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Fiscal Federalism

In Canada, by virtue of the distribution of powers established by the Constitution Act, 1867, the federal and provincial governments have an independent capacity to levy taxes to finance the public services they provide for their citizens. Overall, the Canadian tax system is decentralized. Governments have access, for the most part, to the full spectrum of tax fields. The Government of Québec collects most of these taxes, through Revenu Québec.

However, the sharing of tax resources between two orders of government is not proportional to the sharing of constitutional responsibilities. The provinces assume responsibility for social programs whose costs are growing more rapidly than their own-source revenue. The federal government is benefiting from an increase in its revenues, which is greater than that of the expenses related to its constitutional responsibilities. Furthermore, there are disparities in the respective fiscal capacities of the provinces.

These imbalances are mitigated in part by federal transfers to the provinces (the main transfers being allocated as part of the Canada Health Transfer, the Canada Social Transfer, and the equalization program). Nevertheless, the provinces are still not being fully compensated, the federal government retaining significant fiscal manoeuvrability, which it uses to intervene in various matters that fall within provincial jurisdiction, invoking its so-called “spending power” in particular.