 The Senate has hired an independent auditor to look into the expenses and residency declarations of three Canadian Senators: Mike Duffy (Conservative) of Prince Edward Island, Mac Herb (Liberal) of Ontario, and Patrick Brazeau (formerly Conservative, now Independent) of Quebec. The charges against Senator Brazeau and the questions surrounding Senators’ residency and spending are generating debate across the country about the future of the Senate in Canada. After 18 years of negotiations, Canada and China have signed a declaration of intent for a foreign investment promotion and protection agreement (FIPA). Under the agreement, foreign investors will receive equal treatment with domestic businesses in either country. The agreement is expected to be ratified by each country by early 2014. February 15 , 2013 Aboriginal Affairs Minister, John Duncan resigns over contacting a tax court judge on behalf of a constituent in June 2011. Duncan is the fifth Harper cabinet minister to resign for reasons of controversy since 2006. Duncan resigns in the midst of negotiations between the federal government and Aboriginal leadership over treaty rights and other issues of concern raised by the Idle No More movement. Heritage Minister James Moore will serve as interim minister until a new minister is appointed. February 26 , 2013 Speaking at a summit on higher education in Montreal, Quebec Premier Pauline Marois declares that the debate over post-secondary tuition-fee

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i­ ncreases, which sparked large student demonstrations across the province in 2012 are now over, one year and one week after they began. The same afternoon a large protest organized by the Association pour un solidarite syndicale etudiante, broke out in downtown Montreal with students from all over Quebec participating. The protests are in response to the Quebec government’s refusal to negotiate a complete rollback of tuition fees, and Marois’ decision to introduce small tuition increases over the next five years. March 5 , 2013 In anticipation of Budget 2013, the Harper government has identified skills training as a top priority. With the promise to eliminate Canada’s $26 billion deficit by 2015, analysts and opposition party members say it is unlikely that the Conservatives will introduce much new spending. It has been reported that Finance Minister Jim Flaherty is considering clawing back $2 billion in transfers for provincial job training programs to help pay for the federal initiative. Venezuelan President, Hugo Chavez, dies at the age of 58, raising concern over the future political stability of an already divided Venezuela. Prime Minister Harper extends condolences to the Venezuelan people and issues a statement highlighting his hopes for a future “based on the principles of freedom, democracy, the rule of law and respect for human rights.” March 6 , 2013 A report leaked from the US Pentagon indicates a number of design problems with the F-35 fighter jets, resulting in limited visibility, and thus vulnerability for pilots. NDP and Liberal defence critics are calling on the Harper government to remove the F-35s from their search for new military fighter jets. March 7 , 2013 Alberta’s budget 2013 reveals that a decline in bitumen prices has left Canada’s wealthiest province with a multi-billion dollar deficit. Premier Redford’s government will reduce spending, and borrow money for capital projects. The provincial government’s Sustainability Fund – a savings account intended to offset volatile resource royalties – will be one of the sources of borrowed funds. March 8 , 2013 The Supreme Court of Canada ruled today that the Federal Crown failed to implement the land grant provision set out in the Manitoba Act, 1870, which created the province of Manitoba and set aside over 5,000 square kilometres of land for the descendents of the Red River Metis in an effort to guard against the loss of land to European settlers. The Manitoba Metis Federation sought recognition by the SCC of the federal government’s persistent negligence in honouring the provisions in the Act. This historic ruling opens the door to potential land claims negotiations in the region.

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270  Appendix A

March 11 , 2013 Prime Minister Harper announces that negotiations for a devolution deal between Canada and the Northwest Territories have reached a conclusion. Although a final agreement between the governments will not be signed until April 2014, the parties have come to a consensus on the terms of the agreement, which would involve the transferring of authority over decision-­ making and administration for land and resource management to the territorial government, and resource-revenue sharing powers. March 14 , 2013 The Vatican announces that a new pope has been selected. Pope Francis I, the Church’s first leader from South America replaces Pope Benedict XVI, who resigned earlier this year, for health reasons. March 15 , 2013 Liberal leadership candidate and former Canadian astronaut, Marc Garneau drops out of the race, saying he will support Justin Trudeau whose leadership win is a “fait accompli.” Seven candidates remain in the race.

