chapter 7
CHAPTER 7
SPECIAL REPORT
LOCAL GOVERNMENT IN CANADA
Introduction
Provincial
Canada has a population of 31.5 million as at
October 2002 and an area of 9.97 million square
kilometres. Canada is a constitutional monarchy.
Canada has a federal system, comprising
10 provinces, three northern territories and
about 3700 municipalities.
Provincial legislatures are unicameral. Canada
is a highly decentralised federation and provinces
enjoy a high level of autonomy and authority.
In 1999–2000, provincial–territorial revenues
were 22 per cent of GDP compared with
18.2 per cent of GDP for the Federal
Government. Provinces have a wide range
of revenue sources including sales tax (20.1%),
personal income tax (23%), user fees (8.4%),
corporate taxes (6.2%), investment income (12%)
property taxes (7.4%) and other revenue (13%).
Federal grants make up only 10.7 per cent
of revenue (Peloquin 2002, p. 8).
In 2000, Canada’s gross domestic product (GDP)
was C$1084 billion or C$34 624 per capita
with a GDP growth of 1.5 per cent. Exports
were valued at 43.1 per cent of GDP and imports
at 38.1 per cent of GDP. Unemployment,
as of December 2002, was 7.5 per cent.
Governance structure
Federal
The Federal Parliament consists of the House
of Commons and the Senate. The House of
Commons is elected. Senators are appointed
on a regional basis by the Governor General on
the advice of the Prime Minister. The provincial
governments are regarded as a more powerful
and effective restraint on the government than
the Senate.
In Australia, Federal grants (20%) and goods and
services tax (24%) make up 44 per cent of the
States’ revenue.
The Canadian Federal Government and provinces
share income tax. Provinces raise their own taxes
and receive three major transfers – the Canadian
Health and Social Transfer, and Equalisation.
Territories also receive support through the
Territorial Formula Financing transfer. There
are also several smaller transfers. In 2001–02,
provinces and territories received C$46.5 billion
from the Federal Government in transfers. The
equalisation transfer aims to equalise provincial
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fiscal imbalance and provide comparable levels
of public services at comparable levels of taxation.
In 1999–2000, eight of the 10 provinces received
equalisation funding based on relative revenueraising capacity (expenditure need is not taken
into account). Ontario, the most populous
province, and Alberta, which is rich in petroleum
production, do not receive equalisation transfers,
but there are significant wealth differences
between provinces. In Australia, the Australian
Government’s financial assistance grants equalise
by assessing both revenue-raising capacity and
expenditure needs.
The provinces compete with each other and act
as a de facto opposition to the Federal
Government on many issues. However, local
government issues are generally recognised
as the domain of the provinces.
Local
The British North America Act 1867, now
subsumed within the Constitution Act 1982,
created the country of Canada (Tindal & Tindal
1995, p. 5). Subsection 92(8) of the Constitution
Act 1867 placed municipalities under provincial
jurisdiction and the section also empowered
provincial governments to prescribe the sources
of municipal revenue. Local governments are
therefore ‘creatures of the provinces’.
The present constitution, established by the
Constitution Act 1982, determines the legislative
and fiscal powers of the Federal Government
and provinces, but not local government.
Local governments continue to receive their
powers and responsibilities from the provincial
legislatures and they have limited fiscal (taxing,
spending and borrowing) and policy autonomy.
Court decisions have consistently reaffirmed
their subordinate status.
There are about 3700 local governments
(Federation of Canadian Municipalities, personal
communication) employing a total of 345 000
people (see Table 7.1). That equates to one
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employee per 91 of population, which is broadly
comparable with Australia, (which has one
employee per 133 of population).
The organisation of local government is
complex. For instance, in some provinces
there are several tiers of local government:
regional governments, county governments
and municipal governments. There are also
special service districts in some unincorporated
areas. Municipal local governments take various
forms including cities, towns and villages. There
are also innumerable specific purpose authorities.
In Ontario province alone there are at least 2000
of these bodies, including ‘police commissions,
health units, conservation authorities, public
utilities commissions, parks boards and school
boards’ (Tindal & Tindal 1995, p. 2). Schools are
usually provided locally by school boards, with
the ‘school trustees’ being elected.
Attempts have been made to simplify municipal
and provincial responsibilities, through
a process of ‘disentanglement’. For example,
in New Brunswick, the province provides many
of the human services. The structure of local
government in New Brunswick seems to be
simpler – there are 103 municipalities, including
seven cities, 27 towns and 69 villages covering
60 per cent of the population and 20 per cent of
the land. This leaves very large areas of land that
are unincorporated. In these areas, the province
provides municipal services.
