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PUPPETS ON A SHOESTRING
THE EFFECTS ON MUNICIPAL GOVERNMENT
OF CANADA'S SYSTEM OF I'UBLIC FINANCE
CANADIAN FEDERATION OF MA yonS AND MUNICIPALITIES
OTTAWA, APRil , 28.1976
The National Task Force on Public Finance was establ ished
by the Second National Tri-Level Conference in Edmonton in 1973.
Under the Chairmanship of Dr. John Deutsch and involving senior
representatives of the three levels of government, it has
produced the best set of intergovernmental financial data avail-
able in Canada today. This document represents the views of
the Canadian Federation of Mayors and Municipalities with
respect to the data prepared by the Task Force.
Thanks are expressed to Mr . Jacques Melanson of Consultaxe
Ltd. , Montr eal ; Mr . Mack Laing, Prof e ssor of Journalism,
University of Western Ontario; and Mr. Al l an O' Brien , former
Mayor of Halifax, Professor of Political Science, University of
Western Ont ario, who had a major input in the preparation of
this paper.
Ottawa, Ontario
April 28 , 1976
A r eport on Canadian public finance, released today , fore -
shadows the decline and fall of municipal Government as we know
it in Canada within five years .
The forecast is based on an extension of the trends made
clear in the Repor t of the Tri-Level Task Force on Public Finance
in Canada.
These trends suggest that a uto nomous municipal Government
will not survive without:
huge increases in property taxes , or ,
unacceptable cutbacks in services city residents now
demand , or both .
Either move would dilute and demoralize mun icipal authority
un t il it becomes unrecognizable as a for m of gover nment.
To conti nue o n the present track of balancing municipal bud-
gets combined with def i cit financing increasing conditional grants
from the provinces and Ottawa can only mean derailment for o ur
concept of civic self - government .
It is academic whether t he trends develop into t he nightmare
they s uggest for 1981 . There is no need to go beyond present ,
documented facts . They c l early s how that Municipal Governme nt
i s in crisis right now .
The outward sig ns are the steady loss of municipal power
and increasing financial constraints . Grants from provincial
and federal Governments come with so many strings attached and
represent such a large part of municipal budgets that municipali -
ties are becoming puppets in a show run mainly by provincial
Governments.
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The Tri-Level Report shows that provincial and federal trans-
fers paid 32 percent of municipal expenses in 1974 - 75. Five
years before , the figure was 27 percent.
School Boards, once a proud and self-reliant part of local
government , now rely on provincial transfer payments for
66 percent of their total revenues . These boards l ong ago lost
any c l aim to self- government . Is Municipal Governme nt next in
line for the same kind of emasculation?
It need not be.
The Tri-Level Report shows clearly that Canada ' s system of
public finance generates enough money to satisfy the needs of all
three levels of governmen t.
Yes ; since 1950 , except for one recession period , the three
levels of gover nment--taken together--raised more than enough
money to cover their total expenditures . These total expenses
increased nearly twelve times between 1950 and 1974 , from 22 per -
cent of Canada ' s gross national product to 39 percent . Neverthe-
less, our public finance system met these demands. The system
remained in balance and even showed a small surplus .
In other words ', the Tri -Level Report shows that Government
as a whole in Canada has genera lly operated in the black , on a
balanced budget for the past quarter-century . The country is
rich. Its public finance system produces enough money to meet
public demands.
Municipal Government need not be in a crisis--but it is--and
it is getting worse.
Why? Because, as the report shows , the Canadian public
finance system, which works so effectively when all three govern-
ment levels are considered as a unit, is a totally inadequate
system when Municipal Government is taken alone .
While balancing handily for the three governments , the sys-
tem denies municipalities access to tax revenues that would allow
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them to meet their responsibilities. So, they don't meet their
responsibilities. This leads to a chain o f annual new debt, a
spiral of dependence and increas ing hopelessness. Cynicism a nd
apathy arise in city councils and among municipal voters.
Like your twelve-year-old daughter when her allowance is
gone , the city waits for Daddy to dig into his pocket. This
system l eads to more and more financial reliance on Daddy and
less a nd less independent self-government.
But , t he uninitiated might ask, as long as the fami ly as a
unit is running well, what does it matter?
It matters because l ocal self- government is the root of
Canadian democracy. City Government is t he o ldest l evel of
Government here , a nd the most open . We have cont inuing communi-
ties mor e than twice as old as t he nation .
A municipal Gover nment is a mUlti-purpose authority. It has
the power both to tax its citizens and to legis l ate for them .
It is an authority accountable to its electorate for each of its
decisions.
This accoun tability is obvious ; irresponsible municipal
spending is a sure and visible path to political suicide , si nce
these dollars disappear j ust around the corner, not through a
committee decision in some far - off capital .
This o bvi ou s democratic accountabi l ity is being eroded by
a more sin ister accountability to bureaucrats, mainly in provin-
cial capitals. This relationship is forced by the municipality ' s
dependence on the system' S conditional grants .
That kind of hidden accountability to masters distant in
both miles and mentality destroys the capacity of municipa l
Governments to make t heir own decisions .
If we cannot correct this , it means that citizens cannot
control the destinies of their own communities. No longer would
city residents have a say in how things are done on their street .
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Our cities could become only soulless collections of buildings
managed by provincial bureaucrats.
We would lose the idea of city dwellers working at this
most natural level of Government to make communities places of
joy and beauty. There would be no more need for local
self-Government. The foundation of our democracy would be gone.
This is what looms behind the statistics of the Tri-Level
Report. What is at stake is the future of municipal Government.
The document you are now reading is an interpretation of
the Tri-Level Report by the Canadian Federation of Mayors and
Municipalities (CFMM). This document is an argument for a much
stronger, much more autonomous municipal level of government in
Canada.