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appendix b Fiscal Facts and Trends

Figure B.1 Sources of federal revenue as a percentage of total, 2011–12

Other Revenue 11%

Indirect Taxes 18% Personal Taxes 58%

Corporate Taxes 13% Source: Department of Finance, Fiscal Reference Tables 2012, Table 3.

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272  Appendix B Table B.1 Federal Revenue by Source 2000–01 to 2011–12 As a Percentage of Total Fiscal Year 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12

Personal Taxa

Corporate Tax

Indirect Taxesb

Other Revenuec

Total Revenue

Annual Change (%)

58.8 58.5 58.1 57.2 56.4 56.1 56 55.7 59.7 57.7 57.5 58.4

14.6 13.2 11.7 13.8 14.1 14.3 16 16.8 12.6 13.9 12.6 12.9

18.4 20.2 21.7 20.8 20.2 20.8 19.2 18.2 17.1 18.6 18.1 17.6

8.2 8.2 8.6 8.1 9.3 8.8 8.8 9.2 10.6 9.9 11.9 11.1

100 100 100 100 100 100 100 100 100 100 100 100

10.2 -5.4 3.6 4.2 6.7 4.8 6.2 2.7 -3.8 -6.2 8.5 3.4

Source: Department of Finance, Fiscal Reference Tables 2012, Table 3 and 5. Revenue by Source is on a net basis. (a) Employment Insurance and other income taxes are included in the total. (b) Consists of total excise taxes and duties. (c) Consists of non-tax and other tax revenue

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273  Fiscal Facts and Trends Figure Figure B.2 federal expenditures by ministry 2012–13 estimates National Revenue 1.9% National Defence 8.7%

Industry and Transport 5.7%

Foreign Affairs and International Trade 2.7% Regional Agencies (f) 0.4% Social and Citizenship Programs (a) 30.6%

Justice and Corrections (b) 0.7%

Finance (e) 36.9%

Resources and Environment (c) 4.7% Government Operations and Administration (d) 8.2%

(a) Social Citizenship programs include departmental spending from Canadian Heritage, Citizenship and Immigration, Human Resources and Social Development, Veterans Affairs, Health, and Indian Affairs and Northern Affairs (b) Justice and Corrections includes spending from the Department of Justice (c) Resources and Environment includes departmental spending from Agriculture and Agri-Food, Environment, Fisheries and Oceans, and Natural Resources (d) Government Operations and Administration Spending includes that from Public Works and Government Services, the Governor General, Parliament, the Privy Council, and the Treasury Board (e) Finance expenditures include but are not limited to, spending on public interest charges and major transfers to the provinces. (f) Regional Agencies includes Western Economic Diversification, the Atlantic Canada Opportunities Agency and the Economic Development Agency of Canada for the Regions of Quebec Source: Treasury Board Secretariat, Main Estimates, Budgetary Main Estimates by Standard Object of Expenditure, Part II, 2012–2013

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274  Appendix B Table B.2 Federal Deficit/Surplus 2000–01 to 2012–13 in millions of dollars (current) Fiscal Year 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13(a)

Budgetary Revenue Total Expenditures 194.3 183.9 190.6 198.6 211.9 222.2 236.0 242.4 233.1 218.6 237.1 245.2 255.0

174.5 175.9 183.9 189.4 210.5 209.0 222.2 232.8 238.8 274.2 270.5 271.4 276.1

Budgetary Deficit/Surplus

As % of GDP

19.9 8.0 6.6 9.1 1.5 13.2 13.8 9.6 -5.8 -55.6 -33.4 -26.2 -21.1

1.8 0.7 0.6 0.8 0.1 1.0 0.9 0.6 -0.4 -3.6 -2.1 -1.5 -1.2

Department of Finance, Fiscal Reference Tables 2012, Tables 1, 2, and 7; Department of Finance, Budget Plan, 2012. Note: While revenue, expenditures, and deficit categories refer to fiscal years, nominal GDP is based upon a calendar year. Total expenditures include program spending and public debt charges. a) Figures for this year are estimates.