Roles and responsibilities of the
three orders of government
Federal
The Federal Parliament has the power ‘to make
laws for the peace, order and good government
of Canada’ in areas under its jurisdiction. These
include defence, foreign affairs, regulation of
trade and commerce, employment insurance and
administration of the territories. All powers not
specifically conferred on the provinces go to the
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Table 7.1
Public sector employment – Canada
1998
1999
2000
2001
2002
employment (persons)
Federal general government
1
330 981
331 646
339 434
348 863
359 481
Provincial and territorial general government
335 035
336 605
338 061
338 654
333 868
Local general government
341 046
341 485
340 827
341 339
344 609
Notes: Employment data are not in full-time equivalent and do not distinguish between full-time and part-time employees.
Includes employees both in and outside of Canada.
1 Federal general government data includes reservists and full-time military personnel.
Source: Statistics Canada, CANSIM, table 183-0002. Last modified: 2003-11-14.
Table 7.2
Roles and responsibilities in Canadian Government
Federal
Provincial government
Federal/Provincial
shared responsibility
Local government
Money and banking
Direct taxation
Pensions
International trade
Health
Immigration
Transport and
communication
Airlines
Education
Agriculture
Railways
Social Services (except Ontario)
Industry
Harbours
Most labour and social security
matters
Environment
Telecommunications
Foreign affairs
Defence
Unemployment
Aboriginal affairs
Criminal Law
Housing and
community amenities
Public order and safety
Recreation and culture
Justice, courts, policing, civil
rights
Social services
(Ontario)
Municipal government
General government
Property
Planning and
development
Incorporating companies
Public health
Births, deaths and marriages
Management of public land
Natural resources
Highways
Alcohol sales
Federal Government. Where powers are shared,
if the laws in categories under shared power
conflict, the national law prevails.
Table 7.1 illustrates that, in employment terms,
each level of government in Canada has roughly
the same number of employees. Table 7.2 shows
the roles and responsibilities of the different levels
of government in Canada.
Provincial
Provincial governments have responsibility for
most of the domestic issues. This includes natural
resources, education, most hospitals, social
security, labour laws, property and civil rights,
and creation of local governments (municipal,
metropolitan or regional). Provincial power
over municipal government is an express power
of the provinces, not a residual power, nor
a shared power.
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Shared federal–provincial powers
Local government funding arrangements
Shared federal–provincial powers include
immigration, agriculture, some aspects of natural
resources, environment, pensions and some
aspects of health care. In 1957, after extensive
federal–provincial talks, Parliament passed
legislation that established a national health-care
system by giving grants to the provinces on the
condition that provincial plans meet certain
federal standards.
In both Canada (83%) and Australia (84%),
local governments raise the majority of their
revenue from their own sources. In each country,
local government has a narrow tax base built
mainly on property and related taxes, user fees
and sales of goods and services and grants.
In Canada, local government accounts for about
C$47 billion (10.6%) of government revenue
and for C$48 billion (11.3%) of government
expenditure. In 2000–01, about 17 per cent
of its revenue was from tax transfers, with the
provinces providing 16.6 per cent of the revenue
through tax transfers and the Federal Government
contributing about 0.4 per cent. In Canada, the
high level of fiscal autonomy of the provinces
enables them to directly finance local government.
Most provinces apply equalisation principles
using both revenue and expenditure needs in
distributing money to local government, but
it appears to be less systematic than in Australia
(Peloquin 2002, p. 32).
Local government
In Canada, as in Australia, local government
has a key representational and regulatory role.
Local government in Canada also provides
a range of property services including transport
and communications, planning and development
and recreational and cultural services. But it
also has responsibility for significant fire and
police services, which is a major difference
with Australia. As in Australia, Canadian local
government provides a range of commercial
services such as such as water and sewerage.
However, in provinces such as Quebec, Ontario
and Alberta, the range of local government
commercial services is broader and can include
electricity, phone and gas. The range and depth
of local government services varies markedly
by province. In New Brunswick, for example,
people services, such as education, health, justice
and social welfare, are provincial government
responsibilities, while property services, such
as policing, fire protection, recreation, land
use planning, water and waste-water, local
roads and recreational facilities, are municipal
responsibilities.
In Australia, the range of services provided by
local government in each State is fairly uniform,
with the major exception being the water and
sewerage services that are provided by local
government in Queensland, regional New
South Wales and Tasmania but by State
governments elsewhere.
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By comparison, in financial terms, local
government in Australia is much smaller.
