Cooperation and collaboration between the Government of Canada and provincial and
territorial governments have been critical to the development of the Canadian
federation. Working together, governments have created a network of programs and
services covering health, education, social services, infrastructure, justice
and a range of economic and social policies designed both to improve the
quality of life of Canadians and to enhance the economic performance of the
The Government provides significant financial support to provincial and territorial
governments to assist them in the provision of these programs and services.
Given the importance of this support, the Government appreciates the efforts of
the Standing Committee on Public Accounts to assist Parliamentarians and
Canadians in furthering their understanding of the nature and conditionality of
Government transfers to provincial and territorial governments, as well as the
Office of the Auditor General’s role in auditing these transfers. The
Government also appreciates the efforts of the Standing Committee to strengthen
the Government’s accountability to Parliament with respect to transfers.
As federal and provincial roles and responsibilities have evolved, so too have federal transfer
Current federal transfer arrangements reflect a long history of Canadian
governments working together towards shared national priorities, and recognise
the fact that, in areas of primarily provincial jurisdiction, provincial and
territorial governments are best placed to determine program priorities, and
design and deliver programs in response to them. Current transfer arrangements
also reflect the fact that, in these areas of responsibility, provincial and
territorial governments are accountable directly to their citizens for outcomes
achieved and dollars spent.
That the Government of Canada, when announcing transfers to provinces and
territories, clearly explain whether there are ongoing conditions for the use
of the funds and if not, explain why not.
In announcing new transfers to provincial and territorial governments, or in
renewing established ones, the Government makes every effort to ensure that the
purpose of transfers is well understood and that the objectives and conditions
associated with each transfer are clearly communicated. For example, at the
time of the last renewal of major transfer programs in 2007, a separate budget
document entitled “Restoring Fiscal Balance for a Stronger Federation” was
tabled that outlined the detailed plan for renewal and provided background on
conditions where appropriate.
In designing transfers to provincial and territorial governments, the Government
must take into account a number of factors, including the balance between
conditionality and public accountability. Different designs and mechanisms are
more appropriately aligned with different objectives and anticipated outcomes.
The level of conditionality attached to each specific transfer, whether
implicit or explicit, is a key design feature. As deemed appropriate for each purpose,
these conditions can have varying degrees of specificity and enforceability. The
Government remains accountable to Parliament and to Canadians for its decisions
on the design of transfer programs.
Conditional transfers require the recipients of funding to fulfill certain commitments;
there may also be consequences for not meeting those conditions. In the case
of major transfers such as the Canada Health Transfer and the Canada Social Transfer,
the purpose and objectives of each transfer are clearly outlined in the
legislation, and are supported through political commitments and accords. In
addition, these block grants have limited conditions attached with withholding
provisions. Both are laid out in the enabling legislation and serve to uphold
shared national priorities. For
example, the Canada Social Transfer is a block transfer that provides support
for social programs, post-secondary education and support for children, and has
one condition: that recipient jurisdictions not have a minimum residency requirement.
The Canada Health Transfer supports the provision of health care in the
provinces and territories. Provincial and territorial governments have to meet
the conditions in the Canada Health Act, including the five criteria
that apply to health services (universality; comprehensiveness; portability;
accessibility; and, public administration), as well as provisions relating to
extra-billing and user charges. Should a provincial or
territorial government fail to meet the conditions of each transfer, deductions
can be made from CST and CHT payments under the legislated withholding
In a mature federation such as Canada, however, the Government can often achieve its
objectives without stringent conditionality measures. Transfer arrangements
have evolved, and over time more emphasis has been put on political commitments
and public accountability by recipient governments for the use of federal funds.
As such, the Government establishes clear objectives and expected outcomes for
each transfer, clearly states the purpose of the transfer, and reports to
Parliament on the funds transferred to provincial and territorial governments.
Provincial and territorial governments are then accountable to their citizens
and legislatures for outcomes achieved and dollars spent, since they have the
responsibility to design and deliver programs in response to those objectives.
