Finance Committee on May 7th, 2026

[The Vice-Chair (Jasraj Hallan (Calgary East, CPC)), Conservative, Jasraj Singh Hallan]

I call this meeting to order.

Good morning, everybody. We'll get started with our meeting today. Welcome to meeting number 38 of the House of Commons Standing Committee on Finance.

I'll remind you that all comments should be addressed through the chair.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, March 9, 2026, the committee is undertaking a study of the federal spending power.

I would like to welcome our witnesses. All virtual witnesses have conducted a mandatory witness onboarding test.

You will have five minutes for your opening remarks, after which we will open the floor to questions.

We'll start with Daniel Béland, who is appearing as an individual.

Go ahead. You have five minutes.

[Daniel Béland, Director, McGill Institute for the Study of Canada, As an Individual]

Thank you very much for your invitation.

Good morning. Thank you for giving me the opportunity to share my views on the federal spending power.

The federal government's spending power is not explicitly enshrined in the Constitution, and efforts to establish a framework for it under the Meech Lake and Charlottetown accords were never implemented due to the failure of those agreements. In this context, Parliament—including your committee—is responsible for working on a framework for this power.

Today I want to focus on equalization, a large-scale use of the federal spending power that, as the late Tom Kent once remarked, is now featured in our written Constitution. As stated in subsection 36(2) of the Constitution Act, 1982:

Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

Despite this constitutional embeddedness of the general principle of equalization, the concrete federal equalization program and the formula used to calculate payments received by provinces that are entitled to benefit are enduring sources of controversy across the country in both receiving and non-receiving provinces.

For example, in 2024, the Government of Newfoundland and Labrador filed a lawsuit against the federal government based on the claim that the equalization program does not achieve its constitutional purpose. British Columbia and Saskatchewan decided to intervene in that court case to express their grievances about the current equalization formula.

Regardless of one's views on these developments, their very existence underscores the importance of the ongoing debate across Canada regarding the operation of the equalization program. In 1957, this program inevitably sparked controversy due to its complexity—which leaves ample room for political manipulation, with many half-truths or even outright lies circulating about equalization—its size, approximately $27 billion in 2026–27, and its explicitly redistributive nature, since only provinces with fiscal capacity below the national average receive payments from the federal government.

Obviously, equalization is not the only federal transfer. The health transfer, for example, is much larger than equalization, and all provinces receive it on a per capita basis.

Though controversial, equalization is also a necessary policy instrument to reduce horizontal fiscal inequality among provinces and help less well off provinces offer quality public services to their population without any strings attached. This unconditional nature of equalization payments is consistent with provincial autonomy while reinforcing social citizenship and fiscal solidarity across the country.

Because equalization is both controversial and necessary, but also because of changing economic and fiscal circumstances, the equalization program must be reviewed on a regular basis. The current equalization formula was adopted during the early Harper years, based on the recommendations of the 2006 report of the expert panel on equalization and territorial formula financing.

It is time for the federal government to consider establishing a new expert panel on equalization to assess the current equalization formula and the program's effectiveness in light of current economic and fiscal conditions, while considering potential changes to the calculation of provincial fiscal capacity, as well as the possibility of taking provincial spending needs into account when calculating payments to receiving provinces, and even establishing a permanent independent commission to advise the federal government on these matters.

I can, of course, say more about this later during the question period.

Thank you very much.

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Thank you, Mr. Béland.

Next, we have William Robson from the C.D. Howe Institute.

You have five minutes.

[William Robson, President Emeritus, C.D. Howe Institute]

Thank you, everyone, for being here.

I hope my remarks and answers to your questions will help your work. I do look forward to the questions and will do my best to answer any related to specific federal programs and recent developments.

For an opening, I hope it will help to provide an overview that focuses on intergovernmental transfers over time and a bit of context for thinking about their appropriate size and structure in the future.

If you do find my remarks helpful, please give credit to my C.D. Howe Institute colleague Alexandre Laurin. He and I wrote a report on intergovernmental fiscal arrangements for the institute in 2015. We got invited to update that paper for The Handbook of Canadian Public Administration in 2018 and for the OECD in 2020. In the field of fiscal federalism, that's a “greatest hits” album.

