Introduction

Federalism is often advanced as a means enabling the coexistence of diverse peoples beneath a common umbrella of a shared state apparatus. Scholars have long considered how the division of powers and the allocation of jurisdictional capacities among multiple orders of government may empower and foster the autonomy of internal national minority communities. By tracking developments in such domains as social policy, education, health care, child care, family policy, language policy, and economic development, researchers have unpacked the ways in which such minority communities may leverage their autonomy and create distinctive packages and programs free from the intervention of the central state (Béland & Lecours, 2006; Cardinal, 2011; De Rynck, 2005; Keating, 2011; Maioni, 2011). Until recently, however, the political significance of the fiscal arrangements at work within a federation has remained largely unexplored. This, as Béland and Lecours (2014) argue, is surprising, given the fact that fiscal policies “are at the centre of the operations of the modern state” and “have the potential to shape the accommodation of nationalist movements that develop in multi-ethnic, multinational, or even strongly regionalized federal contexts” (pp. 337–338).

The objective of this chapter is to identify the concrete features of fiscal federalism that may contribute to—or detract from—the empowerment of internal minority national communities. Empowerment, in this context, is directly related to the principles of self-determination and self-rule. These principles call our attention to the abilities and capacities of a given polity to make decisions independently, without the excessive or undue influence of external actors. To be sure, all polities must work with one another in order to advance common objectives or resolve certain challenges. Self-determination and self-rule, in other words, are neither absolute nor predicated on the complete isolation of polities from one another. However, in a federation, the rules and practices should enable degrees of self-determination and self-rule for the constituent units of that system.

The Canadian federation provides an ideal case for identifying the potentially salient features of fiscal federalism as they pertain to empowerment. Canada is a multinational federation with a variety of internal minority national communities working to coexist within a shared framework. While operating within an overarching federal framework, as it will be detailed below, the specific fiscal arrangements at work for these internal national communities vary significantly. Drawing from Canadian experiences, it appears that three features of a fiscal architecture are directly related to the realization of minority national empowerment: (1) representation and participation in the management of the fiscal arrangements between the central government and the constituent units; (2) the relative independence of the revenue base that is available to the internal communities; and (3) the substantive nature of the fiscal transfers to the internal communities, specifically the conditions and time horizons that are associated with the funds.

The chapter opens with a discussion of fiscal federalism in plurinational federations. The purpose here is to underscore the greater salience of fiscal arrangements in such federations due to the potential drive for minority national empowerment. The second section provides a basic primer on key features of the Canadian case, focusing on the complex configurations of internal minority national communities in the federation and the four main models of fiscal federalism at work within it. Using this material, the three key features of fiscal arrangements are subsequently identified as they pertain to empowerment, exposing the ways in which fiscal federalism has contributed to the achievement of self-rule for some internal minority communities while continuing to disempower others.

Fiscal Federalism in Plurinational Federations

Fiscal federalism is arguably one of the most expansive and challenging topics a federalism scholar may face. The great Donald V. Smiley (1987) himself wrote: “I have nothing to say about fiscal federalism – a subject which I once tried to comprehend but which, I am now convinced, is so complicated that one should either cultivate it as a full-time speciality or leave it alone entirely” (p. xi). Conceptually, the term refers to all fiscal arrangements at work within any political system that serve to decentralize financial matters. These include the power to raise revenues through taxation; the allocation of grants to implement and oversee programs; and the conditions and access rules applied to such grants. Consequently, the concept of “fiscal federalism” may be applied to all political systems—whether formally federal or not—that decentralize fiscal authority to multiple governing bodies (Oates, 1999).

While applicable to any political system, the subject of fiscal federalism takes on different meanings in formally federal states. According to Boadway and Shah (2009), “What distinguishes federal nations from unitary nations is that the decentralization involves giving significant legislative authority to lower levels of government, as opposed to simply administrative authority” (p. 61). Drawing from Elazar’s undisputed definition of federalism as a combination of shared rule and self-rule, Jewkes (2015) further declares, “Self-rule is typically considered to be the central, and perhaps even unique definitional requirement of federalism … it allows a sub-state governmental agent to make and execute laws independently of the influence, and interference, of the central state apparatus” (p. 15). The exercise of real jurisdictional autonomy, however, is practically impossible without some accompanying fiscal autonomy (Simeon & Murray, 2001). Consequently, the design of a federation’s fiscal architecture is a critical component in the realization of self-rule.

