Puppets on a Shoestring - Effects on Municipal Government of Canadas System of Public Finance 1976

7/28/2019 Puppets on a Shoestring - Effects on Municipal Government of Canadas System of Public Finance 1976

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PUPPETS ON A SHOESTRINGTHE EFFECTS ON MUNICIPAL GOVERNMENTOF CANADA'S SYSTEM OF I'UBLIC FINANCE

CANADIAN FEDERATION OF MA yonS AND MUNICIPALITIESOTTAWA, APRil , 28.1976


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The Nat iona l Task Force on Pub l i c Finance was es t ab l i shedby the Second Nat iona l Tri -Leve l Conference in Edmonton in 1973.Under th e Chairmanship o f Dr. John Deutsch and involving sen io rr ep resen ta t ives o f the t h ree l ev e l s o f government, it hasproduced the bes t s e t of intergovernmental f inanc ia l data a va i l ab le in Canada today. This document rep re sen t s th e views ofthe Canadian Federat ion of Mayors and Munic ipa l i t i es withre spec t to th e da ta prepared by th e Task Force.

Thanks a re expressed to Mr . Jacques Melanson of Consul taxeLtd. , Montr e a l ; Mr . Mack Laing, Prof e s so r of Journa l i sm,Univers i ty o f Wes te rn Ontar io ; and Mr. Al l an O' Brien , formerMayor of Hal i fax , Professor of P o l i t i c a l Science , Univers i ty o fWestern On t a r io , who had a major i npu t in th e prepara t ion oft h i s paper .

Ottawa, Ontar ioApri l 28 , 1976


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A r epor t on Canadian publ ic f inance , re leased today , fo re shadows the dec l ine and f a l l of municipal Government as we knowit in Canada with in f ive years .

The fo recas t i s based on an ex tens ion o f the t rends mad ec l e a r in the Repor t of the Tri -Leve l Task Force on Publ ic Financein Canada.

These t rends sugges t t h a t a u to nomous municipal Governmentwi l l not survive without :

huge inc reas es in proper ty tax es , or ,unacceptable cutbacks in se rv ices c i ty r es iden ts now

demand , or both .Ei the r move would d i lu t e and demoral ize mun i c ipa l au thor i t y

un t il it becomes unr ecognizab le as a fo r m of gover nmen t .To con t i nue o n th e pre sen t t rack of balancing municipal bud-

ge ts combined with def i c i t f inancing inc reas ing cond i t iona l g ran t sfrom the provinces and Ottawa can only mean dera i lment fo r o urconcept of c iv i c s e l f - government .

It i s academic whether t he t rends develop in to t he nightmarethey s ugges t fo r 1981 . There i s no need to go beyond pre sen t ,documented f ac t s . They c l ear ly s how t ha t Municipal Governme n ti s in c r i s i s r i g h t now .

The outward s i g ns are the s teady loss of municipal powerand increas ing f i n an c i a l cons t ra in t s . Grants from prov inc ia land fede ra l Governments come with so many s t r i ngs a t t ached andrep re sen t such a l a rge p a r t of municipal budgets t h a t municipal i t i e s are becomin g puppets in a show run mainly by prov inc ia lGovernments.


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Th e Tr i -Leve l Repor t shows t h a t prov inc ia l and federa l t r a n s f e r s paid 32 percen t o f municipal expenses in 1974 - 75. Fiveyears before , the f igure was 27 percent .

School Boards , once a proud and s e l f - r e l i a n t p a r t of l o ca lgovernment , now re ly on prov inc ia l t r a ns f e r payments fo r66 percen t o f t h e i r t o t a l revenues . These boards l ong ago l o s tany c l aim to s e l f - government . I s Municipal Governme n t next inl i ne fo r the same kind o f emasculat ion?

I t need no t be.The Tr i -Leve l Repor t shows c l e a r l y t h a t Canada ' s system of

p ubl ic f inance genera tes eno ugh money to s a t i s fy th e needs o f a l lthree leve ls of governmen t .

Yes ; s ince 1950 , except fo r one recess ion per iod , the t h reel ev e l s of gover nment- - taken toge ther - - r a i sed more than enoug hmoney to cover t h e i r t o t a l expend i tu res . These t o t a l expensesincreased near ly twelve t imes between 1950 and 1974 , from 22 per cent of Canada ' s gross na t iona l product to 39 percen t . Neverthel e s s , our pub l i c f inance system met these demands. The systemremained in balance and even showed a smal l surp lus .