In Australia, in 2000–01 local government
accounted for about A$17 billion (6.6%) of
government revenue and for about $16 billion
(6.3%) of government expenditure. This is about
2 per cent of GDP. Australian local government
receives about 16 per cent of its revenue from tax
transfers, with the Federal Government and States
each providing about half of this revenue.
Table 7.3 shows that, in the four years to 2001,
Canadian local government revenue increased
by 18.2 per cent. Own-source revenue grew by
23.6 per cent, while sales of goods and services
revenue increased by 27.4 per cent. By contrast,
provincial government transfers grew by less than
1 per cent and federal transfers almost halved.
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Table 7.3
Revenue sources, Canada, 1997–2001 (C$’000)
1997
1998
1999
2000
2001
Own source revenue
31 612 035
35 447 971
37 662 712
39 186 314
39 060 624
Property and related taxes
20 156 358
23 202 176
24 299 835
24 477 036
24 555 774
Consumption taxes
54 984
57 688
61 113
66 418
69 418
439 999
457 849
511 436
548 427
558 407
Sales of goods and services
8 497 302
9 131 215
9 970 069
10 946 760
10 825 718
Investment income
2 017 827
2 108 481
2 280 909
2 371 773
2 294 874
445 565
490 562
539 350
775 900
756 433
Transfers
8 218 391
8 881 503
9 539 010
7 525 704
7 996 364
General purpose transfers
1 238 912
1 424 893
1 184 827
1 059 089
1 129 888
Specific purpose transfers
6 979 479
7 456 610
8 354 183
6 466 615
6 866 476
Other taxes
Other revenue from own
sources
Federal government
Provincial government
Total revenue
369 127
292 967
249 575
194 792
202 112
6 610 352
7 163 643
8 104 608
6 271 823
6 664 364
39 830 426
44 329 474
47 201 722
46 712 018
47 056 988
Source: Statistics Canada, CANSIM II, table 385-0004.
Canadian local governments must maintain
separate current and capital accounts and their
budget for current expenses must not be in
deficit (Graham et al. 1998, p. 221). Thus new
local revenue streams must be found to fund
new recurrent expenses. This protects provincial
governments from exposure to council debt. Local
governments have responded by increasing rates
and user charges. Urban local governments have
sought to apply user charges to new areas such
as water metering and tip fees and ‘collection
of garbage, various licensing and inspection
services, and even for police and fire services when
attending traffic accidents in which non-residents
of the municipality are involved’ (Graham et al.
1998, p. 217).
In Canada and Australia, local governments
deliver property services. But in Canada property
services includes police and fire services.
In Canada, protection of property and persons
accounts for 15.2 per cent of local government
expenditure whereas in Australia, these
account for just 2 per cent of local government
expenditure. Transport and communications
(mainly local roads) is the dominant role of
Australian local governments, accounting for
28 per cent of local government expenditure
in 2001–02: in Canada roads account for
21.4 per cent of local government expenditure
(see Table 7.4).
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Table 7.4
N A T I O N A L
R E P O R T
Expenditure, 1997–2001, Canada (C$’000)
1997
1998
1999
2000
2001
General government services
4 014 048
4 237 621
4 688 194
4 731 507
5 008 179
Protection of persons and
property
6 195 067
6 767 336
6 846 115
7 093 131
7 282 366
Transportation and
communications
8 390 914
8 492 782
9 124 919
9 334 909
10 306 137
Health
674 411
860 300
823 520
941 687
1 061 194
4 213 551
5 171 253
4 997 249
5 609 406
6 019 583
Education
182 891
183 812
186 447
188 544
171 635
Resource conservation and
industrial development
796 395
813 459
854 519
932 264
993 713
Environment
6 442 329
6 250 761
6 191 046
6 614 231
6 934 107
Recreation and culture
Social services
4 649 903
4 741 202
4 887 737
5 201 446
5 529 658
Housing
558 536
1 098 613
1 060 381
1 508 157
1 558 425
Regional planning and
development
648 769
696 463
775 500
557 114
636 936
2 908 177
2 803 772
2 619 775
2 487 030
2 388 084
Other expenditures
330 736
130 418
130 864
137 099
176 283
Total expenditures
40 005 727
42 247 792
43 186 266
45 336 525
48 066 300
–175 301
2 081 682
4 015 456
1 375 493
–1 009 312
Debt charges
Surplus or deficit
Source: Statistics Canada, CANSIM II, table 385-0004.
