On November 15, 1948, Mackenzie King’s long tenure as prime minister came to an end. He had changed his views on many aspects of government, always bending with the winds and making the necessary compromises required to stay in power. In contrast, the new prime minister, Louis St. Laurent, had very fixed views about government. He was a strong Canadian nationalist and believed that government should have a major role in the economy, that is, that the federal government should. While Ottawa’s comprehensive plan for the welfare state had been rejected in 1945, St. Laurent believed that it should still be implemented on a piecemeal basis, with provincial co-operation if possible, without it if necessary.
Before St. Laurent could launch his series of welfare and economic initiatives, however, there were several constitutional issues he wanted to settle. By 1949, Britain had amended the BNA Act ten times regarding matters that did not affect the provinces. St. Laurent decided to obtain an amendment stating that Ottawa could make such changes itself. He informed the provinces of Ottawa’s intention, but Opposition Leader George Drew knew that federal and provincial views might differ on what matters were exclusively federal and argued that the provinces had to be consulted and not just informed. Ottawa’s view was that it alone would decide if a matter was exclusively federal and Britain passed the amendment. The premiers could do nothing about it, but it was not an auspicious way to begin relations with them.
St. Laurent’s second constitutional initiative concerned the Supreme Court. When it was created in 1875, it was not, in fact, “supreme,” because its decisions could be appealed to the JCPC in London. St. Laurent wanted to end such appeals to eliminate one more tie with Great Britain; the provinces opposed the change because the JCPC had often upheld their positions. St. Laurent ignored them again and eliminated appeals to the JCPC by an Act of Parliament in September 1949. Since then, scholars have not found conclusive proof that the Supreme Court has consistently or overwhelmingly sided with Ottawa, though that may reflect the fact that the provinces regarded it as part of the central government and were therefore reluctant to appeal to it. Ending appeals to London thus reduced the number of cases heard, and the courts played a less important role in federal-provincial relations than they had before the change.
The third constitutional issue that St. Laurent wanted solved was agreement on a formula for amending the constitution on issues that affected federal-provincial relations, and he wanted to terminate the convention by which such appeals required unanimous agreement. At a conference on January 10, 1950, the Prairie provinces supported a formula that would make change easier, but Ontario did not. Duplessis said that nothing in the constitution could be changed without unanimous provincial consent because “when Confederation was discussed and decided upon, it was based on the principle of complete provincial autonomy.” After St. Laurent’s unilateral moves on the other issues, the provinces were not in a good mood and no agreement emerged.
Education: Ottawa vs. Quebec
A serious battle broke out between Ottawa and Quebec when the federal government decided to become active in the promotion of culture and education, areas previously seen as the prerogative of individuals, groups, institutions, and provincial governments. English-speaking Canadians were increasingly alarmed at American cultural influence, and in 1949, St. Laurent appointed a Royal Commission under Vincent Massey to recommend a federal role. The main thrust was on culture, but it also looked at the state of higher education. Its assertion that the federal government had the right to be involved in “general” educational matters violated the letter and spirit of the BNA Act. Duplessis refused to co-operate with the Commission, and Massey ignored the objections of powerful Quebec organizations such as the Montreal Chamber of Commerce and the St. Jean Baptiste Society.
In 1951, the Massey Commission made a number of recommendations for a federal role in strengthening culture as well as providing grants to universities. The latter was clearly political as Ottawa intended to send cheques directly to the universities and colleges so they would know who their benefactor was. This federal program was unnecessary because the provinces could have increased university funding, if that was their priority, and if Ottawa reduced its level of taxation to allow the provinces to increase theirs. Ottawa refused to do that, creating the self-serving argument that federal money was necessary to fill the vacuum. The English-speaking provinces were willing to accept the federal largesse, but the proposal provoked one of Duplessis’s most famous fights with Ottawa. He accepted the grants for a year, but when Ottawa refused to change the program, he ordered the universities and colleges to refuse the grants.
St. Laurent had, in effect, made education a “shared” responsibility instead of an “exclusively provincial” one. No formal amendment was proposed to legitimize this very significant change. The initiative also reflected one of the key characteristics of federal encroachments on provincial affairs, which came to be called “cherry-picking.” In financial terms, higher education was no different from any other level of education and no level was as well funded as it should have been. Provinces had responsibility for all levels, so they had to allocate their education budgets from primary to university depending on numbers, needs, and finances. Not having any overall responsibility, Ottawa could identify any need such as universities, ignore the rest, and initiate a program that made Ottawa look like it cared, unlike the provinces, which were being stingy with all their programs. The matter was really about power and politics, not funding education.
