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OTTAWA, ONTARIO, February 5, 1999 – The Honourable Stéphane Dion, Minister of Intergovernmental Affairs and President of the Queen’s Privy Council for Canada, and the Honourable Anne McLellan, Minister of Justice and Attorney General of Canada, have today released the attached paper, entitled "Collaborative Use of the Spending Power for Intergovernmental Transfers: The Race to the Top Model".

The paper sets out the reasons why the Government of Canada believes the approach contained in the Framework to Improve the Social Union for Canadians will make possible a use of the federal spending power in intergovernmental transfers that will serve Canadians well.

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Collaborative Use of the Spending Power
for Intergovernmental Tranfers

The Race to the Top model

February 5, 1999

The Honourable Stéphane Dion, Minister of Intergovernmental Affairs and President of the Queen’s Privy Council for Canada, and the Honourable Anne McLellan, Minister of Justice and Attorney General of Canada, have today released the attached paper, Cooperation in the Use of the Spending Power in Intergovernmental Transfers: The Race to the Top Model.

The paper sets out the reasons why the Government of Canada believes the approach contained in the Framework to Improve the Social Union for Canadians will make possible a use of the federal spending power in intergovernmental transfers that will serve Canadians well.

The Framework to Improve the Social Union for Canadians, concluded on February 4, 1999, contains much good news for all citizens of our country. The signatory governments, while respecting their constitutional powers and jurisdictions, have committed themselves to enhancing mobility throughout Canada, keeping Canadians better informed, acting with greater transparency, and following a new conflict prevention and resolution mechanism. The governments have also made a commitment to consult one another more and to work together in partnership for Canadians.

One of the expressions of this partnership will be a totally innovative way of using the federal spending power for intergovernmental transfers, including both cost-shared programs and federal funding. This paper explains why the Government of Canada believes that this new formula for intergovernmental cooperation, called the "race to the top" method, will enhance the quality of social and health programs throughout Canada.

All major federations in the world provide for a "spending power" for their federal and constituent governments. By this, it is meant that governments are able to spend in areas outside their legislative jurisdiction under the constitution. In Canada, the federal and provincial spending power is a constitutionally legitimate instrument, recognized as such by the courts for many years. In the case of the federal spending power, it has been sanctioned most recently by the Supreme Court of Canada in 1989, 1991 and 1997.

The exercise of the spending power of the federal government varies from federation to federation. In Canada, it has been used less often and with fewer conditions than in virtually any other federation.

The federal spending power has been a vital element of social development in all developed federations. In Canada, it has been instrumental in building with the provincial and territorial governments the Canada-wide social programs which all Canadians value, such as Medicare. It has been essential in promoting equality of opportunity for all Canadians, helping to ensure access to basic social programs and services of reasonably comparable quality to Canadians wherever they live or move in Canada.

When the Government of Canada uses its spending power to promote equality of opportunity in an area of provincial responsibility — notably, in health care, post-secondary education, social assistance and social services — it normally does so through intergovernmental transfers. The scope of such intergovernmental transfers in these areas has evolved considerably over the past 50 years.

Now that governments have put their finances in better order and are preparing to reinvest in Canada’s social solidarity, the time has come for change in how transfers to the provincial and territorial governments are used. Governments must find a model that will help them use such social transfers to serve the needs of Canadians for the future.

Simply put, the new model should inhibit any pressures for a "race to the bottom" in social programs and services for Canadians. It must, instead, create incentives for a race to the top.

What is needed is a model that allows the federal government to work cooperatively and flexibly with provincial and territorial governments for any new Canada-wide initiative in health care, post-secondary education, social assistance and social services funded by intergovernmental transfers, whether federally funded or cost-shared.

The model should enhance governments’ capacity to work together towards common objectives for Canadians.

Such a model should respect fully the responsibilities of all governments in the social area and avoid disputes about jurisdiction, with which Canadians have little patience. It should promote consensus among governments but avoid paralysis. It should fully recognize Canada’s federal nature and the diversity of needs, situations and aspirations that exists across the country. It should allow each provincial and territorial government to design policies and programs appropriate to its own circumstances and should guarantee no future duplication.

The model should recognize that provincial and territorial governments are often at very different stages of development when it comes to particular Canada-wide social policy goals. It should promote innovation and experimentation, and make sure the most effective initiatives in one province or territory can, over time, be made available across Canada.

