Yves Rabeau PhD
Professor
School of Management,
Université du Québec a Montréal
with the collaboration of
Jules Dessureault, M.Sc., Econ.
How States like Quebec benefit from belonging to a federation
In light of the current situation, the authors revisit the question of fiscal imbalance, an issue that figured prominently in public debates in the early 2000s and was even studied by a Commission created by the Government of Québec, the Séguin Commission. The study shows that following the major reductions in transfer payments by the federal government from 1995 to 1997, Ottawa now gives the provinces greater flexibility in managing programs financed by federal funds. The study also points out that as of 2004, agreements between the federal government and Québec, for example, inspired by a so-called asymmetrical federalism, have made for more flexible arrangements, thus resulting in better recognition of the province’s uniqueness.
The authors also deal with the question of the historical redistribution of wealth within the Canadian federation through trusts, federal transfers and equalization.They note that from 2005 to 2010, federal transfers rose 45% for all provinces, while the increase for Québec alone was 54%. Moreover, based on the findings from the study, equalization payments received by Québec rose from $4.8 billion in 2005 to $8.5 billion in 2010. Because Québec’s contribution to federal revenues from all provinces, i.e., taxes paid by Québecers to Ottawa, amounts to 20% of the total, the authors argue that Québec enjoyed a net financial benefit of $6.8 billion from equalization.
Lastly, Messrs. Rabeau and Dessureault devote a portion of this study to the tax benefits of states belonging to a federation as contrasted to the negative fiscal impact on Québec in the event of separation from the rest of Canada. The authors refute the argument put forward in 2005 by Francois Legault, then PQ MNA for Rousseau, in the study Les finances d’un Québec souverain on the net fiscal advantage of independence. According to the authors, the Legault budget was not based on realistic assumptions and did not make allowance for economies of scale due to the fact that the federal government fulfills a number of roles such as defense, international relations and transportation, as well as debt sharing or the negative impact of a major event like separation on investment, population, employment and financial markets. Even though member states within a federal system may not always be fully satisfied with fiscal arrangements and the allocation of responsibilities, Québec has no economic or financial interest in leaving the federation, the authors conclude.
The Federal Idea is a nonpartisan think tank network whose aim is to encourage quality discussion of all aspects of federalism through research, surveys and public activities. The study by Professor Rabeau is the fifth issued by the Federal Idea since it was founded in June 2009. The organization has published studies on the federal electoral redistribution and the place of Québec, funding for arts and culture, the state of federalism in the world and limitations on the right to secession and the stability of federations based on the Advisory Opinion of the International Court of Justice on Kosovo.