Many researchers have approached the subject of fiscal federalism as a set of rules, principles, and practices aimed at increasing economic efficiency. Efficiency is said to be achieved through such measures as limiting the opportunistic behavior of certain agents, bringing decision-making closer to the people, facilitating the creation of economies of scale, or fostering constructive competition among jurisdictions (Boadway & Shah, 2009; Breton & Scott, 1978; Oates, 1999; Rodden, 2003; Weingast, 1995). Fiscal federalism has thus long been considered under largely economic, “rationalist,” and prescriptive terms. Consequently, investigations into the political implications of fiscal federalism have remained somewhat sidelined.

In a series of articles, Daniel Béland and André Lecours (2014) carved a new path ushering the political implications of fiscal federalism to center stage. One thread of their research confronts the issue of equalization and why some federations—like Canada—experience significant conflict over the program, while others—like Australia—undergo less (Lecours & Béland, 2013). A second thread, particularly salient here, considers fiscal federalism’s influence on minority nationalism (Béland & Lecours, 2014). Focusing on the Canadian case, the authors reveal the ways in which “equalization presents accommodation potential for nationalist movements in a federal system and how it can also generate some resentment towards the minority national community” (p. 341). Herein, we begin to see the even greater practical and normative implications of the fiscal arrangements at work in plurinational federations.

Plurinational federations are those with multiple self-identified political communities attempting to coexist within a shared institutional framework. According to some scholars and political leaders, for normative and pragmatic reasons, the design of a federation should enable the empowerment of the diverse collectivities that may live within the shared state (Basta, 2015; Gagnon, 2014; Rocher, 2009, 84). Such empowerment manifests through the principles of self-determination and self-rule, where polities can make decisions to pursue their own pathways free from the influence of other external actors. Former Quebec premier Daniel Johnson clearly articulated Quebec’s position when he denounced the unilateral imposition of shared-cost programs by the federal government:

Generally, the system of shared-cost programmes is incompatible with the pursuit by the French-Canadian nation of its essential objectives, since these impose priorities on it likely to displace those which it would otherwise establish, and reduce its true budgetary autonomy.

Québec hopes that once and for all it will be understood that for socio-cultural reasons, Québec unreservedly insists that its constitutional jurisdiction be respected, and that it will brook no federal interference with this jurisdiction, whether that interference be direct or indirect. (Johnson, 1966, p. 50)

Pragmatically speaking, fiscal arrangements enable a meaningful realization of the division of powers, and thus concomitantly the achievement of self-rule for internal minority national communities in practice. These fiscal arrangements can be described as “a family of relationships that work to ensure that all the governments within a given political community have the fiscal ability to match their legal autonomy and expenditure responsibilities” (Bakvis et al., 2009, p. 137). As Noël (2009) writes, “In principle, then, the division of financial resources should correspond to the division of powers, to preserve the autonomy of the two orders of government” (p. 276). In practice, however, such a balance has proven notoriously difficult to achieve. Long-standing conflicts visible across multiple federations reveal the ways in which fiscal imbalances among the orders of government can compromise the achievement of self-rule.

It is not the case that the fiscal architecture of any given federal system is comprised of a single, comprehensive, monolithic structure. Rather, there are a multitude of arrangements emerging from different relationships set out between the central government and the various jurisdictions or communities that coexist within a federation. The fiscal architecture is thus constituted by an array of strategies layered over time with practices being set aside, replaced, or adapted to create the complex sedimentation of these fiscal arrangements (Streek & Thelen, 2005; Turgeon, 2014). Consequently, the design and management of fiscal federalism is neither straightforward nor simple; instead, it involves intense bargaining and negotiation, with concrete implications for the achievement of self-determination and self-rule for the constituent members.

Plurinational Canada and Four Models of Fiscal Federalism

As Peter Russell’s book Canada’s Odessy (2017) eloquently details, Canada’s population is built upon three pillars: Indigenous Canada, French Canada, and English-speaking Canada. Within each of these pillars, moreover, there is significant diversity. Indigenous Canada, which in total constitutes approximately 4% of the Canadian population, consists of three distinct peoples with unique histories, languages, cultural practices, and spiritual beliefs: First Nations, the Inuit, and the Métis. At the time of Confederation, Indigenous peoples did not share power with the other polities who gained legislative power and constitutional jurisdiction through the division of powers between the provincial and federal governments. Instead, as Russell (2017) notes, the only official reference to the original inhabitants of North America was the designation of “Indians, and Lands reserved for Indians” as an exclusive jurisdiction of the federal government.