In othe r words ', the T ri -Leve l Report shows t h a t Governmentas a who le in Canada has genera l ly operated in the black , on abalanced budg e t fo r the p a s t qua r t e r -cen tu ry . The country i sr i c h . I t s publ ic f inance system produces enough money to meetpubl ic demands.

Municipal Government need not be in a c r i s i s - - b u t it i s - - andit i s ge t t ing worse .

Why? Because, as the r ep o r t shows , the Canadian publ icf inance system , which works so e f f e c t i v e l y when a l l th ree government l eve l s are considered as a un i t , i s a t o t a l l y inadequatesystem when Municipal Government i s taken alone .

While balancing handily fo r the three governments , the system denies munic ipa l i t i e s access to tax revenues t h a t would allow


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them to meet t he i r r e s pons ib i l i t i e s . So, th ey d o n ' t mee t t h e i rr e s pons ib i l i t i e s . This l eads to a chain o f annual new deb t , as p i r a l of dependence and inc r eas in g hopelessness . Cynicism a ndapathy a r i s e in c i ty counc i l s and among municipal vote r s .

Like your twe lve-y ea r -o ld da ugh t e r when her allowance i sgone , the c i ty wai t s fo r Daddy to dig in to h is pocket . Thissystem l ead s to more and more f inanc ia l r e l i an ce on Daddy andl e ss a nd l e ss independent sel f -government .

But , t he u n i n i t i a t ed might ask , as lon g as the fami ly as au n i t is running wel l , wha t does it matter?

It ma t t e r s beca us e l oca l s e l f - government i s the roo t ofCanadian democracy. City Government i s t he o ld e s t l eve l o fGovernment here , a nd th e most open . We have con t inuin g communities more than twice as o ld as t he na t ion .

A municipal Gover nmen t i s a mUlt i -purpose au thor i ty . It hasthe power both to tax i t s c i t i z e ns and to l e g i s l a te fo r them .It i s an au thor i t y acco un t ab le to i t s e l e c t o ra t e fo r eac h of i t sdec i s ions .

Th i s acco un t a b i l i t y i s obvious ; i r r espons ib le municipalspending i s a sure and v i s ib l e path to p o l i t i c a l suic ide , s i nc ethese do l l a rs disappear j us t around the corner , no t t h ro ug h acommittee dec is ion in some fa r - of f cap i ta l .

This o bvi o u s democra t ic accountab i l i ty i s being eroded bya more s i n i s t e r accoun tab i l i ty to bureaucra ts , mainly in provin c i a l c a p i t a l s . This re l a t ionsh ip i s forced by the munic ipa l i ty ' sdependence on th e system ' S cond i t iona l g ran t s .

That kind of hidden accoun tab i l i ty to masters d i s t a n t inboth miles and menta l i ty des t roys th e capac i ty of municipa lGovernments to make t he i r own dec i s ions .

I f we cannot co r r ec t t h i s , it means t ha t c i t i z e ns cannotcon t ro l th e d e s t i n i e s o f t he i r own communities. No longer wouldc i ty r es iden ts have a say in how th ings a re done on t he i r s t r e e t .


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Our c i t i e s could become only sou l les s co l l ec t ions o f bui ld ingsmanaged by prov inc ia l bureauc ra t s .

We would lose the idea o f c i ty dwel le rs working a t t h i smost na tu ra l l ev e l of Government to make communit ies places ofjoy and beauty . There would be no more need fo r loca lse l f -Government . The foundat ion of our democracy would be gone.

This i s what looms behind the s t a t i s t i c s of the Tri -LevelReport . What i s a t s take i s th e fu tu re of municipal Government.

The document you are now reading i s an i n t e rp re t a t i o n o fth e Tri -Level Report by th e Canadian Federa t ion o f Mayors andMunic ipa l i t i es (CFMM). This document i s an argument fo r a muchs t ronge r , much more autonomous municipal l eve l o f government inCanada.

We want a municipal Government t h a t i s much more f ree of"cond i t iona l" prov inc ia l g ran t s and t h a t has d i r e c t access to awider range of tax revenues .

s ince CFMM's founding in 1937, th e Federat ion has f ought fo rmunicipal autonomy as a bulwark of Canadian democracy and fo renough tax revenue to make t h a t autonomy r e a l . Our i n t e rp r e t a t ion i s based only on f a c t s from the Tr i -Leve l Repor t - - fac t sgathered , agreed upon and presented by a l l t h r e ~ l eve l s of gove rn ment in Canada.

