This is Cardus's analysis of the Government of Canada's budget for the fiscal year 2012-2013, released by the Hon. James M. Flaherty, Minister of Finance on March 29, 2012. This budget represents a consistent picture of Prime Minister Harper's big tent Conservative party and its vision for Canada's future: a thinner, classical federalism, predicated on a decentralization of responsibility and a devolution of authority.
But that federalism is a long, long time coming, and the interminable wait may fracture the governing party. At least six competing factions within the Conservative party will find an array of disappointments, either delays or omissions, in this budget, exposing fault lines that will shape the country's politics for years to come.
Section 91/92 and the Long, Slow, Crawling Death of Executive Federalism
The Prime Minister himself outlined his federalist strategy in a March 2006 interview:
It's always been my preference to see Ottawa do what federal government is supposed to do . . . Ottawa has gotten into everything in recent years, not just provincial jurisdiction but now municipal jurisdiction. And yet at the same time if you look at Ottawa's major responsibilities, national defence, for example, the economic union, foreign affairs, beginning obviously with the most important relations, the United States, Ottawa hasn't done a very good job of these things.
(As quoted in a March 2006 interview with Policy Options.)
In the March 2007 budget the Prime Minister began putting this vision in place. The Prime Minister committed to back out of provincial jurisdictions, put formal limits on the use of federal spending power for new shared-cost programs in areas of exclusive provincial/territorial jurisdiction, renewed formulas for equalization payments, and acknowledged that both health care and infrastructure were exceptions to his sections 91/92 rules.
Has that federalism been realized?
With last November's revised targets from Minister Flaherty, that the 2013-2014 federal deficit would still stand at $17 billion, the expectation was for as much as $12 billion in federal spending cuts to come over the succeeding three fiscal years.
This budget predicted a $10.2 billion deficit in 2013 and rolled out plans for $5 billion in spending cuts, and 19,200 federal job cuts over the next 3 years. A $1.3 billion deficit was predicted for 2014/15, and a $3.4 billion surplus budget in 2015/16. This budget moved slowly on big plans, phasing in hot button issues like the old age security only at a snail's pace.
The most impacted federal sectors were agriculture, natural resources, public service commission, shared services Canada, transport and treasury board. The least effected was veterans affairs.
For those who share Cardus' belief that a renewed social architecture will be enhanced by seeing institutions other than government grow in capacity, there is little encouragement to be found in this budget. The innovation agenda is being driven by a continuing complex array of tax credits and specific programs, leaving government very much in control of the levers rather than relying on organic innovation. The charitable and not-for-profit sector was only the focus of increased regulation, enforcing the 10% limit on political engagement, and giving new tools to CRA to suspend the charitable status for a year of any charity that transgresses the boundary.
In light of the involvement of some charitable organizations in opposing the government's agenda on issues like the Northern Gateway pipeline and environmental issues, the immediate motivation for some of these provisions are clear. However the priority given to increasing the regulation rather than the capacity of the charitable sector is a regrettable trend in the wrong direction, even if there are some legitimate short-term concerns being addressed.
In short, while the blueprint to Harper's federalism remains, its glacial implementation may cause as many problems as solutions.
Which Conservatives won?
Federal budgets set vision, but they also play politics. In this budget, the slothful erosion of executive federalism will be met with mixed reviews by the conservative camps within his constituency. Who stands to win, and who stands to lose will shape both the fault lines in the party, and the reconstitution of this government's opposition.
Due in large part to its economic stimulus package in 2009, federal program spending has increased by 36.7% since the 2005-2006 fiscal year and the federal civil service has expanded by about 15.3%. Not including federal Crown corporations, there are more federal government employees today than even before the Jean Chretien Liberal government took the reins in the early 1990s. This budget continues to leave that imbalance in place, with program spending increasing by $12 billion over three years. There is an increasingly complex array of tax incentives and specialized programs.
The planned reductions in federal employment would reverse only 20 per cent of the increase in the federal public sector that has occurred since the late 1990s. In 1998 the federal government employed 300,000 people, while in 2011 just under 400,000.