The Development of Shared-Cost Programs
In 1948, Ottawa decided to expand the 1927 shared-cost program for old age pensions. It did not question that pensions were provincial matters, and a federal-provincial conference resulted in agreement on significant improvements to the regime. Ottawa assumed complete responsibility for pensions for every senior over the age of seventy, and needy seniors between the ages of sixty-five and seventy would receive pensions, with the provinces administering the program and Ottawa paying for half the costs with conditional grants. Paying pensions directly for those over seventy was regarded as beyond Ottawa’s constitutional powers. Duplessis pointed out that social welfare was an exclusive provincial responsibility, but he could not let Quebeckers lose pensions for which they were being taxed by Ottawa. He acquiesced on the program, but insisted that the BNA Act be amended to state that the provinces remained paramount in the field of pensions.
In 1951, Ottawa and the provinces agreed to an amendment, Section 94A, making federal pensions legal but leaving the provinces paramount. There was now no clear pattern regarding the need for amendments to allow Ottawa to launch programs in areas of provincial responsibility. It had introduced old age pensions in 1927 without an amendment, introduced UI in 1940 with one, introduced the baby bonus in 1945 without amendment, and now changed the 1927 pension program with an amendment. That pattern, or non-pattern, would continue as Ottawa became more and more involved in provincial responsibilities, sometimes with amendments to legitimize the constitutional change, usually without amendments, and with the decisions on whether to make an amendment likely to reflect politics rather than constitutional logic or consistency.
The St. Laurent government proceeded with an impressive series of new programs. This reflected both a major increase in general governmental involvement in the economy and in the private lives of Canadians, as well as a transfer of power from the provinces to Ottawa. The method St. Laurent followed was shared-cost programs and the use of the federal “spending power.” In St. Laurent’s view, the constitution was not being violated and no constitutional amendment was required to legalize shared-cost programs, a rejection of the courts’ 1937 decision that Ottawa could not use its unlimited power of taxation to encroach on provincial responsibilities. This was especially significant in that St. Laurent was the federal lawyer who lost the 1937 case, and he was now overruling the Supreme Court. St. Laurent’s view was that if the provinces agreed to a federal proposal, then they had “voluntarily” accepted the change. It was also argued that Ottawa had every right to impose conditions on its gifts or grants, and if the recipients accepted those conditions, again, no violation of the constitution had occurred. This system allowed Ottawa to get around the constitutional division of responsibilities without seeking amendments. The English-speaking provinces approved of this constitutional theory; Quebec definitely did not.
Using this mechanism, Ottawa launched a number of programs to fill in the gaps in the welfare state. In 1948, health grants were provided to the provinces for hospital construction; treatment of cancer, diabetes, and tuberculosis; rehabilitation; surveys; and training. New programs included the Blind Persons Act in 1953, the Disabled Persons Act in 1954, an expanded role under the Unemployment Assistance Act in 1955, and hospital insurance in 1957, as well as programs for civil defence, vocational training, forestry, flood control, youth training, and building the Trans-Canada Highway. In 1953, conditional grants accounted for 18 per cent of federal payments to the provinces and 6 per cent of provincial revenue. Ten years later, they accounted for 77 per cent of federal transfers and 22 per cent of provincial revenue, a 400 per cent increase. Ottawa determined the conditions of these joint programs, but paid only half the cost or less.
Duplessis objected to these encroachments on provincial jurisdiction, arguing that the federal government should respect the constitution, that its actions should be based on the “rule of law.” He did not want the constitution changed, just honoured. Nevertheless, he made his decisions on these proposed programs individually and pragmatically. If he believed a program threatened Quebec’s autonomy, then he refused to participate. If he thought it was not a serious challenge or if the cost of rejecting it was too high, then he participated. Quebec thus refused to participate in grants to the universities, hospital insurance, civil defence, and the Trans-Canada Highway. But it did join the programs for hospital construction, health, tuberculosis, cancer, assistance to the old, and assistance to the unemployed whose insurance benefits had been exhausted.