The s to ry of how Canada 's f inanc ia l sy s tem g o t the way iti s begins in the Great Depre s s ion .

The eros ion o f municipal f inanc ia l independence began inth e 1930s,as many communiti e s simply went broke, and prov incesmoved in to se t up i n s t i t u t i ons to con t ro l mu n ic ip a l i t i e s ' budgeting , account ing and c a p i t a l spending.

Many c i t i e s were forced to postpone necessary expendi tur e sfo r much-needed publ ic works. This r esu l ted in the bu i ld ing o fhidden def i c i t s of f utu re need s. These needs were r e a l , eventhough they did not show up a s a f i gure in municipal f inanc ia ls ta tements .


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-5 -Post -war p r i o r i t i e s r e f l e c t e d prov inc ia l and federa l goa ls :

recons t ruc t ion , economic development and soc ia l secur i ty .Expendi tures to achieve t he se ob jec t ives were considered

essen t i a l to preven t th e r e tu rn o f depress ion ghos t s : thoseend l ess l i nes of the unemployed , th e campf i res g l in t ing o f f th eCNR t racks , bread and milk and brown sugar sandwiches and sue tpudding for the k ids , and th e hobo chalk-marks on your s idewalk .These phantoms shoved c i ty p r i o r i t i e s in to a back se a t .

The r e a l i z a t i o n of eco nomic growth and th e development ofth e soc ia l s ecur i ty system was accompanied by the ques t fo r thebe t t e r li fe of th e c i t y . People f locked to the c i ty in thousands ,from the ru ra l areas of Canada and from abroad . Urbanizat ionhad ar r ived .

The explos ive growth o f our c i t i e s and towns combined witht he backlog o f publ ic works expend i tu res accumulated during th et h i r t i e s and th e war dest royed the ab i l i t y of the municipalf i n an c i a l base to carry t h i s load . Continuing in f la t ion , in th ef i f t i e s , in t he s i x t i e s , and in th e seven t i e s mul t ip l ied thecos t s of providing pub l i c serv ices .

The e s s e n t i a l problem i s t h a t the revenue bas e of munic i p a l i t i e s in Canada did no t expand to meet the demands pu t uponit by urban iza t ion .

The Canadian Federat ion of Mayors a nd Municipa l i t i e s i s notc r i t i c i z i ng the prov inc ia l or f edera l Governments . The C F ~ 1 i sc r i t i c i z i ng the cont inuance of an inadequate system of publ icf inance in Canada which does no t allow Government access togrowth revenues it needs to do i t s job .

The Federa t ion wi l l show j u s t what ' s wrong with Lhi s sYAIPmand w i l l suppor t these po in t s with s t a t i s t i c a l evidenc " , " '" ,.exc lus ive ly from the Repor t of the National Tri -Leve l Task Forceon Publ ic Finance .


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FACT No .1: THE CANADIAN PUBLIC FINANCE SYSTEM IN A GLOBALSENSE IS WELL BALANCED AND EFFECTIVE .


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As a g l oba l system, fo r t he 25-year pe r iod , from 1950 to 1974,th e Canad i a n publ ic f i nanc e system can be seen as wel l balancedand e f f e c t i v e .Effec t ive , because th e system has succeeded in ra i s ing e noughtax r eve nu es to pay fo r a ll t he publ ic se rv ices and benef i t st h a t were provided by th e three l ev e l s of governme n t .Balanced, because dur ing the whole 25-year per iod , the systemsucceeded in f inan c ing growing publ ic expend i t u r e s with i t sown globa l publ ic revenues without crea t ing f i sca l de f i c i t sout s ide the system. (1)The we l l - b a la nced and e f f e c t i v e c ha ra c t e r of t he Canadian publ icf inance system i s il l us t ra ted in Table 1 and Graph 1 .We can see t h a t even though publ ic expendi tu r e requi red ar egu la r ly inc reas ing share of t he Canadian wealth (22.1% of theG.N.P. in 1950 and 39.1% in 1974) , th e revenues received by th esystem as a globa l en t ity were s u f f i c i e n t to balance theseexpend i tu r es with , in f a c t , a smal l globa l su rp lus .From 1950 to 1974, the system accumulated a globa l surp lus o f$4. 2 b i l l i o n or 0.3% of the t o t a l revenues . Th e only subs tan t i a ld e f i c i t per iod (1957 to 1963) was th e re s u l t of a de l ibe ra tepol icy designed to f igh t the recess ion of t h a t t ime.During t he per iod , the t o t a l system s howed 15 year l y s ur p lu s esaga ins t 9 year l y d e f i c i t s .