As some of the descendants of the earliest migrants to North America, First Nations historically comprised between sixty and eighty nations whose collective territories stretched across the continent. As the inhabitants of lands that were of considerable interest to the settler colonialists, First Nations fell under the immediate and direct purview of the federal government. They were subjected to domination and assimilation, facilitated by the legal regime set up by the Indian Act, 1876, one of Canada’s oldest pieces of legislation. “Status Indians,” as they were referred to for generations, are affiliated with 633 Indian bands and reside on more than 2000 reserves across Canada. The Inuit are the Indigenous peoples of the Arctic and live in fifty-three communities across four regions: Inuvialuit (Northwest Territories and Yukon), Nunavik (northern Quebec), Nunatsiavut (Labrador), and Nunavut. Finally, the Métis are descendants of mixed relations forged between Indigenous peoples and early settlers prior to the establishment of contemporary Canada, mainly in the Prairie provinces and in northwestern Ontario, and themselves “make the distinction between two types of Métis, namely, the descendants of Red River who had basically adapted to the new settlement society and alternatively, the ‘nomadic’ Métis who essentially lived a traditional hunting and trapping lifestyle” (Voyageur & Calliou, 2000/2001, p. 112). All three of these peoples are now recognized as “Aboriginal peoples of Canada” within the meaning of section 35(2) of the Constitution Act, 1982. With communities and populations spread across the country, Indigenous peoples rarely constitute the majority group within a specific jurisdiction. The exception to this is in the northern territory of Nunavut, where the Inuit constitute more than eighty-five per cent of the population.

The configuration of French Canada is appreciably more straightforward, though not without its own complexities. Today, French-speaking Canadians account for approximately thirty-three per cent of the total population of Canada. The majority of French Canadians is concentrated in the province of Quebec, where French-speakers constitute close to eighty percent of the population. Since the 1960s, the terms “Québécois” or “Québécoise” (rather than “French Canadian”) have been used to express a distinct cultural and national identity for those within that province. According to the 2011 census, outside of Quebec, over three-quarters of those who speak French at home live in New Brunswick or Ontario (Statistics Canada, 2011). Those living in the Maritimes, known as the “Acadiens,” are often included among the French-Canadian linguistic group, but are in fact culturally separate due to their distinct history, which predates the admission of the Maritime provinces to Confederation in 1867. Ultimately, there are smaller French-speaking communities dispersed throughout the rest of the majority English-speaking provinces and territories.

Finally, English-speaking Canadians—while far from a homogeneous entity (McRoberts, 2003, p. 85)—form the dominant majority in the rest of Canada. Representatives from the historic British colonies held a privileged position in the negotiations that led to the Constitution Act, 1867. In contrast with the dispersed arrangements for many Indigenous peoples and French Canadians, those who identify themselves as part of English-speaking Canada, outside of Quebec, find themselves in the majority, and thus represented in both provincial and federal legislatures.

There is not a single, uniform model of fiscal federalism at work in Canada. Taking a bird’s-eye view of the landscape, we can identity four broad models of fiscal federalism that influence the self-determination and self-rule achieved by internal minority national communities. The most prominent model is that between the federal government and the provinces. The second is that between the federal government and the territories. The third model pertains to the relationship between the federal government and the First Nations communities who still remain under the jurisdiction of the Indian Act. Finally, as land claims and self-government agreements are increasingly ratified, there are the newly emerging framework(s) between the federal government and Indigenous peoples, some of which are also beginning to forge formal tripartite relationships among the federal, provincial/territorial, and Indigenous governments.

Model 1

The first model, which is the most familiar to Canadians and observers of Canadian federalism, covers the fiscal arrangements at work between the federal government and the provinces. Under the terms of the Constitution Act, 1867, a division of powers was formalized and set out the respective powers of the two entrenched orders of government. Under this division of powers, which also evolved over time, the provinces secured significant independent regulatory and spending authority (Turgeon & Wallner, 2013). While the federal government can spend in areas of provincial jurisdiction, “that spending cannot be interpreted as an attempt to regulate in a field of provincial jurisdiction” (Bakvis et al., 2009, p. 136). The federal government has access to both direct and indirect taxes, and the provinces have control over sources of direct taxation in their jurisdictions. Provincial governments can therefore set income, corporate, and sale taxes within their borders, further elevating their fiscal autonomy from the federal government. Provinces, moreover, have access to natural resource revenues, including mineral royalties, oil and gas taxes, stumpage fees, and other specific taxes. Put together, these arrangements have assured Canadian provinces considerably more control over autonomous revenue sources when compared to their subnational counterparts in most other federations (Turgeon & Wallner, 2013).

