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Mark Johnson: The provinces will learn the hard way that federal dollars come with strings attached

Commentary

Canadian federalism has come to be marked by something of a standard script: provincial premiers demand more money from the federal government and insist that incremental federal dollars come without any conditions.

Yet the provinces can’t have it both ways: if they’re going to demand that Ottawa use its spending power, it will invariably come with strings attached.

That’s even moreso the case now they’re up against a Liberal government that relishes its growing role as the chief financier to the provinces to drive its own political agenda and ideological priorities outside of its policymaking jurisdiction.

Understanding what has increasingly drawn the federal Liberal Party into the realm of provincial and local jurisdiction is key to interpreting contemporary Canadian policy and politics.

The old Liberal Party: Slayer of Separatists, Defender of Unity, Winner of Elections

For most of the 20th century, the raison d’etre of the Liberal Party was national unity. Of the two major parties, the Liberals could best bridge Canada’s linguistic divide, defeat Quebec separatism, and keep the country united. As long as national unity was threatened by Quebec nationalism, Canadians were inclined to default to the Liberal Party as the national party most capable of meeting this existential threat to the country.

From Wilfred Laurier to Jean Chretien, Liberal-led governments were also the political vehicle most capable of channeling and subsuming the rising aspirations of French-Canadians into the nation-building efforts of Canada as a whole, such as a new flag (1965), official bilingualism (1969), and the Charter of Rights and Freedoms (1982). The Liberals (who were led by Quebeckers for 44 of the past 55 years) had the best answer to the Quebec question and it kept them in power for nearly two-thirds of the 20th century.

For whatever reason, the forces of Quebec separatism have withered over the recent decades. The threat to national unity has receded and with it the original unifying purpose of the Liberal Party. Last year’s Quebec election witnessed the continuation of this secular political trend with a further decline of support for the Parti Quebecois. The PQ set a new record low of 14 percent of the popular vote and won the smallest number of seats in its history. It lost official party status.

Canada’s so-called natural governing party (an obsolete nickname when you look at the election results for the past 45 years, but I digress) has been bereft of its historic role for years. As a result, the Liberals have had to reconceptualize their raison d’etre for a new political context.

The new Liberal Party: Banker to the Provinces, the Nosy Parker of Federalism

They’ve found it in the form of the federal spending power and the expression of their ideological and policy priorities within the realm of provincial and local jurisdiction. It’s not a coincidence, for instance, that most of the Trudeau government’s biggest accomplishments fall squarely outside of its jurisdiction: child care, dental care, health care, municipal infrastructure, and affordable housing.

A strict interpretation of the constitution’s division of powers would exclude Ottawa from intervening in any of these policy areas. Yet without the demands of national unity at the forefront, the Liberals have come to view their purpose as a national party to advancing policy homogenization across the provinces.

Now, there’s some debate about the principles of cooperative federalism. The Trudeau government’s climate policy is a good example. But it’s fair to say that what we’ve witnessed in recent years extends the notion of cooperative federalism well beyond its classroom conception into a new model in which the only practical constraint on the federal spending power is the duration of negotiations with money-hungry premiers.

The most recent round of federal-provincial wrangling over health-care funding illustrates the Trudeau government’s self-image as the “banker to the provinces.” The pandemic arguably demonstrated the need for more public dollars for provincial health-care systems. That’s certainly been the prevailing view in a lot of public opinion polling.

It wasn’t preordained however that those dollars had to come from the federal government. Nothing stopped the provincial governments from raising their own taxes or repurposing dollars from elsewhere to boost spending in their own health-care systems. Yet it was easier as a matter of politics to insist on federal dollars. And the Trudeau government was happy to oblige.

There was a performative back and forth about conditions but the truth is both orders of government saw it in their political interests to get a deal. The provinces got to boost their health-care budgets without having to confront trade-offs or difficult fiscal choices. The federal government got to swoop in and involve itself in administration, design, and policy choices concerning health care.