We want a municipal Government that is much more free of
"conditional" provincial grants and that has direct access to a
wider range of tax revenues.
since CFMM's founding in 1937, the Fe deration has f ought for
municipal autonomy as a bulwark of Canadian democracy and for
enough tax revenue to make that autonomy real. Our interpreta-
tion is based only on facts from the Tri-Level Report--facts
gathered, agreed upon and presented by all t h r e ~ levels of gove rn-
ment in Canada.
The story of how Canada's f inancial system got the way it
is begins in the Great Depre ssion.
The erosion of municipal financial independence began in
the 1930s,as many communiti e s simply went broke, and provinces
moved in to set up institutions to control municipalities' budget-
ing, accounting and capital spending.
Many cities were forced to postpone necessary expenditure s
for much-needed public works. This resulted in the building of
hidden deficits of f uture needs. These needs were real, even
though they did not show up a s a fi gure in municipal financial
statements.
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Post-war priorities reflected provincial and federal goals:
reconstruction , economic development and social security .
Expenditures to achieve these objectives were considered
essential to prevent the return of depression ghosts: those
endl ess lines of the unemployed , the campfires glinting off the
CNR tracks , bread and milk and brown sugar sandwiches and suet
pudding for the kids , and the hobo chalk-marks on your sidewalk.
These phantoms shoved city priorities into a back seat .
The realization of economic growth and the development of
the social security system was accompanied by the quest for the
better life of the city. People flocked to the city in thousands ,
from the rural areas of Canada and from abroad . Urbanization
had arrived .
The explosive growth of our cities and towns combined with
t he backlog of public works expenditures accumulated during the
thirties and the war destroyed the ability of the municipal
financial base to carry this load. Continuing inflation , in the
fifties , in t he sixties, and in the seventies multiplied the
costs of providing public services .
The essential problem is that the revenue base of munici-
palities in Canada did not expand to meet the demands put upon
it by urbanization .
The Canadian Federation of Mayors a nd Municipa lities is not
criticizing the provincial or federal Governments . The C F ~ 1 is
criticizing the continuance of an inadequate system of public
finance in Canada which does not allow Government access to
growth revenues it needs to do its job .
The Federation will show just what's wrong with Lhi s sYAIPm
and will support these points with statistical evidenc" , "'" ,.
exclusively from the Report of the National Tri-Level Task Force
on Public Finance .
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FACT No .1: THE CANADIAN PUBLIC FINANCE SYSTEM IN A GLOBAL
SENSE IS WELL BALANCED AND EFFECTIVE .
As a g lobal system, for t he 25-year period, from 1950 to 1974,
the Canadi a n public fi nance system can be seen as well balanced
and effective.
Effective, because the system has succeeded in raising e nough
tax r evenues to pay for a ll t he public services and benefits
that were provided by the three levels of governme nt.
Balanced, because during the whole 25-year period, the system
succeeded in f inanc ing growing public expenditures with its
own global public revenues without creating fiscal deficits
outside the system. (1)
The we ll-balanced and effective c haracter of t he Canadian public
finance system is ill ustrated in Table 1 and Graph 1.
We can see that even though public expenditure required a
regularly increasing share of t he Canadian wealth (22.1% of the
G.N.P. in 1950 and 39.1% in 1974), the revenues received by the
system as a global ent ity were s u fficient to balance these
expenditures with, in fact, a small global surplus.
From 1950 to 1974, the system accumulated a global surplus of
$4. 2 billion or 0.3% of the total revenues. The only substantial
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deficit period (1957 to 1963) was the res ult of a deliberate 1
policy designed to fight the recession of that time.
During t he period , the total system s howed 15 year l y s ur p luses
against 9 year l y deficits.
(1) That does not mean that the governments--federal ,
provi ncial or 'local--have not borrowed money during
the period or increased their debt . It means t hat
the balance between deficits at one point has been
compensated by surpluses at another . For instance,
pensions or other funds may have investments outside
the system that compensate for debts created at other
parts of the system.
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GRAPH No.1
GLOBAL EVOLUTION ON THE CANADIAN PUBLIC FINANCE SYSTEM
1950-1974
A. Public finance expendit ures (_._.)
grow faster than Gross National Product ( )
(In $ Billion)
62
B. Annual surpluses ( :;:;:;::;:::;:;::;::) or defi ci ts
( 8288ii8lll ) of the public finance system.
C. Cumulative ~
global surplus (
of the period.
$ Billions
1 - - - - - ~ 5
TABLE I
THE CANADIAN PUBLIC FINANCE SYSTEM (1)
1950 - 1974
(in $ millions)
GROSS
NATIONAL GLOIlI\L G:JIIERNMENr
GLOIlI\L ==
GLOIlI\L SURPWSES OR
PRODUCT REVENUES EXPENDITURES DEFICITS
$ $
% (2)
$ %
(2)
$
1950 18,491 4,634 25 . 1 4, 080 22.1 ... 554
1953 25,833 6,B95 26 . 7 6, 812 26. 4 ... 83
1956 32,058 8, 496 26 . 5 8,224 25.7 +272
1959 36,846 10,046 27.3 10,647 28.9 -601
1962 42,927 12,491 29 . 1 13, 197 30. 7 -706
1965 55,364 16,761 30. 3 16 , 554 29.9. .,207
1968 72,586 24,974 34. 4 24 , 472 33 . 7 .... 502
1971 93,462 35, 316 37 . 8 35,207 37.7 <109
1974 140,880 56,971 40.4 55,043 39.1 -11,928
TOTAL
1950-74 1,379 , 800 459 , 792 33.32 455,541 33 . 02 .. 4,251
(1) Report of the Tri - Leve1 Task For ce on public finance , February 1976 , p. 17 (Table 1), p. 85 (Table B- 1)
(2) In percentage of Gross National Product.