(1) That does not mean t h a t the governments--federal ,provi nc i a l o r 'l oca l - -have not borrowed money duringth e per iod o r increased t he i r deb t . It means t ha tth e balance between d e f i c i t s a t one p o i n t has beencompensated by surpluses a t ano the r . For i ns t ance ,pens ions or o t he r funds may have investments outs idethe system t ha t compensate fo r debts c rea ted a t othe rpar t s of the system.


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GRAPH No.1GLOBAL EVOLUTION ON THE CANADIAN PUBLIC FINANCE SYSTEM1950-1974

A. Public finance expenditures (_._.)grow faster than Gross National Product ( ( In $ Billion )

62B. Annual surpluses ( :;:;:;::;:::;:;::;::) or defici ts( 8288ii8lll ) of the public finance system .

C. Cumulative ~global surp lu s (of the period.

$ Billions

1 - - - - - ~ 5


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ABLE ITHE CANADIAN PUBLIC FINANCE SYSTEM (1)

1950 - 1974( in $ mil l ions)

GROSSNATIONAL GLOIlI\L G:JIIERNMENr GLOIlI\L== GLOIlI\L SURPWSESPRODUCT REVENUES EXPENDITURES DEFICITS

$ $ %(2) $ % (2) $1950 18,491 4,634 25 . 1 4, 080 22.1 ... 5541953 25,833 6,B95 26 . 7 6, 812 26 . 4 ... 831956 32,058 8, 496 26 . 5 8,224 25.7 +2721959 36,846 10,046 27.3 10,647 28.9 -6011962 42,927 12,491 29 . 1 13, 197 30 . 7 -7061965 55,364 16,761 30 . 3 16 ,554 29.9 . ., 2071968 72,586 24,974 34 . 4 24 , 472 33 .7 .... 5021971 93,462 35 , 316 37 .8 35,207 37.7


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FACT No . 2: THE BALANCE AND THE EFFECTIVENESS OF THE PUBLICFINANCE SYSTEM HIDES 'I'HE GLOBAL IMBALANCE OFLOCAL GOVERNMENT FINANCES WHICH IS A CONSTANTAND INCREASINGLY STRIKING FEATURE OF THE SYSTEM.


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We have seen in Fact No. 1 t h a t the Canadian publ ic f inance sys -tem, as a whole, has succeeded s ince 1950, in normally balancingi t s expendi tures aga ins t i t s revenues , accumulating fo r t h a tperiod a smal l surp lus o f 0.3% o f th e t o t a l revenues ($4.2 b i l l i o n s ) .This balance was th e n et r e s u l t of a compensating system amongth e three lev e l s of governments and of the i n s t i t u t i ons undert h e i r co n t r o l .Table 2 and Graph 2 i l l u s t r a t e t h i s f a c t .Th e fede ra l government accumulated a surplus fo r th e per iod of$2.815 b i l l i on (or 2.04% of i t s t o t a l revenues , being the r e s u l tof 11 d e f i c i t s and 14 su rp luse s . )P rov inc ia l governments dur ing th e period had 8 surpluses and 15d e f i c i t s accumulat ing a 25-year d e f i c i t of $1.936 b i l l i on o r0 . 78 % of t he i r t o t a l revenues . (1)Local governments , on the othe r hand, did not r e g i s t e r a s ing lesu rp lus , and added up 25 year ly d e f i c i t s fo r a t o t a l o f $7.571b i l l i on fo r th e per iod (11. 2% of t h e i r globa l revenues) . ( 2 )Local government i s th e only l ev e l of government t h a t cons tant lyadds d e f i c i t upon d e f i c i t .Why?

(1 ) It should also be noted t h a t i f the Canada Pension andQuebec Pension fund con t r ibu t ions were shown as govern -ment revenues , . ra the r t han separa te ly , in these s t a t i s t i c son Canadian publ ic f inance , the provinces would show as t rong surp lus p o s i t i o n .(2 ) It should be noted t h a t globa l publ ic f inance f igure stake account o f a l l opera t ing and c a p i t a l expendi tures ina year . Because l o ca l governments are no t permit ted tobudge t fo r a d e f i c i t on opera t ing or cur ren t accounts ,many Canadians are not aware of cont inuous municipalborrowing for c a p i t a l expend i tur es which i s requ i red byth e d i f fe rences between overa l l expendi tures and revenues .