Duplessis could not prevent Ottawa from launching these programs and using them to concentrate more and more power over provincial responsibilities in its own hands. The statistics told the tale. The percentage of provincial revenue earmarked for these programs in Quebec quadrupled between 1930 and 1960, at which time it amounted to 37 per cent of the budget. From 1933 to 1945, the percentage of Quebec’s taxes collected by the federal government jumped from 47 per cent to 82 per cent, while that collected by the province fell from 10 per cent to 7.3 per cent, and the percentage collected by municipalities fell from 43 per cent to 7 per cent. Federal spending on the provinces went from 43 per cent of the federal budget in 1940 to 17 per cent by 1960. In the 1940s and 1950s, the federal budget increased twenty times, much of it now spent on programs in areas of provincial responsibility. Ottawa was launching this impressive series of programs as the 1947 tax agreements were coming up for renewal. Under these agreements, Ottawa collected income tax for seven provinces and returned a slightly larger amount as annual grants. Ontario and Quebec had refused to participate on the grounds that provinces could not be autonomous if they were dependent on receiving their revenue from Ottawa. In 1952, Ontario joined the other seven, and Quebec stood alone in refusing to allow Ottawa to collect its taxes.
Along with the development of the welfare state, the 1950s saw the completion of two of the most important infrastructure projects in Canadian history, the St. Lawrence Seaway and the Trans-Canada Highway. Both had been on the drawing board for decades, and both involved major issues of federal-provincial relations. The construction of the St. Lawrence Seaway was one of the best examples of co-operation between two orders of government. By 1951, the development of both a better system of locks and of the hydro-electric potential had become urgent, and Ottawa abandoned its attempts to control Ontario’s electricity production. Under the new plan, Ottawa paid for the locks and Ontario paid for the power plant. The Seaway allowed ocean-going vessels to visit ports close to the centre of the continent and it gave Ontario an enormous amount of hydro-electric power.
Another of Ottawa’s major shared-cost initiatives was the Trans-Canada Highway. Local roads were provincial matters, and each province had created a network of roads and connected them to those in neighbouring provinces and states. In 1948, Ottawa decided that a unified Trans-Canada Highway was needed, a decision that fit well into its nationalist strategy. There was no constitutional problem with Ottawa building the entire road—it had the right to declare any provincial work to be of national importance, and it could therefore knit provincial roads into a national network under its own control and improve them to whatever standard it wanted. It also had the financial capacity to build the entire project. Instead, Ottawa decided that the provinces should pay half the costs of a road that had to be built to Ottawa’s plans, rules, and specifications. That decision turned a simple federal project into a serious political, administrative, and financial problem and added years to the period of construction.
Ottawa insisted on having a wide road allowance, but would not cover the costs of acquiring the larger right-of-way. The improved roads required access lanes and intersections—Ottawa said that was a provincial responsibility. Ottawa insisted on determining the route and setting minimum standards for the entire road. The route created problems for provinces like Ontario, where 90 per cent of the population lived in the south while the road would run through the north, and BC, where the cost of building through the mountains was excessive. Ottawa’s demand that all provinces follow its contracting policies was unacceptable to Quebec, where the highways department was an important part of the ruling party’s patronage system.
The project played havoc with provincial budgets and planning. The English-speaking provinces did not believe they could turn down the fifty-cent dollars for roads they needed anyway. To obtain those funds, however, they had to divert money from other departments and roads to the Trans-Canada. The Maritime provinces could not afford their 50 per cent, so Ottawa paid 90 per cent, making the project a form of equalization and another example of asymmetrical federalism. Quebec simply refused to join in the scheme, but did build its roads to an adequate standard and connected them to ones in Ontario and New Brunswick, thus demonstrating that federal involvement was not actually necessary. As a result of these problems, the project that began in 1948 was not completed until 1965, about the same length of time it took to plan, survey, and build the CPR.
The question that must be asked is why Ottawa did not simply build the entire road itself. For Canadian taxpayers, the cost would have been the same. The answer is probably very simple. By making it a shared-cost program, Ottawa forced the provinces to pay half the cost of what was, in fact, a federal project. The money saved was then available to launch more shared-cost programs, each of which imposed Ottawa’s priorities on the provinces. Canada was moving towards the type of government John A. Macdonald had wanted: a dominant federal government with the provinces reduced to the role of glorified municipalities. English-speaking Canadians seemed in broad agreement with Ottawa’s thrust; French Canadians definitely were not. The gulf between English and French Canadians was steadily widening, a contradiction of the image many people had of an emerging pan-Canadian nationalism.