Like any federation, there are vertical and horizontal imbalances in the relative fiscal capacities and expenditure responsibilities of the central government and the constituent units (Bakvis et al., 2009). In the Canadian context, specific transfers, categorized in broad terms and with limited conditions, such as the Canada Health Transfer and the Canada Social Transfer, help address the vertical fiscal imbalance between the federal government and the provinces while also enabling the federal government to influence the policy choices of provincial decision-makers in key sectors through certain conditions in exchange for the funds. In addition to these relatively durable transfer programs, the federal government will often secure more targeted funding through agreements with provincial governments to further particular agenda items. For example, through the Investing in Canada Plan, the Government of Canada is partnering with provincial governments to invest more than $180 billion over twelve years in five main infrastructure priorities (Government of Canada, 2017a). When compared to the limited conditionality associated with the major transfers, the reporting requirements and conditions associated with the targeted initiatives are often critiqued by representatives from the provincial governments as illegitimate encroachments in areas of their jurisdiction. To quote a 2017 statement issued by the premiers through the Council of the Federation in regard to the infrastructure investment plan, “Agreement administration and reporting requirements should be streamlined, reasonable and appropriately resourced. Those requirements should recognize provinces and territories’ existing reporting mechanisms” (Council of the Federation, 2017, p. 3).

Finally, since 1957, the federal government has operated an equalization program to address horizontal inequalities among the provinces in terms of revenue-raising capacities. Entrenched in article 36(1) of the Constitution Act, 1982, the specific provision reads, “Parliament and the Government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.” These payments are completely unconditional, meaning that receiving provinces can spend the funds according to their own priorities. Reflecting on this first model of fiscal federalism in Canada, Kevin Milligan (2017) describes it as establishing a “radical” form of fiscal federalism, whereby 78% of spending in Canada happens at the subnational levels of government. In other words, this model of fiscal federalism affords considerable self-rule for the ten jurisdictions falling under this specific framework.

Model 2

Officially, Yukon, the Northwest Territories (NWT) and Nunavut, does not enjoy the same constitutional status as provinces. Through processes of devolution from the federal government, however, these three territorial governments have taken on greater power and authority, rendering them de facto orders of government somewhat resembling provincial governments.Footnote 1 Like provinces, territorial governments can set their own personal and corporate tax rates. Under Territorial Formula Financing, which is an unconditional transfer from the federal government, territories are empowered “to provide a range of public programs and services to their residents that are comparable to those offered by provincial governments at comparable levels of taxation” (Department of Finance Canada, 2016, para. 1). Unlike provinces, however, the overwhelming majority of territorial revenues come from the federal government. For example, in 2017, federal transfers to Prince Edward Island—one of the highest-receiving provinces in the federation—totaled $3958 per capita. Per capita transfers to the territories, in the meantime, ranged from $25,299 per capita to the Yukon; $29,044 per capita to the Northwest Territories (NWT); and $41,745 per capita to Nunavut. This funding is nevertheless stable and predictable, with comparable reporting requirements as those that are set for the provinces.

A further distinction from the provinces is visible in the matter of natural resources. Control over natural resource revenue remains unresolved and the arrangements vary across the three territories. The Canada–Yukon Oil and Gas Accord, signed in 1993, allowed for the administrative and legislative control over oil and gas resources, including the collection of natural resource revenues derived from them. Then, in 2001, the Yukon Northern Affairs Program Devolution Transfer Agreement was signed. It “provided for the transfer of responsibilities for lands, water, forestry and mineral resources from the Government of Canada to the Government of Yukon” (Indigenous and Northern Affairs Canada, n.d., para 1). With these agreements, Yukon obtained a degree of resource-management power and responsibility that is similar to those enjoyed by the provinces.