Finally, the model should also promote equality of opportunity through adherence to the Framework to Improve the Social Union for Canadians itself: Canada-wide principles, commitments on mobility, better accountability to Canadians, and public recognition of the roles, responsibilities and contributions of each order of government.

Section 5 of the Framework to Improve the Social Union for Canadians provides such a model. The following paragraphs explain how this new form of intergovernmental cooperation will work.

For any new Canada-wide initiatives funded through intergovernmental transfers, including both cost-shared programs and federal funding, for health care, post-secondary education, social assistance and social services, federal, provincial and territorial governments will first seek agreement on priorities and objectives. The initiative will not proceed unless the federal government and a majority of provinces agree. The design of programs and policies to achieve the agreed objectives will be the responsibility of each province and territory.

The Government of Canada thus will commit itself to proceed with new intergovernmental social transfers in these areas only with the consent of the majority of the provinces.

Each province and territory will be responsible for designing programs and policies to achieve the agreed objectives.

The federal and provincial/territorial governments will also agree on an appropriate accountability framework for such new Canada-wide initiatives.

The nature and cost of programs required to achieve the agreed objectives will be evaluated. The amount of the new federal transfer will be based on how much is thought to be required to achieve the agreed objectives. Distribution will be determined as if no provincial/territorial government programs were in place. Thus, provincial and territorial governments with similar programs already in place — "first movers" — will not be penalized.

Financial compensation will be provided to all provincial and territorial governments agreeing to make available to their citizens programming that meets the agreed objectives and to respect the agreed accountability framework.

A provincial/territorial government which, because of its existing programming, would not require the total transfer to fulfill the agreed objectives will be able to reinvest any funds not required for those objectives in the same or a related priority area. For example, in the case of a new health care initiative, a provincial/territorial government may wish to invest in the same area, i.e. health, or in a related area, e.g. programs for early childhood development.

Thus, where such programming did not exist, 100% of the transfer will be spent to meet the agreed objectives; where programming existed that fully met the agreed objectives, 100% will be spent for other purposes in the same or a related priority area. In cases where the provincial/territorial government only partially meets the agreed Canada-wide objectives, it will invest part of its share to meet those objectives and the remaining funds in the same or related priorities.

In all cases, all governments will be bound by the principles and commitments agreed to through the Social Union Framework Agreement and, as noted, by an appropriate accountability framework.

This new model for intergovernmental social transfers has significant advantages for Canadians.

Improving equality of opportunity for all Canadians — The agreed objectives will be achieved throughout Canada, although through different measures and programs, according to the preferences of the provincial governments. All Canadians, no matter where they live, will thus be able to benefit from the achievement of these objectives.

Ensuring that each provincial and territorial government will determine for itself the best design and mix of policies and programs suited to their needs and circumstances — Provinces and territories will be able to determine the best design and mix of policies and programs to meet the agreed objectives. Canadians are better served when they are offered programs that are tailored to respond to their diverse and changing needs, rather than "one-size-fits-all" programs.

Enhancing federal-provincial/territorial collaboration — The approach will not allow unilateral imposition of new conditions. It will increase the incentive to pursue common objectives for Canadians while at the same time enhancing the capacity of provincial and territorial governments to participate in ways appropriate to them.

Avoiding duplication — The approach will guarantee that such new initiatives will never duplicate existing provincial and territorial programs and policies. In fact, the new federal transfers will strengthen existing provincial and territorial programs, rather than duplicating them. Moreover, specifying the areas to be covered by the new approach should reduce jurisdictional disputes.

Encouraging innovation — The provincial and territorial governments that have already achieved the objectives in whole or in part will receive funding from the federal government to innovate as they see fit in the same or a related priority area.

In short, the model will provide incentives to participate, reward innovation, avoid duplication and therefore set in motion a "race to the top".

This model for intergovernmental cooperation responds to the request of Canada’s first ministers in December 1997 to develop a more collaborative approach to the use of the federal spending power.

The new regime will apply to any new initiative funded through transfers to the provincial and territorial governments, including both cost-shared programs and federal funding, in the areas of health care, post-secondary education, social assistance and social services. This is by far the largest proportion of provincial/territorial program spending, including what provincial and territorial governments have identified as their top priority — health care.

The new framework for intergovernmental cooperation in social policy will better meet the needs of Canadians, while respecting the constitutional jurisdictions and powers of each government.