Quebec’s Growing Opposition to Federal Policies
The battles Quebec had been having with Ottawa since the 1920s were of concern to all French-speaking Quebeckers, and organizations like the Chamber of Commerce strongly urged Duplessis to appoint a commission to do an exhaustive study of the situation. He responded in February 1953, with a Royal Commission named after its chairman, Justice Thomas Tremblay. It identified three basic premises: that federalism was a compact between two peoples; that Quebec was the home of one of those peoples; and that its government was the principal defender of that people’s interests. Quebec therefore had a special status, was sovereign in its areas of responsibility, and had to have the fiscal powers to execute those responsibilities. The only government that could protect the French-Canadian nation was that of Quebec, and it could never be dependent on Ottawa.
Not surprisingly, the Commission found numerous examples of Ottawa’s meddling in Quebec’s affairs. It found that the 1867 division of responsibilities was still a proper reflection of the fundamental differences between Quebec and the rest of Canada. It specifically rejected the spending power argument on the grounds that it made a farce of the division of responsibilities. It denied the assertion of the Massey Report that the federal government could involve itself in education, and its main recommendation was that Ottawa respect the constitution and stop using levers such as the spending power to encroach on provincial jurisdiction. The Commission reported just as Quebec was entering a profound period of change, and its recommendations for a return to the neat pre-war division of responsibilities was out-of-date and that discredited its findings.
The fact that part of the analysis was old-fashioned diverted attention from the main impact of the report. It was, in fact, a very clear and detailed statement of Quebec’s unique situation and of the necessity for the province to be in charge of the lives of Quebeckers, to be maîtres chez nous. That part of its findings resonated strongly with French Quebeckers of every class and political persuasion. The main effect of the report may well have been its influence on the provincial Liberals, who were becoming about as nationalistic as Duplessis but determined to use the state instead of the Church to protect French culture and independence, and to use it actively rather than passively. English-speaking Canadians concentrated on the message of preserving Quebec as it was, which in their opinion was backwards, while French Quebeckers saw the report as documenting the very great danger Ottawa’s centralization of power was posing to la survivance. The importance of the Tremblay Report lay in the latter, and it was a key ideological basis of the Quiet Revolution of the 1960s, which was quite forward-looking.
As Quebec was increasingly annoyed with Ottawa’s policies, so too St. Laurent was annoyed with Quebec’s resistance to those policies. A war of words erupted in the summer of 1954, with St. Laurent asserting that Quebec was “a province like the others.” Duplessis replied that it was sad that a prime minister from Quebec would say that all provinces were similar, and he argued that surrender would mean Quebeckers were no longer masters in their own house. He accused St. Laurent of turning the other provinces against Quebec and attacked St. Laurent’s claim that the tax agreements were temporary. The confrontation that had begun in 1945 was coming to a head.
Duplessis finally came to the conclusion that the war over taxation had to be won at any cost. Ottawa’s taxation policy allowed an abatement of up to 5 per cent of personal income tax if provincial governments wanted to collect it, but Quebec had not taken advantage of the proposal. In 1954, Duplessis announced that Quebec was going to introduce a personal income tax and that it would be 15 per cent of the federal rate. If Ottawa did not raise its abatement to 15 per cent, a Quebecker’s combined federal and provincial income tax would jump by 10 per cent, and the question was which government would be blamed for the increase created by this double taxation. Duplessis also promised that part of that revenue would be spent on the universities, which undermined Ottawa’s argument that its program was necessary because the provinces were not adequately funding higher education.
Duplessis was well prepared for the battle. The Quebec government had defended its case at federal-provincial conferences, both in numerous detailed and well-argued submissions and in the press. Every annual provincial budget had stated that Ottawa was collecting taxes in violation of the constitution and the 1942 agreement, and that it was taking more from Quebec than it was returning. The fact those statements were partly incorrect was irrelevant—they were also partly correct and made excellent propaganda, which was what mattered in a political battle. Duplessis never missed an opportunity to press his case. When Canada provided assistance to war-torn Europe, he said that Ottawa spent taxpayers’ money abroad, while he spent it in Quebec. His folksy assessment of federal policy was that Ottawa was like the thief who stole your watch and then returned the watch chain, calling it a gift. St. Laurent was also acutely aware that Duplessis had won the elections of 1944, 1948, and 1952 mainly on a nationalist platform of defending Quebec from Ottawa. That meant that over two-thirds of Quebec’s French-Canadian vote was behind Duplessis, and his policies were uniting all the nationalists in the province.