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GRAPH No.2BALANCE AND IMBALANCE OF THE CANADIAN PUBLIC FINANCE SYSTEM19501974 $ Billions

Global SystemCi)

Federal@

Provinces(])

loco I governments@

Hospitols@

Canada and Quebec pension funds@

ii' I , t t , I I i I I ,1 9 ~ 53 56 59 62 65 68 71 74

A. Yearly surp luses ( II1II) and yearly delicits ( _ )

B.Accumulated surp luses ( III )delicit. ( ) 01 the period.


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TABLE 2BALANCE AND HlBALANCE IN THE CANADIAN PUBLIC FINANCE SYSTEM(l)

1950 - 1974(mill ions of dollars)

TOTAL FEDERAL PROVINC I AL LOCAL HOSPITAL PENSION PLANFED . & QUEilEC

1950 554 650 - 4 - 921951 826 971 4 - 1491952 57 195 61 - 1991953 83 . 151 107 - 1751954 - 272 - 46 53 - 2791955 - 40 202 22 - 2701956 272 598 - 44 - 2821937 - 19 250 16 - 2851956 - 1078 - 767 - 50 - 2611959 - 601 - 339 - 13 - 2491960 - 670 - 229 - 213 - 2281961 - 835 - 410 - 281 - 128 - 161962 - 706 - 507 - 56 - 135 - 81963 - 624 - 286 - 99 - 198 - 411964 99 345 - 81 - 141 - 241965 207 544 0 - 367 301966 425 231 - 174 - 327 - 11;, 7091967 148 - 84 - 334 - 337 16 8871968 502 - 11 - 56 - 436 2 10031969 1915 1021 319 - 542 4 11131970 806 266 -229 - 470 4 11931971 109 - 145 -4 80 - 526 -.1 8 12781972 - 28 - 600 - 690 - 247 136 13731973 1193 222 - 130 - 315 - 53 14691974 1928 593 410 - 933 82 1776

+ 4251 +2815 -1936 - 7571 ... 142 +10801

(1 ) Source: R ~ p o r t of th e Tri - Level Task Force on Public Finance, February 1976, Volume I I , pp. 85,86 ,87 ,88 ,89

('-- ~ -- ~ -- ,


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FACT No . 3 : THE CONSTANT IMBALANCE AND DEFICITS OF LOCALGOVERNMENT ARE NOT DUE TO CARELESS SPENDINGOR LACK OF CONTROL BY LOCAL ADMINISTRATIONS.


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We have seen in Fact No. 2 t h a t l o ca l government has notbalanced i t s annual globa l budget from 1950 to 1974 . . Moreover,th e do l l a r amounts o f t h i s annual imbalance are inc rea s ing .What i s wrong?Table 3 and Graphs 3A and 3B i l l u s t r a t e th e fol lowing:a) Publ ic expendi tures under the con t ro l o f l o ca l governmentshave increased as a percentage of th e G.N .P. dur ing theper iod : 4.9% to 8.5% (Educat ion and l o ca l se rv ice s havebeen in g r ea t demand and have fol lowed the genera l t rendin publ ic s e r v i ce s . In 1974 , expendi tures of loca lgovernments were in excess of $12 b i l l i on , compared to

$900 mil l ion in 1950 , an inc rease of $11 b i l l i o n ) .b) But the f edera l and prov inc ia l governments increased t he i r

expendi tures to $38 . 5 b i l l i on in 1974, compared to $3b i l l i o n in 1950 , an inc rease of $35 b i l l i on .c) While the combined fede ra l and prov inc ia l share of theG. N. P. has grown by 10 percen tage points (17.2 % to 27.4%)in 25 years , loca l government expend i t u r e s have r i sen by3 . 6 percentage poin t s (from 4 .9 % to 8.5%).There are more than 4 , 000 municipal governments in Canada . Onemight expec t then t h a t th e cos t o f managing th e munic ipa l i t i e swould be enormous. But looking a t the admin i s t ra t ive overheadco s t of each l ev e l of government , we see t ha t , in 1974: - -1) More than 4 , 000 munic ipa l i t i e s spent $23.46 per cap i ta ongenera l government ;2) Ten prov inc ia l governments spent $69 . 42 per cap i ta ongenera l government;3) One federa l government spent $77.55 per cap i t a on genera lgovernment.The foregoing i s i l l u s t r a t e d in Table 4 and Graph 3C .


