This is part two of a two-part blog series behind the Spring 2021 book The Rowell-Sirois Commission and the Remaking of Canadian Federalism by Robert Wardhaugh and Barry Ferguson. Read part one.

Written by Barry Ferguson

The Rowell-Sirois Commission and the Remaking of Canadian Federalism examines the political and economic conditions of the thirties and forties by looking at the surprisingly-tumultuous three years of the commission’s work. It shows how an inquiry, which started as a study of constitutional questions shifted almost immediately into an examination of economic issues. This shift was based on the recognition that the problems of federal government were far, far less about constitutional and jurisdictional matters than about economic ones of taxation and fiscal issues. The book then shows how the Commission argued that the resolution of these economic matters (taxation and revenue-sharing) required a new cast-of-mind about government rather than a new constitutional framework. Ottawa and the Provinces must convene and confer over the direction of government and they must respect each other’s roles. Moreover, the Commission insisted that governments must deliver the crucial social services (education, health, welfare, income maintenance) expected of them yet so lacking in the twenties and thirties.

Our book argues that the Report’s greatest impact lay in making the two arguments, one about how to finance modern governments fairly and effectively (‘fiscal federalism”) and one about how to get agreement to undertake the new approach to fiscal federalism (“cooperative federalism”).

The federal system, the Report emphasized, was a dysfunctional mess in Canada. It strenuously argued that the way to overcome it was by accepting that Canada has a governmental system which involves both the provincial and the national level. The Commission’s specific point was that no big constitutional changes were needed. Agreements between Ottawa and the Provinces were what mattered.  But one level of government cannot predominate and anyway constitutional change (at least in the days of the Commission) required unanimous governmental agreement. The one exception in the Report was its advocacy of a centralized system of unemployment insurance, a project all governments had supported throughout the 1930s but incessantly squabbled over. The Report’s endorsement broke the impasse over unemployment insurance.

The Report argued bluntly that Canada’s tax system was utterly inefficient and ineffective. It had to be reset. As several recent books have shown, debates about taxation were not mere squabbles but a discourse about the legitimacy of the political and economic order. The Report endorsed national collection and (equally important) national redistribution of tax revenues. The fiscal needs of the provinces vary and the specific mix of the big social policies they must deliver also varies. But the goal was to ensure that each province could deliver the services of government its citizens required and demanded.

The Report emphasized that unconditional transfers of nationally-collected taxes to the provinces were the best means to both gain national agreement and get the money and services out in ways each part of the country wanted for itself. The principle must not be a rigid national formula but the “fiscal need” of each province regularly revised and reset. An agreed-upon federal collection of the “big taxes” (corporate, inheritance and above all income taxes) would require solely federal-provincial agreement and then the redistributed tax revenues would ensure the provinces’ capacity to govern.

The Commission’s specific recommendations were debated in federal-provincial conferences twice in the 1940s but never specifically adopted. The objections of BC, Alberta and Ontario and the tepid support of several others saw to that. In that sense it was a failure. But, the Commission’s proposals for national tax collection and redistribution to the provinces found their way into the practices of government and continue to do so. They were championed by social democrats and liberals alike at the provincial level. In later years most of the provinces came around to seeing and endorsing its approach to federalism. Ironically, the Report’s aims were attenuated by federal government shifts toward key areas like conditional grants, cost-sharing and rigid national revenue-sharing formulae, all areas that the Royal Commission denigrated and which the champions of Rowell-Sirois lamented in the 1950s and 1960s.

Perhaps most importantly, the Commission’s arguments that the federation was a partnership of two levels of sovereign governments has animated and even directed how federalism was approached for five decades after 1940. That animating idea – the partnership of cooperative federalism – has been weakened by the early 21^st century bias against formal federal-provincial conferences on national policy and the new style of executive government. But for half a century it was at the centre of Canadian federalism. Its arguments about that partnership and the tolerance of variations in policy approaches amongst the provinces (or between levels of government in a future time of more divided sovereign regimes) may yet serve Canadians in thinking about new styles of federal government and new ways to devise policies and share revenues. If, that is, serious debate and public discussions between the levels of government will return to the fore.    

Barry Ferguson has just retired as Professor of History and Duff Roblin Professor of Government at the University of Manitoba.