Figure B.3 Federal budgetary expenses by type of payment 2001–02 to 2011–12 Billions of Dollars (current) 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 Social Transfers to Governments 20.0

Other Expenses

Public Debt Charges

10.0 National Defence 0.0 01–02 02–03 03–04 04–05 05–06 06–07 07–08 08–09 09–10 Source: Department of Finance, Fiscal Reference Tables 2012, Table 7.

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10–11

11–12

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275  Fiscal Facts and Trends Figure B.4 Federal revenue, program spending, and deficit as percentages of GDP 2001–02 to 2012–13 Percentage of gdp 25 20

Budgetary Revenue

15 Program Spending

10 5

Budgetary Balance

0

(a )

2

–1 3

20

12

1

–1 11 20

–1 10

0 09 20

20

–1

–9 08 20

20

06

07

–8

7 –0

6

20

05 20

04 20

03 20

–0

5 –0

4 –0

3 –0 02 20

20

01

–0

2

-5

Fiscal Year

Source: Department of Finance, Fiscal Reference Tables 2012, Table 2; Department of Finance, Budget Plan 2012 Note: Budgetary revenue and program spending are based upon fiscal years, while GDP is based on the calendar year. Revenues, program spending, and the deficit are on a net basis. Program spending does not include public interest charges. GDP is nominal GDP. (a) Figures for this year are estimates.

Figure B.5 Federal revenue, expenditures and the deficit 2001–02 to 2012–13 Billions of Dollars (current) 280 Budgetary Revenue

245 210 175

Total Expenditures

140 105 70 35

Budgetary Surplus / deficit

0 -35

3( a)

12

–1

12 11 –

20

20

–1 1 10 20

0 –1 09 20

9 –0 08 20

8 –0 07 20

7 –0 06 20

6 –0 05 20

5 –0 04 20

4 –0 03 20

3 –0 02 20

20

01

–0

2

-70

Fiscal Year Source: Department of Finance, Fiscal Reference Tables 2012, Tables 1 and 7; Department of Finance, Budget Plan 2012. Note: Expenditures include program spending and public interest charges on the debt. (a) Figures for this year are estimates.

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276  Appendix B Figure B.6 Growth in real GDP 2001–2011 Annual Change (Percentage) 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 2001

2002

2003

2004

2005

2006 Year

2007

2008

2009

2010

2011

Source: Statistics Canada, CANSIM, Table 380-0017: Gross Domestic Product (GDP), expenditure-based, ­annual (Constant 2002 Prices).

Figure B.7 Rate of unemployment and employment growth 2001–2011 Per cent 12.0 10.0 Unemployment Rate

8.0 6.0 4.0

Employment Growth Rate

2.0 0.0 -2.0 -4.0 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Year Source: Statistics Canada, CANSIM, Tables 109-5004, 109-5304,109-5324, 281-0024. Note: Employment growth rate and the unemployment rate apply to both sexes, 15 years and older.

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277  Fiscal Facts and Trends Figure B.8 Interest rates and the consumer price index (CPI) 2001–2012 Rate (per cent) 10

8

Prime Rate

6

4 Bank Rate 2

0 2001

cpi

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year Source: Bank of Canada, Bank of Canada Review, Banking and Financial Statistics, Table F1, various years; Statistics Canada, CANSIM, Table 326-0021. Note: The Prime Rate refers to the prime business interest rate charged by chartered banks, and the Bank Rate refers to the rate charged by the Bank of Canada on any loans to commercial banks. Note: The Prime Rate and Bank Rate are rates effective at year end. Note: The Trend line for the CPI shows annual percentage change in the index.