Canadian local government revenue increased by
18.2 per cent over the four years to 2001, while
expenditure increased by 20.1 per cent. Social
services expenditure grew by 42.9 per cent and
health expenditures by 57.3 per cent. Housing
expenditure almost trebled. The growth in these
expenditures appears to be unsustainable. Overall
local government finances slipped into deficit
in 2000–01.
The high level of indebtedness of all levels of
governments in Canada is a source of immense
stress for Canadian local government and
has a profound effect on intergovernmental
relations and the durability of intergovernmental
agreements (see below). The Canadian Federal
Government had net debt of $574 billion in
1999–2000 (almost 60% of GDP) and the
provinces had net debt of $256 billion (27%
of GDP). In 1995–96, the Federal Government
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spent 36 per cent of its revenue on debt
charges. By 1999–2000 debt service charges
still consumed more than a quarter of all federal
revenues. For provincial governments in 1999–
2000, debt service accounted for 12 per cent
of expenditure (Department of Finance 2000,
pp. 18–19). For Canadian local government,
debt repayment accounted for about 5 per cent
of expenditure. Some provinces were deep in debt
while others were debt free. Among the provinces,
Quebec’s local governments had the highest
net debt – $12.7 billion at 31 December 1999,
down 16 per cent from its 1997 peak (Statistics
Canada’s Financial Management System).
Debt is less of an issue in the Australian
federation. Australian Government generalpurpose revenues are forecast at $210 billion
in 2003–04; net debt is $29.8 billion and interest
paid is $4.2 billion or just 2 per cent of revenue
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(2003–04 Federal Budget paper No. 1 Statement
no. 9, Tables 1 and 2 at <www.budget.gov.au/
2003-04/bp1/html/bst9.htm>). Australian State
general government net debt is expected to be
0.6 per cent of GDP in 2002–03 and State
non-financial corporation net debt is expected
to be just 4.6 per cent of GDP in 2002–03
(2003–04 Federal Budget paper No. 3 at
<www.budget.gov.au/2003-04/bp3/html/
chapter2.htm>). Australian local governments
have no net debt and in fact have had a net worth
of $1.7 billion at 30 June 2002 (see Chapter 1
of this report).
Changing roles and
responsibilities
Paul Hobson observed that:
The principal responsibilities of local
governments include the provision of
municipal services such as police, roads, by-law
enforcement, parks and recreation, street lighting,
garbage collection, water and sewer, public
transit, and to varying degrees, public health
and welfare. In addition, local governments
are responsible, again to varying degrees… for
such things as public housing and municipal
airports … In many cases, however, the role of
local government is more one of decentralised
administration of a provincial area of jurisdiction
than it is one of autonomous decision making
(1991, pp. 216 & 238).
In Canada, each level of government has
taken steps to reduce its level of debt. During
the 1980s, federal cost cutting in areas like
urban policy and programs, health care and
education affected the provinces. They in turn
shifted some of the costs to the municipalities
or they outsourced services to the private
sector or voluntary sector. According to the
Policy Statement on the Joint Federation of
Canadian Municipalities/Canadian Association
of Municipal Administrators Task Force on the
Future role of Municipal Government (FCM/
CAMA 2002, p. 2), there has been ‘widespread
acceleration of federal, provincial and territorial
delegation of duties and responsibilities to
municipal governments (for example, airports,
ports, harbours, policing, health, welfare,
highways, bridges, economic development,
public transportation, affordable housing, and
environmental protection)’. The task force says
this has ‘occurred without sufficient consultation
and without an appropriate expansion of
municipal government powers, resources and
autonomy’ (p. 2). According to the Federation
of Canadian Municipalities, many municipal
governments are now ‘teetering on the brink of
fiscal unsustainability’ (Peloquin 2002, p. 30).
The concerns of Canadian local government
appear similar to those of Australian local
government. Canadian local government’s role has
expanded in response to local needs and also in
response to ‘downloading’ (the Canadian term for
cost-shifting). While citizens expect that councils
should act as though they constitute a level of
government, the Canadian constitution does
not recognise municipal governments as a level
of government. Many municipal governments
consider they do not have the autonomy, powers
or resources required to meet local needs or
expectations. Canadian municipalities see some
of their major concerns as being:
• the need for constitutional recognition
• obtaining a more reliable funding base, for
example, through more revenue sharing, and
allowing municipalities to set their own taxes
by accessing fuel excise, personal income tax
and the GST
• improving consultation arrangements with the
Federal Government
• upgrading infrastructure, such as improving
urban transportation, extending affordable
housing programs and improving water supply.
Canadian local governments estimate their
cumulative infrastructure shortfall at
C$44 billion and they are seeking direct
federal infrastructure grants (Peloquin 2002,
p. 31).