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GRAPH No.3PUBLIC EXPENDITURES OF LOCAL GOVERNMENT AND THE FEDERAL AND PROVINCIALGOVERNMENTS IN CANADA. 19501974

A. Global dollar expenditures oflocal governm ent - ( I ) nd combined federaland provincial governments expenditures ( []1($ billions). 45

B. Public expenditures of loca l government (and combined federal and provincial governmentexpenditures I ,,'''''''''';;;) as a % of the G.N.P.: : : .. , ..

403530252015105o

30

15

o

80,, 70, ; f 60"ederal I 50I ,I ~ I 40, , .:.. Provincial. 30

20local 10

o69-70 71-72 73-74

70-71 72-73 74-75C. General governmentadministration expendituresas "per capita basis",


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3

G.N .P. DEPlliSES PUBLIQL"ES$ %

18,491 4, 080 22 . 125,833 6,812 26 . 432,038 8,224 25 . 736,846 10,647 28 . 942,927 13,197 30 . 755,364 16,554 29 .972,586 24,472 33 . 793,462 35,207 37 . 7

140,880 55 , 043 39 .1

TOTAL GOVERN,-!EN'f' EXPE1:DITUIlr '(mi l l i on s o f do l l ar s )

1950 - 1974

FEDERilL & POOVIXCLlIL F E D ~ R A L PRJVIXCIr1L'$ % $ % $ %

3,178 17.2 2,119 11. 5 1, 059 5 .75 , ~ 5 5 21.2 4 , 246 16. 4 1, 239 4. 86,369 19 . 9 4,6!5 14 . 4 1,754 5. 58, 090 22 .0 5 , 598 15.2 2,492 6. 68 . 984 20 . 9 6,352 2,632 6.1

10, 888 19 . 7 7,140 12. 9 3,768 6. 816, 187 22 . 3 9, 857 13 . 6 6 , 330 8 . 723 , 551 25 . 2 13,062 14.0 10 , 489 11. 238 , 517 27 . 4 22,6lt. 16.1 15,903 11.3

: Report of th e Tri - Level Task Force on Publi c Finance , Volume I I , p. 17 , 38 .Loca l inc ludes municipal i t ies and school boards

, -

=(1) IiOSPI 'I'I'\L P!::$ % $ . $'.902

1, 327 5.11,855 5.82,557 6. 92,356 7. 8 857 2. 04,490 8.1 1176 2.16, 384 8. 8 1864 2. 6 378,785 9. 4 2671 2.8 200

12,003 8. 5 3981 2. 8 542


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TABLE 4

EXPENDITURES ON GENERAL GOVE;UWNT

(1969 - 70) - (1974 - 75)

FE.DERAL PROV I NCIAL L 0 CA LTOTAL PER CAPITA TOTAL PER CAPITA TOTAL PER CA?ITA

$ million $ $ million $ $ millim $1969 - 70 760.7 36 . 18 590.7 28.15 31 3 . 7 14 . 951970-71 960 . 2 45 . 03 680 . 1 31 . 97 334.2 15 . 711971 - 72 1134.4 52.53 833 . 2 38.68 336 . 0 15.601972 - 73 1282 . 5 58.70 884 . 5 40.59 361. 7 16 . 601973-74 1411. 8 63.80 1066 . 5 48.33 444.6 20 . 151974 - 75 1743 . 3 77 . 55 1556 . 7 69 . 42 526.1 23 . 46

SO"..lrce: Repo r t of the Tri - Level Task Force Volume I I pp . 48, 62 , 72 , 76 , 266 , 270 .


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FACT No . 4: THE FISCAL IMBALANCE OF LOCAL GOVERNMENTS ISDUE TO AN IMPROPER DISTRIBUTION OF REVENUESIN THE CANADIAN PUBLIC FINANCE SYSTEM .THIS SYSTEM HAS PROVIDED THE FEDERAL ANDPROVINCIAL GOVERNMENTS ACCESS TO A VARIETY OFREVENUES WHICH RESPOND TO THE ECONOMY (WHETHERREAL GROWTH OR INFLATION) , WHILE LOCAL GOVERNMENTHAS TO RELY MOSTLY ON ITS TRADITIONAL ONE - TAXSOURCE--THE PROPERTY TAX.