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278  Appendix B Figure B.9 Productivity and costs 2001–2012 Annual Change (per cent) 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0 -7.0 -8.0 -9.0 -10.0 -11.0 -12.0 -13.0 2001 2002

Unit Labour Costs (b)

Labour Productivity (a)

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Statistics Canada, CANSIM, Table 383-0008Year (a) Labour Productivity is the ratio between real value added and hours worked in the business sector. This trend shows the annual percentage change in the index. (b) This is a measure of the cost of labour input required to produce one unit of output, and is equal to labour compensation in current dollars divided by real output. This trend shows the annual percentage change in the index.

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279  Fiscal Facts and Trends Figure B.10 Balance of payments (current account) 2001–2011 Billions of Dollars (Current) 80 70

Bilateral (Canada/US)

60 50 40

Total

30 20 10 0 -10 -20 -30 -40 -50 -60 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Year Source: Statistics Canada, cat.# 67-001, various years.

Figure B.11 Growth in real gdp Canada and selected countries 1998–2014 Annual Change (per cent)

United States Japan Germany U.K. Canada

7.0 5.0 3.0 1.0 -1.0 -3.0 -5.0

19

14

13

20

20

11

10

12 20

20

08

09

20

20

20

06

07 20

05

20

03

04

20

20

01

02

20

20

20

00

99

20

19

98

(a )

-7.0 Year

Source: Organization for Economic Cooperation and Development (OECD), Economic Outlook, no. 92, Nov. 2012, Annex Table 1.

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280  Appendix B Figure B.12 Standardized unemployment rates: Canada and selected countries 1998–2014 Standardized Unemployment Rate (per cent) 14.0

United States Japan Germany U.K. Canada

12.0 10.0 8.0 6.0 4.0 2.0

13

14 20

20

11

12 20

10

20

09

20

08

20

07

20

06

20

05

20

04

20

03

20

02

20

01

20

00

20

99

20

19

19

98

0.0

Year Source: Organization for Economic Cooperation and Development (OECD), Economic Outlook, no. 92, Nov. 2012, Annex Table 13.

Figure B.13 Annual inflation rates Canada and selected countries 1998–2014 Inflation Rate (per cent) 6 5

United States Japan Germany U.K.(1) Canada

4 3 2 1 0 -1 -2 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Year Source: Organization for Economic Cooperation and Development (OECD), Economic Outlook, no. 92, Nov. 2012, Annex Table 18. (1) Known as the CPI in the United Kingdom.

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281  Fiscal Facts and Trends Figure B.14 Labour productivity Canada and selected countries 1998–2014

14 20

11

12

20

20

10

20

09

20

08

20

07

20

06

20

20

04

05 20

03

20

02

20

20

01

00

20

99

20

98

19

19

13

United States Japan Germany U.K. Canada

Annual Change (per cent) 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0

Year Source: Organization for Economic Cooperation and Development (OECD), Economic Outlook, no. 92, Nov. 2012, Annex Table 12. Note: Labour productivity is defined as output per unit of labour input.

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contributors

frances abele is a professor in the School of Public Policy and Administration at Carleton University, and Academic Director of the Carleton Centre for Community Innovation. daniel béland holds the Canada Research Chair in Public Policy (Tier I) at the Johnson-Shoyama Graduate School of Public Policy (University of Saskatchewan campus). keith brownsey is a professor at Mount Royal University. He has published a numerous articles on Alberta and Canadian energy policy. He has also written on the development of cabinet government in several provinces. david castle is professor and chair of innovation in the life sciences and director of the Innogen Institute for Innovation Generation in the Life Sciences at the University of Edinburgh. Previously, he held the Canada Research Chair in Science and Society at the University of Ottawa. jonahthan craft is assistant professor, Department of Political Science and School of Public Policy and Governance at the University of Toronto sheena kennedy dalseg is a doctoral candidate in the School of Public Policy and Administration at Carleton University, and research associate at the Carleton Centre for Community Innovation. 