In 2014, under the terms of the Northwest Territories Devolution Act, control over some land and resources was transferred to the Government of the Northwest Territories (GNWT). Under the agreement, the NWT “just like the provinces and Yukon – will receive a share of the royalties from resource development.” (Northwest Territories, Department of Executive, n.d,). This agreement also included a further provision, whereby the GNWT committed to sharing up to 25% of its resource revenues with Aboriginal governments. Whereas Yukon’s agreement “did not foresee the sharing of management responsibilities with the territory’s Indigenous peoples or provide a mechanism for sharing resource revenues” (Sabin, 2017, p. 8), the one secured by the NWT government has laid the foundation for a new tripartite fiscal framework in the Canadian federation.

To date, the Government of Nunavut does not control, manage, or receive the benefits from Crown lands and resources. Representatives from the Government of Nunavut, Nunavut Tunngavik Incorporated (the representatives of the Inuit), and the federal government are engaged in an ongoing process of negotiating a devolution agreement, with the goal of securing an arrangement similar to that achieved with the NWT. Consequently, Nunavut likely faces greater barriers to the realization of self-rule when compared to its other territorial counterparts.

Model 3

Whereas the British somewhat worked to develop reasonable relations with the descendants of French settlers, recognizing and protecting their religion, language, and legal institutions, the situation was markedly different for First Nations (Papillon, 2011, p. 111). First Nations were subjugated under the “protection” of the British Crown, and federal policies were oriented toward the eventual assimilation of these minority nations into the majority polity. The cornerstone of this regime was the Indian Act of 1876, overseen by the Department of Indian Affairs. Devised and amended without the consent or participation of First Nations, its approach was simple: to “place Indian people temporarily on reserved lands – convert them to Christianity, dress them in European clothes, and teach them to become self-sustaining British citizens by becoming productive farmers” (Leslie, 2002, p. 24). The Act also “ensured the fiscal weakness of Aboriginal governments and communities, creating tiny communities fragmented across the land. Aboriginal-Canadian fiscal federalism, if it can be called that, operated under the highly intrusive and extremely paternalistic and hierarchical framework of this legislation” (Prince & Abele, 2003, p. 243).

In 1983, a major inquiry was conducted into the state of First Nations communities across Canada. Known as the Penner Report, the inquiry revealed an image of the subordination and dependence of First Nations under federal control. If First Nations, the report declared, are to govern their own affairs, a financial underpinning that is in harmony with and reinforces this objective must exist. Present funding arrangements effectively deny Indian band councils and tribal councils control of the programs they administer; they exclude Indian people from policymaking; they place impossible accountability burdens on band councils that have assumed responsibility for administering programs; and they generate an excessive federal administrative and monitoring superstructure. In short, they inhibit the development of Indian self-government (Penner, 1983, p. 81). Indeed, according to one representative from the Grand Council of Treaty No. 3, the fiscal arrangements were “demeaning, irrelevant, and counter-productive in terms of nurturing mutual respect” (Penner, 1983, p. 87).

The report further contended that the Government of Canada was using fiscal transfers as political weapons. Aboriginal organizations and First Nations communities that embraced federal priorities and initiatives were rewarded financially, while those that rejected, criticized, or resisted such practices were punished (Penner, 1983). Finally, communities were required to return any surpluses that were saved from their annual funds. Representatives from the Christian Island Reserve summarized the pathology of this practice succinctly: “If a band were to practise a very conservative program for the year and create a surplus, the Department would merely move that resource to the following years, keeping that particular program static, thus eliminating the incentive for the band to save money for the other program” (Penner, 1983, p. 85).

Since the Penner Report, some adjustments were made to the Indian Act to address some of these problematic dimensions. The first occurred in 1988, when the Indian Act was amended to give First Nations the power to levy property tax, sales tax, certain provincial-type commodity taxes, and to tax non-Aboriginal interests on reserve lands. Subsequently, the first Aboriginal-controlled financial institution was created—the Indian Taxation and Advisory Board. According to Prince and Abele (2000, p. 340), by 1997–1998, 78 First Nations in seven provinces had taxation laws generating independent revenues. Another major change happened in 2005, when the federal government introduced the First Nations Fiscal Management Act. The Act provides “for real property taxation powers to first nations, to create a First Nations Tax Commission, First Nations Financial Management Board, and First Nations Finance Authority.” One goal of this legislation was to increase the respective capacities of First Nations communities to participate in the economy more extensively than before.