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Constitutional recognition
of municipalities
The growth of cities has resulted in many
municipalities, such as Montreal, Vancouver and
Toronto, having greater populations than many
of the provinces. Likewise, in the Australian
context, councils such as Brisbane City
(population 882 259), Gold Coast (405 392)
and Blacktown (260 332) have populations
comparable with or greater than the ACT
(322 638) and Tasmania (473 257). This strength
in numbers fuelled ambitions in Canada for more
autonomy and flexibility in decision making.
At the same time, the big municipalities
have taken on a much broader portfolio of
responsibilities than mere infrastructure services.
In the late 1970s and early 1980s Canadian
municipalities sought constitutional recognition.
They wanted their law making, and fiscal and
institutional autonomy protected. Specifically,
they wanted the ‘power to improve real property,
licenses, amusements, and rental taxes; and,
subject to appropriate provincial–municipal
tax sharing arrangements, income tax.’ They
also wanted the power to provide ‘housing, job
opportunity programs, fire protection, education,
public health, social welfare, air quality, water
services, sewage service and treatment, policing,
environmental protection and recreation’ (Young
1991, pp. 13–14). It is clear from this list that
local government could assume many provincial
tasks and that winning the provinces approval
for such changes could prove difficult.
In the 1970s, leading up to the enactment of
the Constitution Act 1982, there were many
opportunities for local government to press its
case for constitutional recognition. The main
reasons Canadian local government sought
constitutional recognition were:
• to establish stronger revenue-sharing
agreements between the three levels of
government so municipalities could match
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growing expenditure needs with revenue
sources that keep pace with economic growth.
Property taxes were seen as inadequate to fulfil
this need
• to establish a tripartite division of powers
between governments that would prevent the
delegation of functions without resources
• to entrench consultation and coordination
mechanisms on issues of joint concern.
In October 1991, in a background paper called
Municipalities, the Constitution, and the Canadian
Federal System, Canada’s Library of Parliament
discussed the constitutional status of Canadian
local government. The paper noted that:
The Constitution Act 1867, 124 years ago,
established the parameters of the federal and
provincial relationships with municipalities.
Section 92 of the Act sets out the exclusive
powers of provincial legislatures in 16 areas
with section 92(8) giving the legislature of each
province exclusive responsibilities for making
laws relating to that province’s municipal
institutions. Of the other sections of the
Constitution Act 1867 with implications for
municipalities section 92(2) grants the provinces
the power to impose direct taxes to carry out
provincial responsibilities (Young 1991, p. 3).
The paper also itemised some of the motives for
and threats to constitutional recognition of local
government:
The provinces will jealously guard the
constitutional arrangements that give them
exclusive control over their municipalities …
The municipalities’ quest for constitutional
recognition has been largely motivated by their
search for practical ways and means
to meet increasing demands upon their fiscal
resources. They are not inherently interested
in constitutional recognition (unlike aboriginal
people) but see it as one means to solve their
financial problems …
As a result of their lack of focus on constitutional
issues, the municipalities have never been able
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to formulate a comprehensive and specific set
of constitutional proposals …
Discussions have not even explored the question
of whether constitutional provisions for
municipalities might add another dimension
of inflexibility to the Canadian federal system.
Until June 1991, the Federation of Canadian
Municipalities (FCM), the national lobby
organisation, had not become involved in current
constitutional discussions …
One case for involving municipalities in
constitutional discussions is based on the
argument that their exclusion ignores the fact
that the vast majority of Canadians live in cities
and that the problems of Canada’s large cites
are no longer merely local or municipal (Young
1991, pp. 1–2).
While a few cities are recognised separately in
provincial legislation, most municipalities rely
on a provincial municipal Act for their powers
and responsibilities. Provincial departments
exercise control through laws, regulations, policy
statements and guidelines. Municipal by-laws are
subject to appeal and approval by a provincial
board. For example, the Ontario Municipal Board
or the Alberta Local Authorities Board oversee
aspects of municipal finance or resolve disputes
about municipal planning, municipal assessment
and municipal boundaries. Councils are also
constrained in their actions by the court’s narrow
interpretation of the role of local governments.
Canadian municipalities also wanted
to strengthen relations with the Federal
Government. A wide range of federal policies,
in areas such as transport, immigration and
industry, have an impact on local communities.