(3) In percentage of Gl obal Government Revenues .
r:--. ~ r---l c--J
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r--'
---..
c-; .--,
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%
.. 11. 95
.. 1.20
.. 3. 20
_ 5. 9B
- 5.65
+1.23
+2.01
.0. 30
.. 3. 3B
.. 0. 30
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FACT No . 2: THE BALANCE AND THE EFFECTIVENESS OF THE PUBLIC
FINANCE SYSTEM HIDES 'I'HE GLOBAL IMBALANCE OF
LOCAL GOVERNMENT FINANCES WHICH IS A CONSTANT
AND INCREASINGLY STRIKING FEATURE OF THE SYSTEM.
We have seen in Fact No. 1 that the Canadian public finance sys-
tem, as a whole, has succeeded since 1950, in normally balancing
its expenditures against its revenues, accumulating for that
period a small surplus of 0.3% of the total revenues ($4.2 billions).
This balance was the net result of a compensating system among
the three leve ls of governments and of the institutions under
their control.
Table 2 and Graph 2 illustrate this fact.
The federal government accumulated a surplus for the period of
$2.815 billion (or 2.04% of its total revenues, being the result
of 11 deficits and 14 surpluses.)
Provincial governments during the period had 8 surpluses and 15
deficits accumulating a 25-year deficit of $1.936 billion or
0 . 78 % of their total revenues. (1)
Local governments, on the other hand, did not register a single
surplus, and added up 25 yearly deficits for a total of $7.571
billion for the period (11. 2% of their global revenues). ( 2)
Local government is the only level of government that constantly
adds deficit upon deficit.
Why?
(1) It should also be noted that if the Canada Pension and
Quebec Pension fund contributions were shown as govern-
ment revenues, . rather t han separately, in these statistics
on Canadian public finance , the provinces would show a
strong surplus position.
(2) It should be noted that global public finance figures
take account of all operating and capital expenditures in
a year. Because local governments are not permitted to
budget for a deficit on operating or current accounts ,
many Canadians are not aware of continuous municipal
borrowing for capital expenditures which is required by
the differences between overall expenditures and revenues.
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GRAPH No.2
BALANCE AND IMBALANCE OF THE CANADIAN PUBLIC FINANCE SYSTEM
19501974
$ Billions
Global SystemCi)
Federal@
Provinces(])
loco I governments@
Hospitols@
Canada and Quebec pension funds@
ii' , I , t t , I I i I I ,
1 9 ~ 53 56 59 62 65 68 71 74
A. Yearly surpluses ( II1II) and yearly delicit s ( _ )
B.Accumulated surpluses ( III )
delicit. ( ) 01 the period.
TABLE 2
BALANCE AND HlBALANCE IN THE CANADIAN PUBLIC FINANCE SYSTEM(l)
1950 - 1974
(millions of dollars)
TOTAL FEDERAL PROVINCI AL LOCAL HOSPITAL PENSION PLAN
FED . & QUEilEC
1950 554 650 - 4 - 92
1951 826 971 4 - 149
1952 57 195 61
- 199
1953
83 .
151 107 - 175
1954 - 272 - 46 53
- 279
1955 - 40 202 22
- 270
1956 272 598 - 44
- 282
1937 - 19 250 16 - 285
1956 - 1078 - 767 - 50
- 261
1959 - 601 - 339 - 13
- 249
1960 - 670 - 229 - 213
- 228
1961 - 835 - 410 - 281
- 128 - 16
1962 - 706 - 507 - 56 - 135 - 8
1963 - 624 - 286 - 99
- 198 - 41
1964 99 345 - 81
- 141 - 24
1965 207 544 0
- 367 30
1966 425 231 - 174
- 327
- 11;,
709
1967 148 - 84 - 334
- 337 16 887
1968 502 - 11 - 56
- 436 2 1003
1969 1915 1021 319
- 542 4 1113
1970 806 266 -229
- 470 4 1193
1971 109 - 145 -480
- 526 -.18 1278
1972 - 28 - 600 - 690
- 247 136 1373
1973 1193 222 - 130
- 315 - 53 1469
1974 1928 593 410
- 933 82 1776
+ 4251 +2815 -1936
- 7571 ... 142 +10801
(1) Source: R ~ p o r t of the Tri- Level Task Force on Public Finance, February 1976, Volume II, pp. 85,86,87,88,89,90.
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FACT No . 3 : THE CONSTANT IMBALANCE AND DEFICITS OF LOCAL
GOVERNMENT ARE NOT DUE TO CARELESS SPENDING
OR LACK OF CONTROL BY LOCAL ADMINISTRATIONS.
We have seen in Fact No. 2 that local government has not
balanced its annual global budget from 1950 to 1974 . . Moreover,
the dollar amounts of this annual imbalance are increasing.
What is wrong?
Table 3 and Graphs 3A and 3B illustrate the following:
a) Public expenditures under the control of local governments
have increased as a percentage of the G.N . P. during the
period: 4.9% to 8.5% (Education and local services have
been in great demand and have followed the general trend
in public services. In 1974 , expenditures of local
governments were in excess of $12 billion, compared to
$900 million in 1950 , an increase of $11 billion).
b) But the federal and provincial governments increased their
expenditures to $38 . 5 billion in 1974, compared to $3
billion in 1950 , an increase of $35 billion .
c) While the combined federal and provincial share of the
G. N. P. has grown by 10 percentage points (17.2% to 27.4%)
in 25 years , local government expenditures have risen by
3 . 6 percentage points (from 4.9% to 8.5%).
There are more than 4 , 000 municipal governments in Canada . One
might expect then that the cost of managing the municipalities
would be enormous. But looking at the administrative overhead
cost of each level of government , we see that , in 1974: --
1) More than 4 , 000 municipalities spent $23.46 per capita on
general government ;
2) Ten provincial governments spent $69 . 42 per capita on
general government;
3) One federal government spent $77.55 per capita on general
government.