However, despite these adjustments, almost thirty years later, conditions have changed only slightly. The 2011 Auditor General’s Report acknowledged that First Nations communities under the Indian Act lack appropriate funding mechanisms. Core services are supported through agreements that must be renewed yearly and which are subjected to onerous reporting requirements, with funds often arriving after significant delays. Fiscal surpluses must still be returned to the federal government. What is more, from 1996 until 2016, the federal government imposed a two percent funding cap on all funding for First Nations communities. While provinces gradually witnessed the reduction of the tight hierarchical conditionality historically associated with transfers, conditionality and accountability mechanisms intensified for First Nations over the past two decades. And, despite the aforementioned adjustments, the stability and conditionality of First Nations funding remains a persistent problem (Report of the Standing Committee on Indigenous and Northern Affairs, 2022).

Model 4

Of the various models at work in the Canadian federation, this last one is the most embryonic, and it is arguably the most complicated to describe. The complexity emerges not only from the novelty of these arrangements but also by virtue of the markedly different conditions for each of the Indigenous communities that have managed to secure the beginnings of a renewed fiscal relationship within the Canadian federation. Rather than characterizing this new model as simply an evolution of or an adjustment to the regime that had previously been imposed on Indigenous peoples, it is important that we acknowledge the transformational impulses, underpinnings, and objectives of such kinds of arrangements as they potentially contribute to a complete reshaping of relations between settlers and Indigenous peoples in the federation.

As detailed by Prince and Abele (2003), “self-government agreements, comprehensive land-claim agreements, and other recent developments […] are increasingly resulting in a sharing of tax room between provincial and Aboriginal governments” (p. 251). Modern treaties signed since the 1970s with the Cree and Inuit in northern Quebec, the Inuvialuit in the Mackenzie Delta area, the Inuit of Nunavut, the seventeen Yukon First Nations, the Tłįcho in the NWT, and others in British Columbia, are transforming the structure of the Canadian federation as Indigenous nations are re-establishing jurisdiction and control over their land and resources bases. As of 2014, fourteen self-governing Aboriginal groups had enacted personal income tax laws and concluded related tax administration agreements with Canada. What is more,

some provincial and territorial governments share a portion of their personal income tax room with Aboriginal governments, either by providing a tax abatement which creates tax room for the imposition of an aboriginal tax, similar to Canada’s approach, or by directly sharing a portion of tax revenues. (Indigenous and Northern Affairs Canada, 2014, para. 9)

In contrast with the arrangements at work for First Nations under the Indian Act, moreover, such agreements are negotiated and implemented by the Department of Finance and administered by the Canada Revenue Agency, as opposed to Indigenous and Northern Affairs Canada.

The Nisga’a Accord in British Columbia, for example, is particularly noteworthy for two reasons. First, it includes taxation provisions for self-government. Second, it provides for a variant of equalization known as the Fiscal Financing Agreements (FFA). This tripartite arrangement will be negotiated by the three parties every five years; will have a dedicated annual transfer to support the delivery of programs and services across a range of fields; and will have the expressed purpose of “enable[ing] the provision of agreed-upon public services and programs to Nisga’a citizens and, where applicable, non-Nisga’a occupants of Nisga’a Lands, at levels reasonably comparable to those prevailing in Northwest British Columbia” (Prince & Abele, 2000, p. 358).

Finally, in July 2015, the Government of Canada released a new policy framework for fiscal arrangements with self-governing Indigenous groups (Indigenous and Northern Affairs Canada, 2016). To date, bilateral fiscal arrangements have been concluded with more than twenty-five Indigenous governments as part of the self-government process. Working with leaders from self-governing Indigenous groups, representatives from the Government of Canada initiated a collaborative fiscal policy development process in 2016. In pursuing renewed relations, the government

has identified the need to improve its approach to these self-government fiscal arrangements, and will work collaboratively with self-governing Indigenous groups to develop an improved fiscal policy framework that will strengthen self-governing Indigenous groups and their relations with the Government of Canada. (Indigenous and Northern Affairs Canada 2016, para. 4)

As this is a recent development, it remains to be seen what the concrete impacts of this new framework will be for the empowerment of these internal minority national communities.

(Dis)Empowerment Through Fiscal Federalism

Through this examination of the four models of fiscal federalism at work in Canada, it becomes possible to distill three critical features that influence the (dis)empowerment of internal minority national communities: (1) representation and participation in the development and ongoing management of fiscal relations; (2) the relative independence of the revenue base that a minority nation controls; and (3) the nature of the conditions and time horizons associated with transfers.