That paper surveys the history of federal spending that was directly or indirectly funding activity in areas of provincial jurisdiction. I’ll summarize it in four points.

First, amounts spent and raised by different levels of government in Canada have never coincided. The federal government has always raised more, and provincial, territorial and local governments less, than required for their own programs, so transfers from the federal to other governments have been a feature of Canadian fiscal policy since Confederation.

Second, these transfers were initially modest. They grew as the role of governments in providing services and redistributing income grew. If you look at the Department of Finance’s fiscal reference tables, they show federal cash transfers, as recorded in the revenues of the provinces and territories, at about $127 billion in the 2024-25 fiscal year. That is up enormously from a decade ago, but the federal government, of course, has been expanding quite rapidly in its spending since then. To put them in scale, the transfers shown in the fiscal reference tables would be about a quarter of the spending of the federal government and about one-fifth of the revenues of the recipient governments. Those figures do not capture everything relevant to a discussion of the federal spending power, but they indicate that we are talking big and influential amounts.

Third, Canadians—and Professor Béland just gave us a taste of this—have been prominent commentators on fiscal federalism. Canadian economists, historians and political scientists have provided many insights about how to allocate taxing and spending powers and how to design intergovernmental transfers. This committee can draw on lots of Canadian expertise, as it is now doing, for theory about externalities and efficiencies of centralization of revenue and reconciling those with the merits of subsidiarity and different preferences across the country.

Fourth, notwithstanding those theories, the specific changes in federal-provincial transfers in Canada have been very much the products of particular circumstances. We've seen fiscal pressures in the 1930s on the provinces, and then the Second World War, and the federal government’s debt problems in the 1990s. There have been political pressures: Health care has been a major story since the 1960s, and there have been differences in the enthusiasm of inhabitants of different provinces for federal encroachment on provincial jurisdiction.

I do not know of any insight from economists, historians or political scientists that dictates that the gap between revenue and spending at the federal and provincial levels should be as large as it is now or that the transfers that bridge it should be structured as they are now.

In the interest of time, I will close with two thoughts about forces that may affect federal spending in areas of provincial jurisdiction in the future.

First, we are probably transitioning from a period when fiscal policy felt unconstrained to a period of more constraint. The pressure of rising health care demands on provincial budgets is unrelenting. The federal government is facing rising interest costs and huge defence commitments, while feeble productivity growth constrains its ability to raise taxes.

Second, especially at a time of acute discontent in some provinces and regions, we should be conscious that different types of intergovernmental transfers can affect the efficiency, accountability and sustainability of public finances and major programs. The federal and provincial governments have access to essentially the same tax bases, and I think it would be good for the federation if the revenue-raising and spending powers of governments at each level were better aligned.

Thank you again for your attention and for the invitation to be with you. I look forward to your comments and your questions.

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Thank you, Mr. Robson.

Next, we have Robert Laplante.

You have five minutes.

[Robert Laplante, Director, Institut de recherche en économie contemporaine]

Good morning, everyone.

Thank you, Mr. Chair, for giving me this opportunity to share with you some of my thoughts on what, in my view and according to the conclusions of many experts, is undoubtedly the main driving force behind federal-provincial relations in Canadian federalism.

I will not revisit many of the points raised by Mr. Béland and Mr. Robson, who preceded me. I agree with them that not only is there an imbalance in the resources available to the Canadian government and the provincial governments, but also that this imbalance has fostered a certain degree of confusion since the adoption of the British North America Act.

This confusion has a major impact, not only on how parties operate, but also on the overall governance of the Canadian state, insofar as, over the decades, the various arrangements aimed at restoring a certain balance in the distribution of resources have consistently led to confusion about priorities. This confusion has a significant impact on the operation of government insofar as its departments, in step with the transformations of the political apparatus itself—meaning, in step with changes in the parties in power—will, in a sense, become the receptacles for these accumulated conflicts about priorities.

Over the years, program design has been particularly shaped by the various arrangements that must be made to operate. This competition between objectives means that program design is also reflected in the political debate on issues relating not only to the potential contradiction between priorities across different levels of government, but also to questions concerning what might be called the optimal use of public resources.