After acrimonious exchanges, the two leaders met and St. Laurent agreed to increase Quebec’s “tax room.” Duplessis was victorious and he offered Ottawa the face-saving gesture of reducing the proposed provincial tax to 10 per cent. Quebec thus increased its revenue by 10 per cent of the amount that Ottawa had collected and Ottawa lost that amount. The fact that Quebec was now collecting the tax meant it had to develop the bureaucracy necessary to administer it, which reinforced its administration and enhanced its political and administrative autonomy. This arrangement was a major change to the 1952 tax agreements, which were just two years into their five-year term. The English-speaking provinces had not been consulted, and the deal meant that Ottawa had, in reality, agreed to special status for Quebec. Duplessis was hailed in Quebec and this was perhaps his greatest political victory, certainly his most important economic or financial one. Successor regimes in Quebec reaped the benefits, and the increased spending of the Quiet Revolution could not have been effected had Quebec not been in control of its own income tax collection.
Unemployment Insurance, Taxation, and Hospital Insurance
Unemployment insurance was another program that St. Laurent believed should be improved and expanded. UI helped the unemployed for a certain period, but the provinces were responsible for those who remained unemployed after the payments ran out, that is, for welfare. In 1955, Ottawa began paying 50 per cent of the cost of provincial programs for these “unemployables,” the ones who could not find jobs. Ottawa also made a significant change to the criteria for eligibility, by including seasonal workers who had not worked long enough to qualify for payments under the existing scheme. Those additional amounts were, in effect, welfare payments rather than insurance payments, a further confusion of the line between federal and provincial responsibilities. The new system also transferred money from provinces with a high proportion of full-time workers to ones with a high proportion of seasonal workers and was therefore a form of equalization.
In preparation for the renewal of the 1952 tax agreements, Ottawa made a new proposal in January 1956. It called for the federal government to give an abatement of 10 per cent of its personal income tax collection, 9 per cent of its corporate income tax, and 50 per cent of its succession duties so that provinces could collect those amounts without taxpayers being “double-taxed” by the two orders of government. The new policy maintained the option of letting Ottawa collect the amounts for the provinces, and Ottawa encouraged them to do so by offering more than they would obtain collecting the taxes themselves. But now the English-speaking provinces were starting to follow Quebec’s lead, and the provinces demanded a larger share of the revenue. Agreement was reached in March 1957, with eight provinces opting for Ottawa to collect their share, with Ontario choosing to collect its own corporate income tax and succession duties, and with Quebec continuing to collect all three of its own taxes.
The new formula represented a major change. From then on, provincial revenue would increase at the same rate as federal revenue, and the provinces would not be punished if they chose to collect the taxes themselves. In effect, Ottawa had abandoned one of the main policies it had tried to impose since 1942, namely domination of the economy through the collection of all personal and corporate income tax and succession duties. Now the provinces had regained control over their revenue even if they allowed Ottawa to continue collecting it. They were catching up to Quebec, and the allegedly “backwards” Duplessis must have been amused.
A separate part of the agreement provided for Ottawa to give unconditional “equalization” grants to the poorer provinces, known as “have-not” provinces, so that they could provide a level of service comparable to that of the richer or “have” provinces. This reflected a change in attitudes in central Canada and in the federal government, the recognition that federalism worked mainly to the advantage of Ontario and Quebec and that the federal government should tax the richer provinces and redistribute some of that wealth to the poorer ones, whose economies had not been blessed with the same degree of federal support as central Canada had always enjoyed. Equalization grants have been an important element in federalism ever since and were entrenched in the constitution in 1982.
The “fairness” principle of the equalization system had to be seen in context, however. Under the shared-cost programs, the more provinces spent, the more money Ottawa had to transfer to them by its 50–50 formula—Ottawa created the programs, but the provinces determined the amounts spent. Richer provinces spent more per capita than poorer ones, sometimes far more, and they therefore received more from Ottawa. To a certain extent, the equalization system just countered the unfairness of the shared-cost programs. A notable example was the Trans-Canada Highway. As with the CPR, the costs of construction were highest in BC and northern Ontario, so Ottawa spent much more per capita in these two “have” provinces than in the others. Another problem was that it was almost impossible to compare the amount each “have-not” province received from Ottawa’s equalization program to the total amount each province received from Ottawa’s 50 per cent of the shared-cost programs. The confusion allowed almost every province to argue that it was paying more into Confederation than it was getting back, and the confusion increased with every new program or change to existing ones. The politics of the game may well have been as important as the cash flows, with every politician trying to make his constituents believe that they were bringing more to their areas or provinces than was being taken away. That has never changed.