The foregoing is illustrated in Table 4 and Graph 3C .
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GRAPH No.3
PUBLIC EXPENDITURES OF LOCAL GOVERNMENT AND THE FEDERAL AND PROVINCIAL
GOVERNMENTS IN CANADA. 19501974
A. Global dollar expenditures of
local government- ( I ) and combined federal
and provincial governments expenditures ( []1
($ billions). 45
B. Public expenditures of local government ( )
and combined federal and provincial government
expenditures I ,,'''''''''';;;) as a % of the G.N.P.
~ : : : : :: : : : .. , ..
40
35
30
25
20
15
10
5
o
30
15
o
80
,
,
,

70
,


,

;f
60

"
Federal


I

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50
I
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,

I

40
,
, ..

:
.. Provincial
.

30
.
20
local
10
o
69-70 71-72 73-74
70-71 72-73 74-75
C. General government
administration expenditures
as "per capita basis ",
TABLE 3
G.N. P. DEPlliSES PUBLIQL"ES
$ %
1950
18,491 4, 080 22 . 1
1953 25,833 6,812 26 . 4
1956
32,038 8,224 25 . 7
1959 36,846 10,647 28 . 9
1962 42,927 13,197 30 . 7
1965
55,364 16,554 29 . 9
1968
72,586 24,472 33 . 7
1971
93,462 35,207 37. 7
1974
140,880 55, 043 39 . 1
TOTAL GOVERN,-!EN'f' EXPE1:DITUIlr'
(milli ons of do llars )
1950 - 1974
FEDERilL & POOVIXCLlIL PRJVIXCIr1L
'$ % $ % $ %
3,178 17.2 2,119 11. 5 1, 059 5. 7
21.2 4, 246 16. 4 1, 239 4. 8
6,369 19 . 9 4,6!5 14 . 4 1,754 5.5
8, 090 22 . 0 5 , 598 15.2 2,492 6. 6
8. 984 20 . 9 6,352 2,632 6. 1
10, 888 19 . 7 7,140 12. 9 3,768 6. 8
16, 187 22 . 3 9, 857 13. 6 6, 330 8. 7
23 , 551 25 . 2 13,062 14.0 10, 489 11. 2
38, 517 27. 4 22,6lt. 16.1 15,903 11.3
Source : Report of the Tri - Level Task Force on Publi c Finance , Volume II, p. 17 , 38 .
( 1 ) Local includes municipalities and school boards
,
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=(1)
IiOSPI'I'I'\ L P!::!':SICXS
$ % $
.
$
'.
' 0
902 ,...
1, 327 5. 1
1,855 5. 8
2,557 6. 9
2,356 7. 8 857 2. 0
4,490 8. 1 1176 2. 1
6, 384 8. 8 1864 2. 6 37 0. 1
8,785 9. 4 2671 2.8 200 0.2
12,003 8. 5 3981 2. 8 542 0.4
TABLE 4
EXPENDITURES ON GENERAL GOVE;UWNT
(1969- 70) - (1974- 75)
FE.DERAL PROVI NCIAL L 0 CAL
TOTAL PER CAPITA TOTAL PER CAPITA TOTAL PER CA?ITA
$ million $ $ million $ $ millim $
1969- 70 760.7 36 . 18 590.7 28.15 313 . 7 14 . 95
1970-71 960 . 2 45 . 03 680 . 1 31. 97 334.2 15 . 71
1971- 72 1134.4 52.53 833 . 2 38.68 336 . 0 15.60
1972- 73 1282 . 5 58.70 884 . 5 40.59 361. 7 16 . 60
1973-74 1411. 8 63.80 1066 . 5 48.33 444.6 20 . 15
1974 - 75 1743 . 3 77 . 55 1556 . 7 69 . 42 526.1 23 . 46
SO"..lrce: Repor t of the Tri- Level Task Force I Volume I I pp. 48, 62 , 72 , 76 , 266 , 270 .
FACT No . 4: THE FISCAL IMBALANCE OF LOCAL GOVERNMENTS IS
DUE TO AN IMPROPER DISTRIBUTION OF REVENUES
IN THE CANADIAN PUBLIC FINANCE SYSTEM.
THIS SYSTEM HAS PROVIDED THE FEDERAL AND
PROVINCIAL GOVERNMENTS ACCESS TO A VARIETY OF
REVENUES WHICH RESPOND TO THE ECONOMY (WHETHER
REAL GROWTH OR INFLATION) , WHILE LOCAL GOVERNMENT
HAS TO RELY MOSTLY ON ITS TRADITIONAL ONE- TAX
SOURCE--THE PROPERTY TAX.
Local government is not the big spender .
The root of local government ' s fiscal imbalance is the lack of
access to adequate tax revenues of its own.
A. Shortfall of local government's revenues
Tables 5 and 6 and Graph 4a describe this problem of the Canadian
local governments.
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In Table 5 and Graph 4a, it is shown that the federal government [
had , in every year since 1950, more revenues of its own than were
needed to meet its own direct expenses (transfers to other
governments excluded). (1)
The provincial governments (globally) have been in a similar
position since 1962 . (2)
In both cases, the annual amount of revenue surplus involved is
increasing , reaching nearly $7 billion for the federal and
nearly $5 billion for the provinces. (Table 5)
Only local government is forced to meet regular yearly shortfalls
in its "own revenues". The graph illustrates this fact .
Table 4 and Graph 3a show also the net result of the financial
shortfall which is the net imbalance of local government finances,
i . e . -- the net yearly deficits shown here in percentage of the
total expenditures. While the federal and provincial governments
maintain a relative balance of their finances (positive for the
federal , and relatively negative for the provincial), local
government has a solid " in thered" constant situation .