It doesn’t need to be this way. To the extent that the provinces feel that “their” voters have hit maximum levels of taxation and spending, and that the federal government has excess revenues to discharge its responsibilities (what used to be called the “fiscal imbalance”), there’s scope for rethinking fiscal federalism. Much has been written, for instance, about the wisdom of transferring taxation room from the federal government to the provinces.“Repairing Health Care in Canada: Time to Take the First Step.” Peter Nicholson, January 12, 2023, Johnson-Shoyame Graduate School of Public Policy

A shorter, simpler solution is for the federal government to reply with a flat no in response to provincial calls for more transfers. That would require supreme political toughness on the part of the federal government. It also presupposes, however, that Ottawa doesn’t like having a hand in provincial policymaking.

Listen to the prime minister’s dad. He had a good point

Yet the standard script doesn’t quite seem sustainable anymore. Ottawa’s public finances have deteriorated as a result of the COVID-19 pandemic. There are also growing demands for investments in federal areas such as our long-suffering military.

And that doesn’t even account for the harms that the federal spending power can impose on federalism itself. It contributes to a lack of transparency and accountability. Blame-shifting is rampant. Hard political choices are avoided or delayed.

The current prime minister’s father anticipated these problems way back in 1961. He observed:Pierre Trudeau, The Practice and Theory of Federalism. Social Purpose for Canada (1961)reprinted in Federalism and the French Canadians, 1968

In short, it seems as though whenever an important segment of the Canadian population needs something badly enough, it is eventually given to them by one level of government or the other, regardless of the constitution. The main drawback to such an approach is that it tends to develop paternalistic instincts in more enterprising governments, at the expense of democratic maturation in others.

Financing terms may change

In an era of deficit-financed largesse, the Trudeau government may be generous with the provinces but there’s no guarantee that this will continue. One day, federal funding may be cut or the terms could get tougher. A subsequent government could even use the same federal dollars to compel the provinces to implement policy changes that run counter to their political preferences or provincial priorities.

If the provinces keep asking for money from Ottawa, then they should beware of the political golden rule: He who has the gold makes the rules.

Richard Shimooka: As NATO allies grow impatient, Canada may be quietly planning major increase in defence spending

Commentary

The Washington Post recently reported that the latest leak of secret U.S. intelligence documents reveal that Prime Minister Justin Trudeau has privately told NATO officials that Canada can never meet its funding commitment to the military alliance. 

This is anything but a surprise to seasoned defence observers. The Liberal government has never promised to meet the long-stated (but never-achieved) target of NATO funding—the equivalent of two percent of Canada’s GDP—and it has long been clear that our allies have become privately frustrated with Canada’s reluctance to pull its weight. 

These candid intelligence notes pierce through Ottawa’s messaging about Canada being a good ally and global citizen. They make it clear the government’s pronouncements for domestic consumption are unconvincing to our allies and have harmed the country’s credibility in foreign circles.  

But here’s the surprising bit: it is not clear whether the situation described in the leaked document accurately captures the current moment in Canadian defence policy. In fact, there have been credible signals that the government is at least considering, if not outright planning, a major increase in defence spending. Perhaps this policy shift is a response to reproaches from allies in closed-door meetings, or it could be a political calculation to deflect criticism on what is traditionally one of the Liberal Party’s weakest files. The government is currently drafting a defence policy update to the 2017 Strong, Secure, Engaged defence policy, which may offer a strategic rationale for launching such a shift.

Whatever the reason, the hints of this shift are just emerging. It is nowhere to be seen in any major announcement, nor was it accounted for in the last budget. Rather, its indications are scattered across a range of signals, including during outlook sessions hosted by the Canadian Association of Security and Defence Industries (CADSI). These annual gatherings of Canada’s largest defence industry association have the chiefs of the Navy, Air Force, and Army speak of their respective priorities. These interactions have recently been accompanied by requests for information from potential vendors, as well as establishing new project staff in DND or other federal departments.

A provisional shopping list includes a wide variety of much-needed replacements for Canada’s defence systems, including for the Victoria Class Submarine. At potentially $60 billion, the Canadian Patrol Submarine Project alone would do much to bridge Canada’s funding shortfall. 

However, there are also some surprising and new capabilities being considered, including an advanced airborne early warning aircraft with a powerful radar capacity for surveillance over large swaths of airspace. Other potential systems of note are a long-range rocket artillery system, like HIMARS, and potentially a lightweight mobile artillery platform, like the BAE Systems Archer. The Army is also moving to acquire a new tank to replace the Leopard 2 currently in service. 