The 2003 First Ministers' Accord on Health Care Renewal and the 2004 10-Year Plan to
Strengthen Health Care are examples of this public accountability approach,
where First Ministers made political commitments to objectives for health care
renewal. The 10-Year Plan, for example, includes an agreement to develop
evidence-based benchmarks, comparable indicators, clear targets and transparent
reporting to the public on access to health care. In addition, all governments
agreed to report to their residents on health system performance including the
elements outlined in the 10-Year Plan. Other examples of this approach are Equalization and
Territorial Formula Financing, two unconditional transfers. Provincial and
territorial governments are able to direct funds to their own priorities to
ensure reasonably comparable levels of services at reasonably comparable levels
In the case of trust arrangements, the Government has established clear and precise
eligibility conditions that must be met before the trust is established and the
funds transferred. Detailed monitoring and reporting requirements are the
responsibility of the recipient partner governments.
In the case of a
transfer of funds by individual federal departments in support of specific
program areas, conditions are explicitly stated in agreements between the Government and provincial or
territorial governments, and can
include financial and compliance audits, progress reports, program evaluation, and/or
public acknowledgement of federal support for the program. For example,
through the bilateral Labour Market Agreements between the Government and
provincial and territorial governments, the Government provides funds for
provincial and territorial labour market programs and services, particularly
for low-skilled workers and unemployed individuals who are not eligible for EI
benefits. In exchange for increased flexibility accorded by the agreements,
provincial and territorial governments agreed to an accountability framework
that encompasses planning, financial reporting and auditing, performance measurement,
public reporting of results, program evaluation, participation in a joint
committee, and public acknowledgement of federal funding.
Going forward, the Government will continue to ensure that, when announcing transfers
to provincial and territorial governments, the design of the program, including
conditionality, meets the objectives of the initiative, respects the roles and
responsibilities of both orders of government, and is clearly communicated.
That when designing future trust agreements, the Government of Canada ensure that
mechanisms are in place to verify results achieved.
The Government has periodically used trust arrangements in partnership with provincial
and territorial governments in order to respond to pressures on a one-time
have been established in support of areas such as housing, public transit, and the
reduction of wait times for health services.
These arrangements enable the Government to make use of available funding and ensure
agreement on the objectives of the trust, while at the same time providing
provincial and territorial governments with enhanced flexibility, both in how
they design programs and provide services and in the timing of investments
under the trust. Trust arrangements are a clear and transparent financial vehicle
in these circumstances. The trust arrangement design, however, cannot include enforceable
withholding provisions. The Government, therefore, established new accountability
mechanisms with respect to these vehicles through a political commitment and
public accountability approach.
All Canadian governments are committed to responsible fiscal management and to ensuring
results for taxpayer dollars. Governments have accountability instruments that
ensure proper monitoring, auditing and reporting on the use of public funds.
In a federation, governments often share these functions. In the case of
trust arrangements, the purpose and objectives of the trust arrangement are
clearly articulated by the Government. Provincial and territorial governments,
in accepting to participate in the trust, agree to the trust’s objectives and take
on the responsibility for auditing and reporting to the public on the use of
To clarify the objectives of each trust arrangement, the Government also develops Operating
Principles setting out the intended use of the funds. These are public
documents. In order to become eligible for the trust, provincial and territorial
governments must confirm their understanding of the purpose of the trust, and make
public commitments consistent with the Operating Principles on how they will
use the funds. Once they have received the funds, provincial and territorial
governments are accountable to their citizens and legislatures on how these
funds were spent, and they report
publicly on their activities and the results achieved. This is then subject to
scrutiny by provincial and territorial Auditors General. These reporting arrangements
have worked well since the trust mechanism was first used by the Government,
and reflect the evolution of federal-provincial fiscal relations from government-to-government
reporting to a public accountability approach of reporting directly to citizens.
Actions to enhance public accountability have been taken through the new Treasury Board Policy
on Transfer Payments, and its supporting Directive, which
outline the accountability requirements for transfers to other orders of
new Directive requires that appropriate accountability mechanisms are in
place to identify the monitoring and reporting of the transfer payment within
the recipient government. The Directive specifies that transfers to other orders of
government are to “take into
account and, to the greatest extent possible, rely on the accountability
regimes of these governments, including audit, evaluation and direct reporting