(1) This is not an argument against the redistribution of
revenues, which is a legitimate function of federal and
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provincial governments to equalize the capacity of provinces l
and local governments to provide public services .
(2) To a large extent , this is the result of tax-sharing.
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GRAPH No. 41
FISCAL IMBALANCE OF GOVERNMENT IN CANADA 19501974
A. Yearly shortfall ( or yearly surplus ) of own revenues against own expenditures
of the three levels of government.
($ billion)
7
FEDERAL
PROVINCIAL
6
LOCAL
5
4
3
2
1
0
1950 53 56 59 62 65 68 71 74
($ billion)
5
6
8. Net yearly surplus ( ) or deficit ( l1li as a % of yearly total revenus from all sources
for lock level of government (including transfers)
16 .:
...
12 .
8 :/

4
8
12
16
FEDERAL
24 L-____ ________
PROVINCIAL
24
20
16
12
8
4
4
8
12
16
20
__________ --J 24
LOCAL
?ABLE
SURPWSES & SOORIYl\Ll..S OF am REVENUES IN RUATION ro "'oN DIRECT EXPEl<SES BY LEVEL OF
1950 - 1974
(millions of dollars)
FEDERJ1.L PRO V INC I A L LOCAL
0..", direct 0.,,,,
Surplus 0= direct
D. ... "
Su....-plu5 or 0,...11 direct 0.'.':1 ;;u-orplus o r
Sl:ort:all Revem.'es Short.:all D:renOi tures !etc,liues S:tortfall
:950 2,ll9 3,020 +901 11 059 965 -94 902 649 -253
:.953 4,809 563 1,239 :164 -75 1327 922 -405
:!.956 4,615 5,698 H083 1,754 1578 -176 1855 1220 -635
1959 5,598 6,139 t541 2,492 2221 -271 2557 1686 - 871
1962 6, 352 6,979 +627 2,632 3316 684 3356 2142 - 1214
1965 7,120 9 , 095 +2975 3,768 -1949 +1181 4490 2646 -1844
1968 9 , 857 12,218 t2361 6, 330 7966 Tl636 6384 3658 - 2726
1971 13,062 17,240 '4178 10,469 11734 H245 8785 4740 -
1974 22 , 614 29,373 H759 15, 903 19242 t3239 12003 5887 - 6116
Scrurce: of t.'1e ?ri-I.cvcl Task Pol.-ce 0...1 Public F.inance: , p . 37 a.-ri 38 . February 1976, Vo11..fl'le II.
(1) Transfers rec:Ei.ved fran or paid to other qovernrrents arrl excluded fran other eq:enclitures and revenues of eadl governrent .
,- -
,
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TABLE 6
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
(1) source :
FISCAL IMBALANCE OF THE THREE LEVELS OF GOVERNMENT AS % OF
THE TOTAL INCLUDING TRANSFERS OF EACH
1950 - 1974
GLOBAL FEDERAL PROVINCIAL
.. 11. 95 +21. 52 -0.32
-t2 3 . 31 0 .28
-r 0 . 85 4 . 16 +4. 05
+ 1. 20 -1" 3 . 13 +6 . 73
- 3 . 98 - 0 . 99 +3. 19
- 0 . 53 .,. 4 . 03 +1. 52
+3 . 20 >10 . 49 - 2.12
- 0 . 21 ... 4 . 40 +0 . 66
- 12 . 15 - 1 4 . 18 -1. 90
- 5 . 98 - 5 . 52 - 0.41
- 6 . 25 - 3 .51 - 6 . 41
- 7 . 34 - 6 . 04 -7.66
- 5 . 65 - 7 . 26 -1. 26
- 4 . 68 - 3 . 90 - 2 . 07
. 0 . 65 +4 . 1 2 - 1. 49
+1. 23 +5 . 98 0 . 00
.. 2 . 17 .2 . 31 - 2.35
, 0 . 67 - 0 . 77 -3. 82
+2.01 - 0 . 09 - 0 . 54
.,.-6 . 57 .7. 04 +2 . 66
+ 2 . 52 '1. 71 -1. 64
+0 . 30 - 0 . 84 "2 . 99
- 0 . 07 - 3 _07 - 3 . 88
+2 . 60 +0 . 98 - O. 63
+3 . 38 +2 . 02 . 1. 62
+ O. 25 i-2 . 04 - 0 . 78
LOCAL
-11.20
- 15 .7 6
- 18 , 63
- 14 . 99
- 22 . 23
-19 . 18
- 17 . 72
- 15 . 61
- 12 . 68
- 10 . 67
- 8 . 77
- 4 . 48
- 4 . 15
- 5 . 67
- 3 . 77
- 8 . 82
- 6 . 77
- 6 . 21
- 7 . 25
- 8 . 13
- 6 . 1 5
- 6 . 31
- 2 .69
_ 3 .1 6
- 8 . 38
- 10 . 39
Report of the Tri- Level Task Force on Public Finance, pages 85 86 , 8 7, 88 . Volure II.