Likewise, local decisions on environment and
urban planning affect federal interests. While
there were ad hoc federal–local dealings on
these issues, provincial governments resisted any
ongoing and formal relationships between the
Federal and local government, particularly those
involving establishment of a federal department
responsible for municipal affairs, federal–local
intergovernmental agreements or any direct
funding of local government. It is likely that
the provinces were sceptical that constitutional
recognition might cement the power and
authority of the municipalities at the provinces’
expense and might see municipal governments
supplanting provincial services, putting at risk
federal funding of provincial functions. With the
exception of federal grants to municipalities in
lieu of property taxes on federal buildings, most
federal funding was funnelled via the provinces.
According to Young (1991), in 1971, the Federal
Government established a Ministry of State for
Urban Affairs to develop urban policies and
integrate them with other federal initiatives and
to improve intergovernmental relations. A lack
of funding and a lack of authority hampered the
Ministry. It convened three tri-level meetings
on intergovernmental finance, but the provinces
were cautious about an alliance between local
government and the Federal Government.
In 1976, the provinces boycotted the third
meeting of a taskforce examining all levels of
public finance after the taskforce reported that
the system of public finances prevented Canadian
municipalities from meeting their responsibilities.
At the time, the Canadian Federation of Mayors
of Municipalities described their subordination
to the provinces as ‘puppets on a shoestring’.
In the face of provincial opposition, the fight to
gain constitutional recognition for municipalities
was unsuccessful and, with the enactment of the
Constitution Act 1982, the issue lapsed. At the
same time, the municipalities were making plain
their principal concern was to gain access to
more adequate financial resources, particularly
income tax.
Financial concerns
While constitutional recognition would be
welcome, it is financial constraints that affect
Canadian local government most. Three revenue
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sources provide more than 90 per cent of local
government revenue – property taxes (52%),
user charges (23%) and intergovernmental
transfers (17%). The main revenue source
– property tax – is not adequate to fund the
services local communities need and demand.
Provincial grants tend to be short term and
reflect provincial priorities. User charges have
helped to bridge the gap, but even so Canadian
local government remains under fiscal pressure.
Professor Melville L McMillan (2002) suggests
that a local personal income tax and the sharing
of fuel taxes and vehicle license fees have
particular merit as additional sources of revenue
for local government. In Western Australia, the
five-year State Road Funds to Local Government
Agreement 2000–01 provides 25 per cent of the
State’s road-related revenue (for example, vehicle
registration charges and fuel franchise fees)
to councils for local roads.
There is ongoing debate in Canada about the
purposes for which property taxes should be
used. There is a some consensus that property
taxes should be used to fund infrastructure and
property protection services, such as roads, water
and sewerage, waste disposal, footpaths, street
lighting, police and fire services. There does
appear to be a role for local government in police
and fire services. According to Thomas (1997,
p. 70) community policing provides an avenue
for communities to restore public safety by
providing local intelligence. There is also a trend
towards private policing, in the form of gated
residential communities.
There is some reluctance in the Canadian local
communities to use property taxes to fund social
services, for example, libraries, museums, social
assistance and better housing for low-income
earners. In the 1970s, despite the availability
of federal and provincial subsidies, some
municipal governments chose not to participate
in providing welfare housing because of the
high ongoing costs of providing associated local
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services and because of resident’s opposition to
welfare housing. This appears to have fostered
a trend towards big income and wealth gaps
between neighbourhoods. Ontario is the only
province ever to have required all municipalities
to include ‘affordable’ housing in new residential
developments as it did in 1989. The policy was
rescinded in 1995. Social housing appears to be
a particularly vexed area of intergovernmental
policy in Canada.
Cost shifting and simplifying the roles
of government
Driven partly by the need to cut government
debt, the early 1990s saw an intensification
of the trend towards federal and provincial
‘downloading’ of unfunded mandates to
local government. There were also attempts
to redefine roles and responsibilities between
levels of government (known in Canada as
‘disentanglement’). Faced with a downturn in the
economy in the early 1990s, the cost for many
municipalities of contributing to income support
was becoming unmanageable. The resulting fiscal
squeeze reignited the desire of the municipalities
for constitutional recognition.
The Federal government’s constitutional reform
proposals outlined in Shaping Canada’s Future,
would provide an opening for the municipalities.