If we consider the overall volume of taxes collected, it is clear that not only the imbalance in revenues but also the mounting tensions surrounding the allocation of priorities mean that there is no overarching mechanism within the system to optimize the use of resources.

Equalization, in its latest form, may be a step in this direction. However, other methods of revenue distribution mean that the seeds of a growing fiscal imbalance are always present. Different governments will gradually, depending on their political platform, attempt to curb this expansion or attempt to stimulate it, to the extent that there will be a position on how to build the state within federalism.

This disparity in resources always gives the central government an advantage and inevitably fuels a push toward greater centralization and ongoing disputes with the provinces. The provinces often complain about the federal government's ability to spend funds in various ways and impose obligations on them over which they have little control and on which their citizens have not necessarily had the opportunity to weigh in.

I would say that's—

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Thank you, Mr. Laplante. That's your time.

We'll open up the first round of questioning for six minutes.

We'll start with Mr. Kelly.

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

Thank you, Mr. Chair.

I'm not sure who to start with. I think I'll start with Mr. Robson.

We heard all the witnesses talk about the distribution of revenue, outflows and inflows, that kind of thing. I think any discussion of equalization, which all witnesses touched on, ought to start with some clarity and understanding that this is really about one province's far outsized contribution financially to the equalization system and the ability of the federal government to spread money throughout the country, and that's Alberta.

There are various studies and statistics out there that suggest the net outflow is on the order of $600 billion over the decades. Yes, there are other provinces that have contributed a net outflow to equalization. Saskatchewan currently does, and British Columbia and Ontario used to. In the federation, we're now in a situation where the province with nearly 40% of the population is a net recipient of equalization.

To what extent, when we're talking about equalization, are we really talking about Alberta funding the other provinces?

[William Robson]

It's in the nature of any equalization program that the provinces with greater fiscal capacity will transfer some of their resources to the provinces with less fiscal capacity. Alberta, to its credit, will probably continue, under whatever system we adopt, to be a net contributor in the way many other provinces will not.

Having said that, I do want to underline a point that's already been made by my fellow presenters. The formal equalization program is not necessarily the way we need to give expression to what section 36 of the Constitution says. In fact, you could do a very good job of equalizing resources among the provinces if the federal government were to collect money with the taxes it deploys, which are sensitive to income, and redistribute it on an equal per capita basis. Something of that sort happens with the Canada health and social transfers, but there are strings attached, particularly in the health transfer, and the equalization program ought not to have such strings attached.

I know I'm describing a very different system from what we now have, but when you look at how the formal equalization program has changed over time with various caps related to overall GDP and certain provisions put in place to make sure that certain provinces do not become equalization recipients when otherwise the formula would have made them eligible, I think it's fair to say that this program is not very fit for purpose.

I'll repeat what I said earlier: There's nothing in the logic of intergovernmental transfers or theories of federalism that dictates we should have the current set-up, so I think the equalization program is due for a revamp. It could be to the advantage of both the contributing provinces and also some of the recipient provinces, because there is a bit of a welfare wall clawback, as I'm sure members of this group know. When provinces take steps to increase their own revenues, they get penalized by the program. I think it would be worth looking at formulas that would not have that effect.

[Daniel Béland]

Can I add something?

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

Do it quickly. I want to follow up on a couple of his points.

[Daniel Béland]

I used to teach at the University of Calgary, and I lived in Alberta for almost seven years. I have studied Alberta politics. Many people in Alberta support the general principle of equalization. All Canadians and all taxpayers contribute to equalization—

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

Yes, thank you.

[Daniel Béland]

—but the thing is that Albertans want the system to be fair and transparent. That's where the issue is. It's not the principle of equalization per se. There is a possibility to have a real dialogue about how we can improve equalization in a way that's good for the entire country.

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

I'm sorry. I'm going to jump in and move on with my questions, but that is a great point. I can agree with the point that Albertans are generous and they do not object. They understand that the great wealth they have from the resources they extract ethically, sensibly and responsibly.... It's not that Albertans are opposed to sharing. What they are opposed to is a federal government that passes laws that penalize Alberta for its resources and prevent Albertans from extracting their resources.