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Local government i s not the big spender .The roo t of l o ca l government ' s f i s c a l imbalance i s the l ack o faccess to adequate tax revenues of i t s own.A. S h o r t f a l l of l o ca l government 's revenuesTables 5 and 6 and Graph 4a descr ibe t h i s problem of the Canadianl o ca l governments .In Table 5 and Graph 4a, it i s shown t h a t th e fede ra l governmenthad , in every year s ince 1950, more revenues of i t s own than wereneeded to meet i t s own d i r e c t expenses ( t rans fe rs to othergovernments excluded) . (1)The prov inc ia l governments (g lobal ly) have been in a s imi la rpos i t ion s ince 1962 . (2)In both cases , the annual amount of revenue surp lus involved i sinc reas ing , r each ing near ly $7 b i l l i on fo r the fede ra l andnear ly $5 b i l l i on fo r th e prov inces . (Table 5)Only loca l government i s forced to meet r egu la r year ly s hor t f a l l sin i t s "own r evenues" . The graph i l l u s t r a t e s t h i s f a c t .Table 4 and Graph 3a show also the ne t r e s u l t of the f inanc ia lshor t f a l l which i s the n e t imbalance of loca l government f inances ,i . e . - - the n e t year ly d e f i c i t s shown here in percentage of th et o t a l expend i tu res . While the fede ra l and prov inc ia l governmentsmain ta in a r e l a t i ve balance of t he i r f inances (pos i t i ve fo r th ef edera l , and r e l a t i ve ly negat ive for the p r o v in c i a l ) , loca lgovernment has a so l id " in thered" cons tant s i t u a t i o n .

(1) This i s no t an argument aga ins t the r e d i s t r i b u t i o n o frevenues , which i s a l eg i t imate funct ion of fede ra l andprov inc ia l governments to equa l ize the capac i ty of provincesand l oca l governments to provide publ ic se rv ice s .

(2) To a l a rge ex ten t , t h i s i s the r e s u l t of t ax -sha r ing .


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GRAPH No. 41FISCAL IMBALANCE OF GOVERNMENT IN CANADA 19501974

A. Yearly shortfall ( ~ or yearly surplus ( ~ ) of own revenues against own expendituresof the three levels of government.billion )7 . - ~ ~ - - ~ ~ - .

FEDERAL PROVINCIAL6 LOCAL543210

195053 56 59 62 65 68 71 74

($ bil

56

8. Net yearly surplus ( I t I ~ I ) or deficit ( l1li as a % of yearly total revenus from all sourcesfo r lock level of government (including transfers)16 .:

...

12 .8 :/o ~ ~48

1216

FEDERAL

24 L-____ ________

PROVINCIAL2420161284

48121620

L - ~ __________ -J 24

LOCAL


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?ABLE SURPWSES & SOORIYl\Ll..S OF am REVENUES IN RUATION ro "'oN DIRECT EXPEl


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TABLE 6

1950195119521953195419551956195719581959196019611962196319641965196619671968196919701971197219731974

(1 ) source :

FISCAL IMBALANCE OF THE THREE LEVELS OF GOVERNMENT AS % OFTHE TOTAL R E V E N U E ~ INCLUDING TRANSFERS OF EACH G O V E R N ~ f f i N T

1950 - 1974

GLOBAL FEDERAL PROVINCIAL..11 . 95 +21 . 52 -0 .32

-t2 3 . 31 0 .2 8-r 0 . 85 4 . 16 +4 . 05+ 1. 20 -1" 3 . 13 +6 . 73- 3 . 98 - 0 . 99 +3. 19- 0 . 53 .,. 4 . 03 +1 . 52+3 . 20 >10 . 49 - 2.12- 0 . 21 ... 4 . 40 +0 . 66- 12 . 15 - 1 4 . 18 -1 . 90- 5 . 98 - 5 . 52 - 0.41- 6 . 25 - 3 .51 - 6 . 41- 7 . 34 - 6 . 04 -7 .66- 5 . 65 - 7 . 26 -1 . 26- 4 . 68 - 3 . 90 - 2 . 07. 0 . 65 +4 . 1 2 - 1. 49+1. 23 +5 . 98 0 . 00.. 2 . 17 .2 . 31 - 2.35, 0 . 67 - 0 . 77 -3 . 82+2.01 - 0 . 09 - 0 . 54.,.-6 . 57 .7 . 04 +2 . 66+ 2 . 52 '1 . 71 -1 . 64+0 . 30 - 0 . 84 "2 . 99- 0 . 07 - 3 _07 - 3 . 88+2 . 60 +0 . 98 - O. 63+3 . 38 +2 . 02 . 1. 62+ O. 25 i-2 . 04 - 0 . 78