However, this time the municipalities took
a more cautious approach. They sought an
agreed position with their provinces on the
constitutional issue, but left open the option
that provincial legislation could instead give
municipalities more explicit and permissive
powers and more clarity in roles and revenues
between provinces and municipalities. The
attempts at constitutional recognition faltered
but there was progress in some provinces on the
issue of provincial controls and on revenues. For
example, the Alberta Municipal Government Act
1994 identified the broad roles of municipalities,
consolidated the legislation governing them
chapter 7
Special report: local government in Canada
into the Act, replaced three local government
boards with one Municipal Government Board,
eliminated regional planning commissions,
improved the municipal revenue base and limited
intervention in municipal affairs. These fiscal
reforms gave municipalities ‘greater autonomy
to establish user fees and … subject to provincial
approval, Alberta municipalities can now levy
entertainment, bicycle sales, and gasoline taxes,
just to name a few’. Many other provinces
followed a reform process but the outcomes were
different for each province. The disentanglement
reforms instituted by the province of Ontario
in 1997 sparked a renewed attempt to shift extra
responsibility for costly social services to the
municipalities. For more details on downloading
and disentanglement individual provinces see
Graham et al. 1998, pp. 181–4.
On 5 February 2002, the Federal Government
established a C$2 billion Canada Strategic
Infrastructure Fund to fund major projects
(for example, highways, rail and local transport
systems, sewage and water treatment works and
tourism and urban development initiatives). In
2003, an additional $3 billion was announced in
the federal budget. The pre-existing Infrastructure
Canada Program is expected to focus on smallerscale projects. Local government welcomed the
new program, but wanted a permanent program
to bridge the ‘severe infrastructure gap’.
Infrastructure
• The Byrne Commission in New Brunswick
(1963)
Infrastructure financing is one area where federal,
provincial and local government relations have
strengthened. The Federation of Canadian
Municipalities’ most recent achievement was
lobbying to establish the Canada Infrastructure
Works program.
• The Michigan Commission in Manitoba
(1964)
In 1992, the Federation of Canadian
Municipalities estimated that the cost of repairing
local infrastructure was around $20 billion. More
recent estimates put Canadian municipalities’
cumulative infrastructure shortfall at
C$44 billion (Peloquin 2002, p. 31). Canada’s
4000 municipal water treatment facilities and
3000 municipal wastewater systems urgently
needed expansion, upgrade or repair. In 1993, the
Federal Government signed agreements with all
10 provinces to implement an infrastructure
program costing C$6 billion (C$2 billion
of which was federal money). Sixty per cent
of the funds were spent on water, sewerage
and transportation projects. In 1997, the
Federal Government provided an additional
C$600 million.
Review/evaluations
There have been many reviews of the provincial–
municipal relationship, particularly on the issues
of finances and disentanglement. Examples
include:
• The Report of the Royal Commission on
Education, Public Services and Provincial–
Municipal Relations in Nova Scotia (1974)
• Task Force on Local Government in
Nova Scotia (April 1992)
• Provincial–Municipal Exchange: A Discussion
Paper in Nova Scotia (December 1993)
• The Report of the Provincial–Municipal
Social Service in Ontario (1990)
• The Report of the Advisory Committee to
the Minister of Municipal Affairs on the
Provincial–Municipal Financial Relationship
in Ontario (1991).
For example, in the 1980s Quebec funded
a greater share of school board costs directly
and school boards reduced their claims on
property taxes. This enabled municipalities to
increase property taxes to offset a reduction in
provincial transfer payments to the municipalities.
In the 1990s the province then transferred
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school maintenance costs to the school boards,
which had to recover the costs from increased
property taxes. The province then shifted the
costs of public transit, roads and policing to the
municipalities.
In 1993, Ontario agreed to follow the lead of
most provinces and assume responsibility for
social welfare funding from its municipalities
and, in exchange, municipalities would assume
responsibility for certain provincial highways
and pay for rating services provided by the
province. However, this agreement collapsed
because of last minute cuts to provincial transfer
payments to the municipalities.
In 1993 the Nova Scotia Government, in its
Provincial–Municipal Exchange: A Discussion
Paper, offered to absorb full responsibility
for social welfare, justice and health from
municipalities in exchange for municipalities
accepting responsibility for certain local roads
and particular police services and sharing of the
costs of provincial property assessment. However,
by April 1995 the proposal had stalled because
of the high cost to the province of funding
social assistance.
Quebec and New Brunswick did implement
measures to simplify government. Elsewhere
proposals have foundered because of the
requirement they be fiscally neutral, because
of council fears of cost-shifting and fear that
centralisation of services could gradually make
local government obsolete. For more details on
these intergovernmental agreements see Tindal
& Tindal 1995, pp. 203–4.
Summary observations
Australia and Canada are both federations with
many similarities in law and culture. Federal
constitutional recognition has eluded local
government in Canada just as it has Australia.
As a result Canadian local governments are
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‘creatures of the provinces’ just as Australian local
governments are ‘creatures of the States’.