On doorsteps, we didn't hear people complaining about equalization during the previous government, when the laws were not harming our industry. I heard many complaints about equalization on every one of my campaigns. I can assure you that this is a doorstep issue with voters in Alberta.

I don't know if I have the time for a follow-up question with Mr. Robson.

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Mr. Kelly, that's the time.

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

Thank you.

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Next, we have Mr. Leitão for six minutes.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Good morning, gentlemen. Thank you for being here.

Mr. Béland, I'll start with you.

I would begin by saying that the equalization program is a federal revenue transfer program. Therefore, it is not provincial revenue that is being distributed. It is federal revenue that is being transferred. If the residents of a province have incomes above the Canadian average, more federal revenues will, of course, come from that province.

It's true that the equalization program changes, sometimes in ways that are a bit difficult to understand. I was involved in one of these negotiations in 2016–17, and indeed, this process can be extremely opaque. Perhaps you could elaborate on your thoughts based on where you were in those discussions. How could we make this program slightly more appropriate for the 21st century?

[Daniel Béland]

Yes, absolutely. Thank you for your question.

I think there is the governance aspect, which is often discussed less than the more technical aspects of the equalization formula, which is opaque. It is true that the vast majority of Canadians do not really understand how the formula works, and that is normal, because it is complicated.

Regarding the governance of equalization, therefore, first, I propose that we should establish a new expert committee, similar to the one we had in 2005. Paul Martin appointed five people to that expert panel, chaired by Al O'Brien, an economist from Alberta. There were four other members. They examined equalization and submitted a report in 2006, which was largely implemented by Steven Harper, a Conservative. I think we should undertake a similar exercise, but with a broader mandate.

I think what Mr. Robson said is very important. The important thing about the equalization program is not the program itself. It is the principle. When we talk about fiscal imbalance, we are talking about vertical imbalance, but also horizontal imbalance—that is, inequalities between the provinces, connected in large part, as was mentioned earlier, to the distribution of natural resources across the country.

So, the first step is to say that we are going to look at all the options. How can we achieve equalization, but perhaps not with the formula or even the program we have right now?

Opening that up is always dangerous, in a way. Politically speaking, there's always a risk. That is why the federal government, over the past 20 years, has not wanted to amend the equalization formula again. However, we could ask these experts, these economists, perhaps former civil servants, to look into the issue of horizontal imbalance, but in relation to vertical imbalance, to try to see how we can adopt a more transparent system. For example, I mentioned earlier the idea of not only taking into account the provinces' fiscal capacity, but also the potential cost of services provided in the provinces, while considering factors such as demographic aging and population density, among others. This is what is done in countries like Australia, for instance. So, there are steps to be taken regarding equalization.

I know you want to speak, so I will stop here, but I could tell you much more, and I could send you documents as well. I'd be more than happy to do so.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

I would appreciate that. Our time is somewhat limited.

Mr. Robson, I'll turn to you quickly because time is running out. I'm sorry. Maybe in the next round we'll have time to discuss that further with you.

What do you think of Mr. Béland's idea of creating an independent commission or an independent group to manage equalization?

[William Robson]

I think there's a lot of merit to that. It's been successful in the past. I would like to see a mandate for such a group include a mandate for simplification.

I used to teach equalization to a public finance class. I'm glad I do not anymore. It has gotten very much harder to explain what is going on with that program.

I'll simply say again—you're a former finance minister so you know this, but I'll just underline the point—that if you tax according to the ability to provide revenue and then you distribute equally per capita—and maybe you could have an extra amount for the population over age 65 or over age 70, which is something I've also written on in the past—I think that makes sense. Make it simple. It can't be so complicated that people distrust it, and it can't be so complicated that there's a lot of gamesmanship going on and playing the system in order to get a little bit more for your province. That's effort wasted that could be put to much better use.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Thank you.

To finish, I want to thank you for all your work at the C.D. Howe Institute. I think you've now moved on to another role there. I want to thank you for the good work you did there.

[William Robson]

Thank you.

[The Vice-Chair (Jasraj Hallan), Conservative, Jasraj Singh Hallan]

Thank you, Mr. Leitão.

Next, we have Mr. Garon for six minutes.