Representation and Participation

As members of the constitutionally recognized orders of government in Canada, elected and bureaucratic representatives from provincial governments have long been engaged in the processes that pertain to the negotiation of fiscal arrangements in the federation. What is more, since devolution, representatives from the territories are full members of these intergovernmental meetings. To be sure, the management of fiscal federalism is largely informal and all of the formal decision-making power rests in the hands of the federal government (Vats, 2010). While this is an imperfect process, the provinces—and increasingly the territories through conventional practices—nevertheless are able to participate in the negotiation and renewal of fiscal agreements, which provides a concrete form of empowerment for those enjoying a seat at the table. While the federal government retains greater power during these proceedings, the regular meetings of the ministers of finance offer clear opportunities for provincial and territorial leaders to influence, or at least weigh in on, key agenda items.

In June 2017, for example, the agenda for the finance ministers’ meeting included such issues as the global economy and Canadian monetary policy, Canada–U.S. relations, cannabis taxation, tax integrity, corporate and beneficial ownership transparency, and the Canada Pension Plan (Department of Finance Canada, 2017). On the matter of cannabis taxation, the federal government initially offered a 50/50 revenue split with the provinces—a position that the provinces and territories vigorously opposed. Then, in December 2017, the federal-provincial-territorial ministers of finance met in Ottawa, where they reached a deal in which provinces and territories will receive 75% of the cannabis tax revenues, with the remaining 25% retained by Ottawa to a maximum of $100 million a year (Blatchford, 2017). It seems that representatives from the provinces and territories were successful in promoting the interests of their respective populations and determining their own course of action. Through these meetings, as represented by the Governments of Quebec and Nunavut, the Québécois and the Inuit thus maintained more self-rule than other members of internal nations without comparable standing in the federation.

The importance of representation was underscored by the authors of the Penner Report themselves when they explicitly acknowledged that there were no “Indian Members of Parliament” who could sit on the committee tasked with authoring that very report (Penner, 1983, p. 4). The members, therefore, asked the Assembly of First Nations to designate a representative to work as an ex officio member with all rights save for voting. In fact, while some slight progress is being made, direct representation of Indigenous people throughout the country—not just the Inuit in Nunavut—as equal members of the Canadian federation empowered to influence fiscal arrangements still remains out of reach. Without representation and participation in the design and management of the country’s fiscal architecture, these internal minority nations are hindered in their abilities to determine their own destinies.

Independence of Revenue Base

Under the arrangements that have evolved in the first model of fiscal federalism in Canada, the provinces maintain several revenue sources with a high degree of independence from the federal government. While the specific balance varies across the provinces, on average, the provinces raise over 80% of their own revenues, with the remaining 20% coming from federal transfers (OECD, 2016). As reported by the Organisation for Economic Co-operation and Development (OECD),

Provinces have wide-ranging tax autonomy. Their tax revenues include Personal Income Tax and Corporate Income Tax, sale tax and payroll tax, tax on gaming profits, property tax, etc ... They adhere to the federal tax base but maintain discretion over the tax rates. (OECD, 2016, p. 2)

Provinces, and therefore the Québécois, maintain the greatest amount of autonomy, thanks to the provisions of this model. In fact, further evidence of the greater autonomy exercised by Quebec is visible in the fact that the province is the lone outlier from the general income-tax-collection agreements maintained by the other provinces with the Government of Canada. To maintain its own autonomy, Quebec has retained its own independent tax-collection agency separate from the federal government.

As for the territories, despite some progress resulting from the processes of devolution, the overwhelming majority of revenues come directly from the federal government. On November 1, 2017, NWT premier Bob McLeod issued the following statement:

The promise of the North is fading and the dreams of Northerners are dying as we see a re-emergence of colonialism. For too long now policies have been imposed on us from Ottawa and southern Canada that, despite good intentions sometimes, and ignorance other times, are threatening our economic potential and the decades long work that we as a government have taken. (Government of Northwest Territories 2017, para. 2)

It is important to underscore the fact that the federal government retains significant control over the fiscal arrangements and development of natural resources in the territories. For example, in December 2016, Prime Minister Justin Trudeau announced a five-year ban on offshore oil and gas activity in the Arctic (CBC News, 2016). This was done without consulting the territorial governments, and led to complaints from the territorial premiers. The limited independence of the revenue sources available to the territories thus curbs those jurisdictions’ autonomy. More significant for the present discussion, such restrictions on the territories’ fiscal autonomy diminish the empowerment of the Inuit of Nunavut relative to other national minorities such as the Québécois.