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284 Contributors

g. bruce doern is Distinguished Research Professor in the School of Public Policy and Administration at Carleton University and emeritus professor, Politics Department, University of Exeter. nick falvo is a PhD candidate in Carleton University’s School of Public Policy and Administration. He also teaches social policy in Carleton’s School of Social Work. joshua gladstone is a doctoral candidate in the School of Public Policy and Administration at Carleton University, and a research assistant at the Carleton Centre for Community Innovation. peter graefe is associate professor in the Department of Political Science at McMaster University. kyle hanniman is a post-doctoral fellow at the Institute of Municipal Finance and Governance at the University of Toronto’s Munk School of Global Affairs. He recently completed his PhD in political science at the University of Wisconsin-Madison. carey hill has a PhD in political science from the University of British Columbia. She currently works at Human Resources and Skills Development Canada in the Community Development and Partnerships Directorate. She worked at Health Canada in the First Nations and Inuit Health Branch from 2008–10. She is also an independent researcher interested in health and ­environmental policy. ruth hubbard is senior fellow of the University of Ottawa’s Graduate School of Public and International Affairs and also its Centre on Governance. ian lee is assistant professor in the Sprott School of Business, Carleton University. karine levasseur is assistant professor in the Department of Political Studies at the University of Manitoba.  mario levesque is an assistant professor in the Department of Politics and International Relations at Mount Allison University. gregory p. marchildon is Canada Research Chair in Public Policy and Economic History at the Johnson-Shoyama Graduate School of Public Policy at the University of Regina campus.

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285 Contributors

david mcgrane is associate professor of political studies, St. Thomas More College, University of Saskatchewan haizhen mou is an assistant professor at the Johnson-Shoyama Graduate School of Public Policy at the University of Saskatchewan campus. She works on health care issues and public finance. gilles paquet is Professor emeritus at the University of Ottawa, and a senior research fellow with its Centre on Governance. peter w.b. phillips is professor in the Johnson-Shoyama Graduate School of Public Policy at the University of Saskatchewan. Along with David Castle, he runs valgen, a project funded by Genome Canada and administered by Genome Prairie. steve pomeroy is a housing policy research consultant based in Ottawa. He is also a senior research fellow, University of Ottawa Centre on Governance and a research associate in the Centre for Urban Research and Education at Carleton University.  michael j. prince holds the Lansdowne Chair as professor of social policy, in the Faculty of Human and Social Development at the University of Victoria. hannah rogers works in the First Nation and Inuit Health Branch at Health Canada in Ottawa, Ontario. She has worked on First Nation and Inuit health policy for four years. Prior to working at Health Canada, she worked at Aboriginal Affairs and Northern Development Canada on a range of files relating to land use, environment, and land claims. Hannah holds an mpa from Queen’s University and a ba from McGill University. robert p. shepherd is associate professor in the School of Public Policy & Administration at Carleton University. He also supervises the Diploma in Policy and Program Evaluation. jesse steinberg is a PhD candidate in the School of Public Policy and Administration at Carleton University. His research focuses on the multiscalar development of large public transit projects in Canada and their contribution to changing forms of urban infrastructure politics. christopher stoney is associate professor in the School of Public Policy and Administration at Carleton University and the Director of the Centre for Urban Research and Education (cure).

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286 Contributors

cheryl sutherland (ba University of Saskatchewan) has worked in the field of First Nations and Metis health for over twenty years, most notably at the Assembly of First Nations health secretariat and Health Canada’s First Nations and Inuit Health Branch, on both the program and policy side. She is currently with the Lands and Economic Development sector at Aboriginal Affairs and Northern Development Canada.

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