TABI1L7
GOVEfu'il4ENT TAX REVENUES BY SOURCE
1950 - 1974
(millions of dollars)
GLOBAL INCREASE
1950-1974
1950 1956 1962 1968 1969 1970 1971 1972 1973 1974 S million %
Shared Tax Fields (fed. & prov. )
InC(:!';'E tax 612 1496 2316 5922 7730 9148 10194 12007 13615 17333 1"721 29 . 8
Tax 993 1432. 1732 2833 3700 3189 3181 2919 4912 676B 5775 10. 3
1605 2928 4048 8733 11430 12337 i3375 14926 18527 24101 22496
40 . 1
Untributions 248 492 821 1534 2691 2800 3053 3511 4574 4326
7. 7
1853 3410 4869 10289 13895 15028 16175 17979 22038 28675 26622 47.8
Fe:::!:-a! 0.-;.1 F:.eld
C..:stre. 257 636 740 818 B14 988 1182 1384 1809 1552
2. 8
E.xcise :-..It..!.es 226 267 3i9 503
6699
5853 10.4
Excise Taxes (gen . sales tax)
620 1131 1369 2L;94
3115 3159 3598 4042 4948
1103 :9<:3 2384 3737 3933 3983 4586 5224 6332 8508 7405 13. 2
al 0..:-::; Fie:"cs
R:.cail s.:ucs ':'u..xcs 87 191 530 1483 1676 1786 2009 2332 3001 3656 3569 6. 3
Other consU't'ption taxes 335 567 872 1570 2128 2290 2509 2856 3120 3211 2876 5. 1
---
422 758 1402 3053 3804 4076 4518 5188 6121 6867 6445 11.4
O;..>n Fields
Prq:::erty tax
407 868 1620 2744 3017 3249 3372 3645 3782 4102
3795
6. 8
Oth'2:::- Fielcs _ 849
1496 2171 4000 6204 7324 8315 9153 10745 12500
11651
20. 8
56018 100. 0
Sc?"::-C-2S : FE::o ... :" c!'!. tr.e Trl.- I.cvci 0:1 ?..:blic Fina:"1.::e , p-.-9-4 , 95, 96, Vol tzne II, 1950 to 1968
!".:r..a-:::iz.l Sc=l.C5, I?c..I:Nrt c::. :e fo:::-ce en ?ciJlic Fi.."'lar.ce , Volw-z I, p..::.ges 21 , 47, 71 , 265, 1969 to 1974 .
(l)percentage of total increase 1974 00 1950 .
,.--...". r---! r--. r-1 c-->
-
rJ
-
---.
-
- 2 -
B. No access of local government to growth taxes.
Federal and provincial governments can balance l: heir budgets
because they have access to growth taxes.
Tables 6 and 7 and Graph 4b show this.
The growth of personal income and improved regional distribution
among Canadians has made the personal income tax the most productive
tax resource in Canada.
Income taxes produced 40% of the total increase in global l:ax
revenues from 1950 to 1974. (Graph 4a)
Other newly productive revenue sources are combined under the title
"all others". Only the federal and provincial governments have
access to these, which are rapidly increasing their share of the
global fiscal resources. They have produced 26.7% of the
total increase of revenues. They include natural resource revenues
and export tax.
The "contributions" to various social programs - pension funds,
unemployment insurance, medicare - are just starting t.o become
large revenue producers, when compared to income and sales tax
fields.
All of these sources of revenue are either shared by, or reserved
for, the federal and provincial
What about local governments?
They are left with the property tax.
The property tax has produced 6.7% of the 1950- 1974 increase of
revenues of the public finance system of Canada. That is a
substantial considerinq the characteristics of this
tax. The property tax generated $4.108 billion in 1974 - ten
times the yield in 1950. In the same period, the G.N.P. lose
approximately 8 times, so that property taxes a$ a percentage of
G.N.P. rose from 3.5% to 4.2%.
The fact is that the property tax is just not able to produce
the revenues that local government needs.
1
r
[
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o
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GRAPH No. 4 II
GROWTH AND RECENT TRENDS
IN REVENUES FROM VARIOUS TAX FIELDS
19501974
A. Revenues from
---l prope rty tax
( - - - - ) income tax
( ......... ) Cus tom & Excise duti es & taxes
( ) Retail and consumpti on taxes
( .. . ) Contributions
(_ - __ ) Othe r fi e lds
- '- -
... ..... .
.. -.... ,..
1950 62
I
...
.. .
/
I
,
,
/
/
,
,
><
/
/

.......
... ..
6'8 70-71 72-73 74-75
69-70 71-72 73-74
pr operty
B. Relative share of specific tox fi elds as
a % of the gross incr ease in the globol
revenues ( 195074)
Contribut ions
Retail ond consurncl'ior,t--y::;--"
Custom & Excise duti es &
Othe r ';'i e l

I I I
o 10 20 30 40
o
FACT No.5 : LOCAL GOVERNMENTS PERMANENT FISCAL IMBALANCE HAS
BEEN FINANCED UNTIL NOW , IN PART , BY STEADILY
GROWING TRANSFERS , AND THE BALANCE HAS BEEN MET
BY BORROWING .
We see in Fact No. 4 that local government, having access only
to the property tax (non-growth tax), cannot keep up with the
demand for expenditures at the local level.
The net result of the yearly shortfa ll of revenues at the local
level is the growing dependence on transfers from other govern-
ments.
As we can see now, by Table 8 and Graph 5, this shortfall of
revenues at the local level has t he following characteristics:
it is chronic; it is deteriorating.
The total yearly shortfall of local government grew from $266
million in 1950 to $6.138 billion in 1974. This yearly shortfall
grew from 22.6 percent of total expenditures in 1950 to 51 per-
cent in 1974.
Without adequate own source revenue, local government must
increasingly depend upon transfers from the provincial govern-
ment. Transfers which amounted to 17 percent of total expendi-
tures in 1970 were in excess of 40 percent in 1974.
The remaining shortfall was financed by increased borrowing.
r
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GRAPH No.5
GROWING REVENUE SHORTFALL AND TRANSFER REVENUES FROM THE PROVINCES
AT LOCAL GOVERNMENT LEVEL 19501974
A. Totol yearl y revenue requirement s (
and shortfall ( I )
1950 53 56 59 62 65 68 71 74
B. Yearl y transf ers as a percentage of yeorl y
local r evenue requirements.