There is not a great deal in this budget for libertarians to like, even if minimalism such as in sections 91/92 will continue to earn the loyalty of libertarians with nowhere better to go. Libertarians doubt the wisdom of relying on growth projections to eliminate the deficit, and this slow, steady return to balance may be too slow, and too steady to satisfy most.
2. Populist/Democratic Conservatives
Populists and Democrats who have long lobbied the federal government to be more representative, and to structurally redefine itself to that end, may find their lobby met through the back door. Budgets contain very little on structural or democratic restructure, but given this one's provision for classical federalism it empowers successively lower levels of governance, and therefore implicitly serves a populist agenda. What the Prime Minister could not restructure more democratically, it simply shifted down to lower, more democratic, levels of governance. Reform in the House of Commons and the Senate may be long in coming, but reducing the House's responsibilities and devolving these to the provinces and others is one way of ensuring a populist win with minimal constitutional hassle.
3. Social Conservatives
Social conservatives will find as little to like in this budget as they have in the past Conservative budgets. Although the nominal promise of income splitting remains for a balanced budget, this government has made a very clear, very consistent message that it will not be in the business of regulating moral issues, even ones of clear federal jurisdiction. Social conservatives advocating a broader social agenda, on issues like non-governmental institutions, charitable and not-for-profit activism, will also find a conspicuous absence here.
4. Liberal Conservatives (Reagan Democrats)
Liberal Conservatives will find this budget a mixed bag. This government's multilateral trade agenda moving into this budget will diversify Canada's options in the global economy, increasingly reduce its risks in flagging American markets, and define Canada by a global economic posture which exceeds American interests.
So on the one hand, the erosion of executive federalism means a further decentralization of the meaning and values of the Canadian federation. On the other hand, a revitalized trade program pushes Canadian interests and identity abroad, rather than the usual neat genuflection south of the 49th parallel. The engine of this new identity politics is undoubtedly pragmatic and economic, but it cannot be easily reduced to Americanization. This will raise some altogether new cultural questions for Liberal Conservatives, and for Canada.
5. Fiscal Conservatives
Fiscal conservatives will be the happiest with this budget, concerned as they will remain about the scale of federal debt and the prospects of lower tier governments suffering under increased responsibilities. Fiscal Conservatives will be more patient than libertarians, less obsessed simply with reducing government, more concerned with balancing the spending and size of government with the tax base. This budget is therefore more or less good news for fiscal Conservatives.
In it the federal government projected a return to balance by 2015/16, with the possibility of a narrow enough deficit in 2014/15 that the government may well balance the books early. Devolutionary fiscal accountability mixes well with populist sensibilities, and overall this budget will satisfy fiscal conservatives in the Conservative party.
6. Red Tories
It's hard to say where the endangered species of Red Tories will land on this budget, as successive budgets and election campaigns have in many ways bred a certain pragmatism in the descendants of the Progressive Conservative Party. Again, these Tories may find a thicker federalism more to their liking, and thus resist this kind of renovation, concerned that spinning off so many powers will reduce the country to economic sub-units, finally galvanized by nothing more powerful than a monetary union. The rise of the Red Tories may be more inevitability than possibility, as conservative-minded constituents east of Manitoba oppose the shift of economic and political power to the West, and its more individualist and libertarian politics.
Is this budget enough to rally the Conservative party's various conservative factions around Prime Minister Harper's classical federalism? Maybe. Populists and fiscal conservatives will find a better home in this budget, and in this government, than will social conservatives, liberal conservatives and Red Tories. Libertarians simply have nowhere better to go. The coalition will hold, for now, for want of a better alternative. It is better to lobby in the halls of power, than swelter in the ignominy of a scattered and defeated opposition. But that opposition will not be destitute forever, and with the purse of Conservative fracture to unite it, a shrewd opposition will find a way to tempt disaffected Tories over the line from the Prime Minister's federalism. Much depends on Canada's opposition parties, and their capacity to capitalize on this disaffection and to pull support from the Tories.
The Harper Doctrine appeals to much of the Conservative base, but not enough to sustain the big tent conservatism needed for perpetual power, and not at the pace this government is executing it. What remains to be seen is for how long, and to what extent, the inevitable fault line conflicts will damage the party.