The Spending Power

The Federal Spending Power

Historically, in Canada, although one level of government cannot legislate in respect of matters over which the other has exclusive legislative authority, the so­called spending power permits one level of government to expend its funds in respect of matters over which the other has exclusive legislative authority. It would seem that each level of government enjoys such a spending power, although neither section 91 nor section 92 of the Constitution Act, 1867 contained any explicit reference to it in the distribution of legislative and executive responsibilities.

Recognition

For almost the first fifty years of Canada’s history, the existence, and the extent, of any spending power as we know it today was not of great concern. The issue came to the fore during the Depression, when Parliament sought to establish an unemployment insurance scheme for the country. The provinces challenged the federal scheme on the ground that an insurance scheme was a matter within the exclusive legislative jurisdiction of the provinces under section 92.13 of the Constitution Act, 1867 (“Property and Civil Rights in the Province”). The federal government argued that the legislation was valid federal legislation on the ground, inter alia, that the proposed scheme constituted an expenditure of federal funds and, therefore, did not trench on the provinces’ legislative authority.

The Supreme Court of Canada, in Reference Re: Employment and Social Insurance Act, [1936], SCR 426 per Kerwin J., p. 457, took the view that “generosity is not unconstitutional”:

“Parliament, by properly framed legislation may raise money by taxation and dispose of its public property in any matter that it sees fit. As the latter point, it is evident that the Dominion may grant sums of money to individuals or organizations and that the gift may be accomplished by such restrictions and conditions as Parliament may see fit to enact. It would then be open to the proposed receipt to decline the gift or to accept it subject to such conditions.”

Although the Judicial Committee of the Privy Council ruled that the scheme was unconstitutional, it recognized, for the first time, the existence of a federal spending power. The federal unemployment insurance scheme was held to be invalid because it constituted a legislative insurance scheme, insurance being a matter of exclusive provincial jurisdiction within section 92.13 of the Constitution Act, 1867. Implicit in the judgment of the Judicial Committee is the notion that a simple expenditure of federal funds in an area over which the provinces have exclusive legislative jurisdiction would be valid. The Judicial Committee of the Privy Council stated the general principle in this way at l 19371 1 DLR at 687:

That the Dominion may impose taxation for the purpose of creating a fund for special purposes and may apply that fund for making contributions in the public interest to individuals, corporations or public authorities could not as a general proposition be denied…But assuming that the Dominion has collected by means of taxation a fund, it by no means follows that any legislation which disposes of it is necessarily within Dominion competence.
It may still be legislation affecting classes of subjects enumerated in s.92, and, if so, would be ultra vires. In other words, Dominion legislation, even though it deals with Dominion property, may yet be so framed as to invade civil rights within the Provinces, or encroach upon the classes of subjects which are reserved to provincial competence…If on the true view of the legislation it is found that in reality in pith and substance the legislation invades civil rights within the Province or in respect of other classes of subjects otherwise encroaches upon the provincial field, the legislation will <>be invalid.

Since 1937 to 1987, there had been only a handful of cases in which there has challenge to the exercise of the federal spending power, and in none of the cases h challenge been brought by a provincial government. (The reason for this may well be that a successful challenge to a federal program would not only deprive the province of a desirable sum of money but judicial limitations imposed on the federal spending power may result in parallel limitations on the provincial spending power as well.) The challenges — none of which has been successful — have been to the National Health Act, the Mothers’ Allowances Act, the Canada Health Act, and the Canada Assistance Plan.

The conclusions of the courts in theses cases may be summarized as follows:

• There is a federal spending power.
• The federal spending power is most likely based on ss. 91(1A) and 102 of the Constitution Act, 1867. Other suggested bases for this power include the peace, order and good government clause and the royal prerogative (see LaForest, The Allocation of the Taxing Power Under the Canadian Constitution (2d ed. May, 1981, at 46­47)
• The federal spending power supports the outright grants of federal funds to individuals, organizations and governments.
• However, the federal spending power is not necessarily unlimited. “If on the true view of the legislation it is found that in reality in pith and in substance the legislation invades civil rights within the Province, or in respect of other classes of subjects otherwise encroaches upon the provincial field, the legislation will be invalid”: Reference Re: Employment and Social Insurance Act, supra.
• There is nothing in the above statement from the Unemployment Insurance Reference to suggest that conditional grants would per se constitute an invasion of a provincial field. Indeed, Rinfret J. in the decision of the Supreme Court of Canada in the Unemployment Insurance Reference suggested that grants to individuals or organizations may be made conditional.
• What is not perfectly clear is whether grants to provinces may be made conditional.

Accordingly, Section 36 of the Constitution Act, 1982 was the first expressly recognizing the federal spending power and even it was foreshadowed to some extent by section 118 of the Constitution Act, 1867 in respect of equalization payments.

Maître Yves Fortier, Q.C., gave his opinion on this point as follows:

“I arrive at the conclusion that when a federal initiative does not meet any one of the five conditions identified in the Langevin Accord, the federal spending power remains intact. The federal government can therefore spend, as payments or otherwise, for the benefit of individuals, governments or even entire regions of the country in federal or provincial areas. The only limit to its power is inherent in the federalist principle and has existed since 1867: the federal government cannot use the spending power to invade and regulate areas that fall under exclusive jurisdiction.” (Fortier,12:85)

Shared­ Cost Programs Situation in 1988

The federal spending power is at present used in a variety of different ways. Many expenditures are now governed by the Federal ­Provincial Fiscal Amendments and Federal Post­ Secondary Education and Health Contributions Act, 1977. Part I of that Act is concerned with fiscal equalization payments, a matter also addressed by section 36 of the Constitution Act, 1982. These payments are made to the provinces without conditions being attached to the payments. Part II of the Act deals with fiscal stabilization payments, which, again, are unconditional payments to the provinces. Part IV is concerned with another type of direct payment to the provinces known as provincial personal income tax revenue guarantee payments.

Part VI of the Act deals with the major existing national shared­cost programs. These established programs are the post­secondary education financing program and the insured health services program covered by the Canada Health Act. Once again, payments authorized by this Act are paid to the provinces. Some of these payments are subject to the satisfaction of certain criteria and conditions. Others (as in the case of post­secondary education) are made without conditions.

The third major national shared­ cost was governed by the Canada Assistance Plan or CAP. CAP replaced four conditional grant programs under the Old Age Assistance Act, the Blind Persons Act, the Disabled Persons Act and the Unemployment Assistance Act.

While the education, health and assistance programs were by far the largest national shared­cost programs, there were numerous other such programs, including programs concerning highways, national parks, retraining, young offenders, etc.

In addition to these national shared­cost programs, there were a plethora of programs that are not shared­ cost programs. Perhaps the best known of these programs is the family allowances program under the Family Allowances Act, 1973. Payments under that program were made not to provincial governments but to those individuals entitled to payments under the terms of the statute. The provinces established the level of payments within the overall limit of the amount of money allocated by the federal government. An example of another program dependent on the federal spending power was the Canada Council grants program, under which payments was made directly to individuals and organizations who satisfy the requirements established by the Canada Council.

Each of the programs described above results in payments being made in areas that were under exclusive provincial legislative jurisdiction. Yet, there would appear to be no question about the validity of the legislation establishing these programs.

Spending Power

Definition of Spending Power by Rand Dyck and Christopher Cochrane (in their book “Canadian Politics: Critical Approaches”) in the context of political science in Canada: The unofficial power of the federal government to spend money on any subject, including those within provincial jurisdiction, and even to attach conditions to such grants to the provinces.

Resources

See Also

• Politics
• Political Science