This scale of modernization program would be a significant step toward restoring Canada’s military to a more capable footing after a decade of neglect. Many of the capabilities being considered are critical for the Canadian Armed Forces to operate in a future combat environment. For example, HIMARS, and highly mobile tube artillery systems like the Archer or NEXTER’s Caesar, have been immensely effective in the war in Ukraine. Some experts claim (perhaps hyperbolically) the former was critical in turning the momentum of the war against the Russian Federation in the spring of 2022. 

Acquiring modern equipment can also help the Forces address personnel shortages; one recalls then-Chief of the Air Staff Angus Watt’s 2008 comment that “aircraft on the ramp” is a key retention tool. Still, considering the critical state of the CAF’s personnel base, the promise of new systems alone is unlikely to fix all of the issues. Furthermore, what potentially is being considered would require the military to significantly expand its standing forces, particularly in key trades, in order to operate these systems. For example, the Navy’s consideration of a two- to threefold expansion of its submarine fleet would require a concomitant increase in personnel, just as the RCAF will require new pilots, or the Army new gunners and other technicians for these new platforms. The list goes on, but it remains an open question as to who will crew these systems to ensure they operate effectively. 

Ordering new systems is one thing; their delivery is quite another. Even if Ottawa made the decision to acquire today, some of these more complex capabilities—submarines or early-warning aircraft, for example—would not arrive for a decade or longer. Early this year, the government announced three urgent operational requirements for infantry and vehicle-based weapons to deal with aircraft, drones, and armoured vehicles. These items are crucial if Canadian units were to be deployed to Eastern Europe to confront aggression against NATO allies or to help replenish NATO allies. But the “expedited process” on two of these programs anticipates awarding a contract early in 2024, meaning it will be 18 months or longer before the “urgent requirement” is delivered. That’s a telling statement about the turgid pace of Canada’s procurement system. 

Recent reports assess the DND’s material group (a key player in procurements) as being 30 percent under strength. This contributes to a broader issue, which is that the overall structure of defence procurement is not adept at delivering major systems within a reasonable timeframe. This is alarmingly problematic and requires urgent reform. 

One approach the government seems interested in pursuing is acquiring systems “off the shelf”. While this would limit its choices to options already in service with other countries, there are other important factors to consider. Buying off the shelf will enhance interoperability with allies, to whom Ottawa is desperate to endear itself. It should also help expedite procurement, depending in part on if the government can be reasonable in its offset requirements. For some systems—HIMARS artillery, for example—there are no real domestic options, or even limited competition in the international market for that matter. Sole sourcing will likely be required for some programs. 

Yet for early-warning aircraft, significant competition could emerge between Boeing’s E-7 Wedgetail and the Globaleye product of Bombardier and Saab. Besides the two systems having fairly differing performance characteristics, there are other political and strategic considerations at play. While the former would provide instant interoperability, the latter would support and sustain Canada’s own aerospace expertise. These are essentially apples-to-oranges comparisons that the government must now decide. 

Finally, Ottawa must develop an unwavering approach to integrating new systems into an information dominance strategy. Very little in the military or the government’s discussions seem to grasp this fact, despite it being an urgency that guides most of our allies’ force development models. Building a process that incorporates these new capabilities into a larger information warfare approach must be a priority. As noted recently in DefenseNews, a U.S.-based news service for U.S. defence decision-makers: 

“…the majority of what the [U.S.] military purchases is no longer weapons systems but rather services and technology. Zealous reformers continue to over-focus on weapons buys when hardware is increasingly the commodity.”

In the end, while it is encouraging that Ottawa appears willing to consider major increases in defence spending, it must reflect the reality of Canada’s challenges. The constraints of our defence bureaucracy and the diminished material and personnel state of the Armed Forces means that even if a move to two percent spending for NATO were to be made, it will be a decades-long process to see it realized and restore the CAF’s ability to operate. 

On top of growing global instability, Canada’s credibility among our allies is declining. We must remedy our internal issues and arrest the country’s further slide toward irrelevance.