Canadian local government faces many challenges
that are similar to local government in Australia.
In particular, the dominant property tax is not
adequate to fund local services. In both countries,
growth in user charges has helped to a degree
to fill the breach. As in Australia, Canadian local
government infrastructure is in need of repair
and in both countries the Federal Government
has provided significant funds to help address
the backlog. Here the similarities end.
Canadian local government has significant debt
(unlike Australia), which cramps its flexibility.
In Canada, there has been little growth in
transfers from the federal and provincial
governments over the last four years. Apart from
the infrastructure program, federal transfers in
Canada are small and are mainly in the form
of payment in lieu of rates for federal property.
Canadian municipalities, particularly the bigger
cities, have a significant role in social services
and local revenues are insufficient to fund
ballooning expenditures on social services,
health and housing. The Federation of Canadian
Municipalities claims that many municipal
governments are ‘teetering on the brink of fiscal
unsustainability’ (Peloquin 2002 p. 30).
In Canada’s federation, power is highly
decentralised amongst 10 Canadian provincial,
three northern territory and 3700 local
governments. Canadian provinces have much
greater financial strength and autonomy
than Australian State governments. Canadian
provinces have specific rather than residual
powers and they do most of the revenue raising
and service delivery. Canadian provinces have
specific constitutional authority over local
government and over their revenue sources.
It is the provinces that provide the main tax
transfer to local government. These transfers are
highly conditional and fluctuate according to
the financial fortunes of individual provinces,
chapter 7
An Overview of Local Government in Australia
many of which have a significant debt burden.
According to the Federation of Canadian
Municipalities, Canadian municipalities are
‘puppets on a shoestring’ (Young 1991).
In Australia, the Australian Government raises
the bulk of revenue and it is a major source of tax
transfers to local government. In its submission
to the Senate inquiry into the structure and
distributive effects of the Australian taxation
system, the Municipal Association of Victoria
observed that:
analysis of pre-budget papers released by the
Ministerial Council for Commonwealth–State
financial relations showed that for 2001:
−
the Commonwealth raised 70 per cent of
taxes (after distribution of GST revenues to
the States) but Commonwealth outlaid only
35 per cent of the national total
−
the States raised 27 per cent of taxes but were
responsible for 54 per cent of outlays
−
local governments raised 3 per cent of taxes
and were responsible for 11 per cent of
outlays (sic).
The issue of vertical fiscal imbalance is most
pronounced for local governments with outlays
at 2.4 times the level of tax revenues ... Another
clear limitation on local government revenue is
that the State legislation controls what is rateable.
Legislation at the State level provides for ‘nonrateable status’ for a range of rate exemptions
for privatised infrastructure and services such
as water, electricity and transport. This is a clear
distortion of the rating system. The challenge is
to address the growing incompatibility between
a property-based tax system and population
driven demand for service provision (pp. 6–7).
For almost 30 years, Australia’s local governments
have received a large, relatively secure and
predictable untied funding source in general
purpose Local Government Financial Assistance
Grants. Since 1991–92, this has been
supplemented by untied local road grants.
In 2003–04 these two grants alone amount
to $1500 million or about 9 per cent of
council revenue. Since 2000–01 they have been
supplemented by $1200 million over five years
in Roads to Recovery funding.
Local Government in Canada has sought,
but not won, constitutional recognition. The
main reason for local government seeking
constitutional recognition was the need to secure
a more adequate revenue base. The provinces
were worried that constitutional recognition of
local government could see services transferred to
local government at the expense of the provinces
and they have reasserted their constitutional
powers that give them full control over their
local governments. Issues over constitutional
recognition and intergovernmental agreements
have been divisive for the Federation of Canadian
Municipalities and for federal relations with
the provinces. The Federation’s interest in
constitutional recognition for local government
has now lapsed and the Federation is seeking
better outcomes for local government within the
existing constitutional framework.
Negotiations to establish inter-governmental
agreements on rationalising roles and
responsibilities have been protracted and difficult
in many provinces. When in place, agreements
have been dogged by dispute over the boundaries
of responsibilities established in the agreements.
It has been difficult to sustain commitment to
the agreements in the face of ad hoc provincial
budget cuts.
The Canadian experience suggests that there is
a niche role for local government in community
policing and fire services. As some property
crime is local it is appropriate that some
measures to contain it are funded locally
through property tax.
In Canada, some provinces (for example, British
Columbia) provide property assessments for the
whole province, enabling greater comparability
between assessments in adjoining municipalities,
greater specialisation and establishing a closer link
between market value and property taxes.
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