$ Billions
12
11
10
9
8
7
6
5
4
3
2
o
%
r 0
15
20
25
30
35
40
43
TABLE 8
1950 1953
$ %
'IorAL EXPEl\uITUR3S 913
100. 0 1342
at"" !'U:."\IENlJ'ES
649
71. 922
SHORl'FALL
264
29 . 0 420
TR1\..'\SrERS
172 18 . 9
235
t>m :C'3iII.h'lCE
- 92 - 10 . 1 _ 185
GlOBAL FINA.'= OF ex'i!\DIAN I1X:AL ClJII.::RR=
1956
1873
1220
653
351
302
1950 - 1974
(milli ons of dol lars)
1959 1962
2581 3384
1686 2142
895 1242
647 1104
248 138
1965
4527
2646
1981
1517
464
1968 1971 1974
$ %
64<;8 8849 12054 100. 0
3658 4740 5887 48 . 9
2790 4109 6167 51.9
2382 3563 5234 43.4
408 546
- 933
Source : Report of the Tri-Levcl Task For ce on Public Finance , Volume II , pp 88 (expenditures) and 37 (own revenues)
r-- r--- ...----
r---
~ ~
-
FACT No . 6 : TRANSFERS TO LOCAL GOVERNMENT ARE OVERWHELM-
INGLY CONDITIONAL.
Fact No. 5 showed local government dependence on transfers. In
spite of the growth of transfers, local government has been
forced to borrow every single year.
Table 9 and Graph 6 give the details on financing the shortfalls.
An analysis of the Tri-Level Task
1969 to 1974 (Table lO--Graph 5)
fers are conditional.
Force statistical data from
shows that 88 % of these trans-
These conditional grants, in 6 years, have grown from an average
of 35 . 6% of t he total local expenditures to 41.7 %.
A basic principle of public finance is that the government which
spends the money has the responsibility to finance such expendi-
tures by raising its own tax revenues. Transfers from one level
of government to another violate this principle although the
need for equalization payments in a federal system is recognized .
Conditional transfers, however, destroy accountability and auto-
nomy of the recipient government.
Conditional grants as a regular source of financing mean in time
the end of self-gove rnment at the local level.
This conclusion is more ominous because even with the t r ansfers,
grants as large as they are , local government is unable to balance
its budget. Year after year , even with the grants added to their
own resources , the gap between expenditures and total revenues
grows larger and larger.
Where is local self-government headed?
r
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GRAPH No.6
GLOBAL YEARLY SHORTFALL, GENERAL, CONDITIONAL TRANSFERS AND DEFICIT FINANCING
OF LOCAL GOVERNMENTS. 1(1969.70)-(1974-75)
45
A. Global yearly
shortfall s at local level
are filled by general
unconditional transfers ( :f{:j
mainly by conditional
Iransfers ( ) and
parlly by deficil financing (
(In $ Billion)
: .
. ::: .
1.
i"l-71 71-72 72-73 73-;lj ;lj-75
B. Conditional transfers to local governments
in % of totol local expenditures.
>
o 70-71 71-72 72-73 73-74 74-75
55
50
45
45
50
55
':.
1$ 70 71 72 73 74
717273 7475
C. Tolal yearly shortfall })}
(Iransfers and deficils) .....
in % of global yearly
local expenditures
and in relations to their own
revenues.
TABLE 9
FINANCING THE SHORTFALL OF LOCAL GOVERNMENTS
(1969- 70) - (1974 - 75)
(million of dollars)
'lUl7\L
'ffiI\NSFERS
~
lEFICIT
REJ;;V[RED SHORl'FALL FINANCING
REVENUES G'lN REVENUEs 'lUl7\L 'lUl7\L G:NERAL =ITICNAL (BORR:MNG)
1969-70
7450.3 3955.7 3494.6(46.5) 3050.8 382.2 2668.6(35.6) 443.8
1970- 71
8221. 8 4298.3 3923 .5 (47 .6) 3563.6 405.4 3158.2(32.3) 359.8
1971- 72
9336.2 4615.4 4720.8(50.6) 4226.2 482.7 3743.5(40.8) 594.5
1972-73
10121. 8 4995.1 5126. 7(51.2) 4593.8 573.1 4020.7 (40 . 0) 532.9
1973-74
10503 . 9 5202 . 4 5301. 5 (52.6) 5020.9 754. 3 4266.6(42.7) 280.9
1974-75
12182.9 5590. 3 6592.6(54.5) 5835 . 5 870.8 4964 . 7 (41. 7) 757.2
Source : Report of the Tri- Level Task Force on Public Finance, Volume I, pages 265 , 266 .
j-- r-, r- r-
r-
----,
,
I
FACT No.7: SINCE 1970 , THE REVENUE SHORTFALL, AFTER TRANSFERS ,
IS EXCLUSIVELY THE PROBLEM OF MUNICIPAL GOVERNMENT.
Fact No. 6 shows that local government is lets seriously under-
f inanced , more and more dependent on conditional grants, and
finances the net imbalance by increased yearly borrowing.
Table 10 and Graph 7 isolate municipal governments from the
other element of local government (school authorities) .
What we see is that the gross imbalance at the local level during
these last five years was borne totally by municipal government .
Since 1970, the School Boards have had either a balance or
yearly surpluses.
The municipal governments, on the other hand, have been left
completely "in the red". Their average 6 year deficit f or the
period reached more than $620 million, ranging from a l ow of
$360 million in 1970-71 to a peak of $922 million in 1974-75.
During the same period , the provincial transfers to the school
boards reached 66 % of their expenses . This has meant the end
of any autonomy and decision-making power for local school boards.
This must not happen to municipal governments, but the threat is
real.
!