Control over funding for First Nations enshrined within the Indian Act, moreover, has perpetuated the subjugation of these peoples within the Canadian federation. Such subjugation is readily apparent in the chronic underfunding of these communities; as one Assembly of First Nations analysis found,

in 2009 First Nations received roughly $8,400 per capita in programs and funding from the federal government [...] In comparison, all three levels of government spent an average of $18,178 on each Canadian citizen – more than twice as much as was spent on a First Nations citizen. (Assembly of First Nations, 2011)

Reconfiguring these fiscal arrangements will be a critical task in furthering the empowerment of First Nations communities in Canada.

Conditionality and Time Horizons

Though provinces and territories gradually witnessed a reduction of the tight hierarchical conditionality that was historically associated with federal transfers, conditionality and accountability mechanisms intensified for First Nations over the past two decades. Reliability of federal funds, moreover, continues to be a major concern as most grants to First Nations communities still under the Indian Act are issued on an annual basis through discretionary program funding run through Indigenous Services Canada (or what was formerly Indigenous and Northern Affairs Canada) and which are not guarded by legal protections. According to Brunet-Jailly (2008), “whereas Canadian fiscal intergovernmental relations in general are based on principles that are flexible and decentralize power among different government levels that are considered equal partners, in contrast, Canadian-Aboriginal relations are based on a rigid top-down system of government” (p. 20). Stringent rules have manifested in open conflict between the federal government and First Nations communities; in 2014, for example, Aboriginal Affairs Minister Bernard Valcourt withheld non-essential funding from almost 50 First Nations that failed to meet a government-imposed deadline under a new transparency law, while simultaneously asking the Federal Court to force six First Nations to publish audited financial statements and release the salaries of band council members and chiefs (Canadian Press, 2014).

July 12, 2016, the Government of Canada announced a memorandum of understanding establishing a new fiscal relationship with the Assembly of First Nations. The memorandum committed the federal government to lifting the 2% funding cap imposed in 1996 and to working toward the establishment of a “new fiscal relationship that gives First Nations communities sufficient, predictable and sustained funding to ensure the overall well-being of First Nations” (Assembly of First Nations, 2016). Furthermore, in December 2017, the Government of Canada issued a report on a new fiscal relationship with First Nations. Developed in collaboration with First Nations communities and the Assembly of First Nations, a key element of the program includes providing “sufficient, predictable, and sustained funding for First Nation communities.” The release continues with the following declaration: “to support effective and independent long-term planning, the Government of Canada is proposing to work with First Nations Financial Institutions and the Assembly of First Nations on the creation of ten-year grants for communities that are determined by First Nations institutions to be ready to move to such a system” (Government of Canada, 2017b, para. 4). If successful, this work could perhaps lead to a fundamental reconfiguration of fiscal relations that would encourage the self-rule of Indigenous communities in the federation.

Conclusion

The fiscal architecture of a federation carries considerable implications for the achievement of self-determination and self-rule for the various communities that are working to coexist within a shared framework. Focusing on the Canadian case, this chapter detailed the key features of four models of fiscal federalism at work within the federation. This discussion revealed the significance of three features of fiscal arrangement as they pertain to the empowerment of internal national minorities: (1) representation and participation in the management of the fiscal architecture; (2) the independence of the revenue base; and (3) the conditionality and time horizons associated with grants and transfers between the sender and the recipients. Based on this study, the following observations can be made.

First, minority nations that maintain standing in the negotiating processes that establish and manage the fiscal architecture, achieve greater empowerment than those that do not. Representation and participation mean that such internal nations have some capacity to influence the configuration of fiscal affairs and, concomitantly, the capacity to exercise jurisdictional autonomy. Second, as perhaps best evidenced by the Québécois, internal minority nations who have access to a significant base of independent revenues separate from the central government enjoy greater self-determination and self-rule than those that do not. Third, and finally, the conditions and time horizons associated with grants can either enable or stifle self-rule. Captured by the regime at work for First Nations peoples under the Indian Act, federal control over fiscal affairs has maintained the pervasive disempowerment of First Nations in the country. By systematically exploring the alternative methods of fiscal federalism at work in Canada, and by putting the varying political implications of these alternatives front and center, one can better understand the ways in which fiscal federalism plays a leading role in the achievement of the key federal principle of self-rule for internal minority national communities.