LOCAL-11 .2 0- 15 .7 6- 18 , 63- 14 . 99- 22 . 23-1 9 . 18- 17 . 72

- 15 . 61- 12 . 68- 10 . 67- 8 . 77- 4 . 48- 4 . 15- 5 . 67

- 3 . 77- 8 . 82- 6 . 77- 6 . 21- 7 . 25

- 8 . 13- 6 . 1 5- 6 . 31- 2 .6 9_ 3 .1 6- 8 . 38

- 10 . 39Report of the Tri - Level Ta sk Force on Pub l i c Finance , pages 85 86 , 87 , 88 . Volure II .


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TABI1L7G L O B ~ GOVE fuil4ENT TAX REVENUES BY SOURCE

1950 - 1974(mi l l ions of dollars ) GLOBAL INCREAS1950-1974

1950 1956 1962 1968 1969 1970 1971 1972 1973 1974 S million %

Tax Fields (fed . & prov . )InC(:!';'E ta x 612 1496 2316 5922 7730 9148 10194 12007 13615 17333 1"721 29C O ~ v O r a t i o ~ Tax 993 1432. 1732 2833 3700 3189 3181 2919 4912 676B 5775 10

1605 2928 4048 8733 11430 12337 i3375 14926 18527 24101 22496 40Untr ibut ions 248 492 821 1534 2 ~ 6 5 2691 2800 3053 3511 4574 4326 7

1853 3410 4869 10289 13895 15028 16175 17979 22038 28675 26622 470.-;.1 F:.eld

C..:stre. L ~ : : t . 257 636 740 818 B14 988 1182 1384 1809 1552 2E.xcise :-..It..!.es 226 267 3i9 503 6699 5853 10Excise Taxes (gen . sales tax) 620 1131 1369 2L;94 3115 3159 3598 4042 4948

1103 :9


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- 2 -

B. No access of l o c a l government to growth t axes .Federa l and prov inc ia l governments can balance l:he i r budgetsbecause they have access to growth t axes .Tables 6 and 7 and Graph 4b show t h i s .The growth of persona l income and improved r eg iona l d i s t r ibu t ionamong Canadians has made th e persona l income tax the most product iveta x resource in Canada.Income taxes produced 40% of the t o t a l inc rease in g loba l l:axrevenues from 1950 to 1974. (Graph 4a)Other newly product ive revenue sources are combined under th e title" a l l o the r s " . Only the fede ra l and prov i nc i a l governments haveaccess to these , which a re rap id ly increas ing t h e i r share of theg loba l f i s c a l r e sources . They have produced 26.7% of thet o t a l increase of revenues . They inc lude na t u ra l resource revenuesand expor t t ax .The "cont r ibut ions" to var ious s oc i a l programs - pens ion funds,unemployment insurance , medicare - a re j u s t s t a r t ing t.o becomel a rge revenue producers , when compared to income and sa l e s taxf i e ld s .A ll of these sources of revenue a re e i the r shared by, or reservedf o r , the f ede ra l and provinc i a l ~ o v e r n m e n t sWhat about l oca l governments?They are l e f t with the proper ty tax .The property tax has produced 6.7% of the 1950 - 1974 increase ofrevenues of the publ ic f inance system of Canada. That i s as ubs t an t i a l a c h i e v e m e ~ t . cons ider inq the c h a r a c t e r i s t i c s of t h i st ax . The proper ty tax genera ted $4.108 b i l l i o n in 1974 - tent imes the yie ld in 1950. In the same per iod , the G.N.P. l oseapproximately 8 t imes , so t h a t proper ty t axes a $ a percentage ofG.N.P. rose from 3.5% to 4.2%.The f ac t i s t ha t the proper ty tax i s j u s t not ab le to producethe revenues t h a t l oc a l government needs.


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GRAPH No. 4 IIGROWTH AND RECENT TRENDSIN REVENUES FROM VARIOUS TAX FIELDS19501974

A . Re venu es from--- l pro pe rty ta x( - - - - ) income ta x(. . . . . . . . . ) Cu s tom & Excise duties & taxes( ) Retail and consumption ta xes( .. . ) Contributions(_ - _ _ ) Othe r fi e ld s

- '- -~ : : : : : : :..........-....,..1950 62

I

..... .

/

I

,,//,

>

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