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[
GRAPH No.7
NET REVENUE IMBALANCE AND RAPID GROWTH OF TRANSFERS
TO MUNICIPAL GOVERNMENTS (1969-70)-(1974-76)
A. Annual surpluses ( ) and delicits ( E1) al local gove rnments .
School boards
5
Local
Municipal government
4
3
2
1
0
2
3
4
5
6
7
8
9
10
69-70 71-72 73-74
250
70r 72
1
73 74(5
B. Growth index of local government transfer revenues (1969 =100)
200
150
100
TA!lLE 10
YPARLY EXPENDITURES, MlD NET SURPWS OR DEFICIT OF SCEOOL BC::rumS .At>.iTI M..I!\."ICIPAL
(1969- 70) - (1974- 75)
(millions of dollars)
u:x:AL
(Schcols and rn.J..TIcipalities) SCHOOL EQI\R!JS :-R"ICIPALITIES
NET SURPLUS NEl SORPWS l\ET SljRPLt.:S
OR OR OR
EXPE:>-1lI 'IURES nmEX l\"EI' DEFICIT El<PE!iOI'IURES TAA."SFERS =sx
NBl' DSFICIT E=1lITORES TR'\."'ISFERS TI.;osx NLT CE?ICIT
1969- 70 7,450.3 2 , 958 . 0 100 - 444.1 3,683. 7 1, 924 . 4 100 - 78. 6 3, 766. 6 1,033.6 100 - 365.5
1970-71 8, 221. 8 3,46';' . 2 117 - 360 . 4 4,036 . 6 2, 271.1 118 0 4, 185. 2 1,193 . 1 115 - 360.4
1971-72 9,336 . 2 4,109.3 138 - 489 . 9 4,415.1 2,645.4 137 t 32.3 4,921. 1 1, 463.9 14: - 522 . 2
1972073 10,121.8 150 -533. 0 4,603 . 5 2,812 . 2 146 + 63 . 8 5, 518 . 3 1,637 . 6 158 - 595 . 8
1973- 74 10,503.9 4,831.7 163 - 281.1 4,537 . 1 2,986 . 4 155 t 232.5 5, 966 . 8 1 , 845 . 3 178 - 513 . 6
1974- 75 12, 182.9 5,533 . 1 190 -757 . 0 5,075 . 2 3,356 . 4 175 + 165. 6 7, 107. 7 2, 276. 7 220 - 922 . 6
57,816 . 9 25,3<:6 . 1 - 2865.5 2, 6351.2 15,975 . 9 + 415 .6 31 , 465 .7 9,450 . 2 - 3281.1
Source: Report of the Tri-Level Task Force on Public Finance , February 1976, Vol . I, Section 4, Local governments expenditures
and revenues.
Small variations in the figures of table 10 compared to figur es in other tables araise from the fact that the
data of the serie (1969- 70) - (l974 - 75)used here take into consideration certain expenses or revenues not included in
National accounts statistic used in other tables. These little difference do not change the facts.
--
,
,
We began this statement by saying local government faces a
crisis--a financial crisis. This crisis is not the result of
waste or extraveagance or over-spending by Municipal Government.
Nor is it the result of a deliberate long-term policy on the
part of the federal and provincial Governments to destroy munici-
pal Governments.
It is the result of the total inadequacy of the system of
public finance that has built up in the post-war period.
It is the result of a failure to recognize the fundamental
role of local Government and the magnitude of its task.
The pressures that are building for municipal services to
meet the demand for public transportation, recreation, environ-
ment, policing, and others simply cannot be handled unless there
is a radical change in the system of finance.
Municipal Governments cannot make this change by themselves.
It can only be done by the three levels of Government in Canada,
acting in cooperation and consulta tion.
But, ultimately, it is up to the citizen.
Only he can prevent the loss of local self-Government.
Only he can guarantee himself the right to build and to shape
the community of the future.
Fact No.1
PUP PET SON h S HOE S T R I N G
The Eff ects on Governme nt
o f Canada ' s System of Public Finance
ERRlITh
La.s t column entit l ed " Global Surpluses o r Deficits ", 1950--74, Read s 0 .9 , ins tead o f
0 .3 percent.
Graph No . 1 1\
Entitled upublic Finance Expenditures Crow Faster Tha n Gross National Product ",
Replace black line opposite title with a red ono .
Replace red line of title reading "Grows Faster 'l'han Gross National Product ", with a
black one.
II' hese coloured blocks arc situated opposite the actua l titles.
Table No. 1
Entit l ed "The Canadian Public Finance System"
Last column entitled " Global Surpluses or Deficits " in the column 1950--7<1 ,
Replace +0. 30 with +0 . 92 percent .
Fact No .2
F'irst paragraph , fourth line which reads "small f;urplus of 0.3 ?crccnt " should read
.Iemall surplUS at 0 .9 percent "
Fact No . "
A. Shortfal l of Local Government ' s Rcvenues
Fourth paragraph, third line reads "more than 3 bilU.on dollars ", instead of linear ly
5 bi l lion dollars . I t
Graph No . 4 1
Entitled " Fiscal Imbalance of Government in Canada , 1 950--74
11
"1\. Yearly Shortfal l
or Yearly Surplus of OWn Hevenues ... of the Three Levels of Government "
Middle Graph at top of page crt-itled " Provincial"
1 971 figure is 1.245 billion , therefore , where the previ ous graph ascends i . e. increases
t o 5 billion: the corrected graph c1escends to 1 . 245 billion, and then the line of the
graph increases to 3.239 billion , as shown in the graph .
F,1ct No.5
Fifth paragraph , fort h l ine reads II Tot" l Expenditures in 1950" , instead of "1970 ".
Table No.8
Entitled :' Global Finances of Canadian Local Governme nt"
Lllst Column "1 974" , bottom line of table--"Nct Imb!llancc" r eacla "8.5 , instcad of no
figure shown in the g raph.
Fact No . 6
Third paragraph, line two rcads "Tabl e 9--Graph 6" , instead of "'l'able 10 Gra ph 5".