By the mid-1950s, the St. Laurent governments enthusiasm for both the managed economy and the welfare state was starting to fade. A major factor in its changing perspective was that the financial calculations behind the 1945 proposals had proven to be wrong. The bureaucrats who had drafted the plans for the federal welfare state assumed that there would be no more wars, an assumption that defied thousands of years of history. They estimated that defence spending would be $250 million annually in the post-war period. The development of the Cold War and the outbreak of the Korean War pushed the defence budget to $2 billion. By the mid-1950s, it was clear that Ottawa could not afford both its defence budget and the welfare state, and the cuts had to come from the ambitious welfare plan.
St. Laurent abandoned the public works program that was designed to create jobs. In explaining this reversal of policy, he said that although the government’s proposals had been rejected at the 1945 federal-provincial conference, many of its elements had since been put into effect. Public works was being abandoned now because, he said, Ottawa did not want to be involved in detailed projects. The shared-cost program for those who had exhausted their unemployment payments was also coming to an end. In the House of Commons, the government was accused of abandoning the 1944 plan for the welfare state, and St. Laurent did not deny it. The crunch would come with the ongoing debate over hospital insurance.
Hospital insurance was one of the last issues tackled by the St. Laurent government. When Ottawa’s overall plan for a welfare state was rejected by the provinces in 1945, Saskatchewan established its own program. That, of course, demonstrated that federal involvement was not essential for the creation of the welfare state. British Columbia soon followed, and naturally those two governments campaigned from then on for Ottawa to pay for part of their plans. Some other provinces were equally strongly opposed, especially Ontario, which believed that insurance was a private matter, and Quebec, which saw hospitals as a provincial responsibility. The genius of federalism was that in a situation like that, each province could do what suited it and none had to tailor its plans to suit Ottawa or other provinces. The assumption made by Saskatchewan, which proved to be correct, was that if there was a national plan, it would be a copy of Saskatchewan’s. In the context of Canadian federalism, this amounted to the Saskatchewan tail wagging the Canadian dog, and it was not the last time it happened.
St. Laurent was opposed to health insurance and had no appetite for another battle with the provinces. He also knew that the Saskatchewan plan had cost far more than its government had estimated. This was a common problem with new programs—opposition parties usually accused governments of underestimating the cost of new programs, and the opposition parties were usually right. Nevertheless, St. Laurent was well aware of growing popular demand for government support and of the fact that both the CCF and the Progressive Conservatives could attract Liberal votes if the federal government did not act. The cabinet was seriously divided on the question, but powerful ministers such as Paul Martin Sr., backbenchers, and some provinces pressured the prime minister into introducing a plan.
In April 1957, the House of Commons unanimously passed the Hospital and Diagnostic Services Act, which covered a range of hospital services and suggested the government was still moving forward on social issues. St. Laurent was still a very clever politician, however, and the scheme was designed to be postponed for years. It would only come into operation when five provinces with half Canada’s population signed on. Since Ontario and Quebec were opposed, the scheme was dead at birth. St. Laurent thus ended his tenure as prime minister heading a government in retreat on a number of federal-provincial issues while it pretended to be still marching forward with the implementation of the welfare state.
Diefenbaker and the Maritimes, the West, and Quebec
In 1957, twenty-two consecutive years of Liberal government in Ottawa came to an end with the election of a Progressive Conservative government. It was unique in many ways. For the first time, the country had a prime minister who was neither British nor French as John Diefenbaker was of German ancestry. He was more sympathetic to “ethnic” Canadians and First Nations than his predecessors, less so to the English-French problem. His cabinet was the first in history in which central Canadians were not a majority. For the first time ever, the interests of Atlantic Canada and the western provinces were high on a federal government’s agenda, and not just in terms of doing enough to defuse outbreaks of regional discontent. Ottawa, Toronto, and Montreal were not pleased to lose what had been a monopoly on power since 1867. Federal-provincial relations were in for a change.
One of the first areas to benefit from the new configuration of the federal government was the Maritimes. In Ottawa, defending Confederation as a fair, national deal gave way to accepting that federal policies had indeed distorted economies across the land in favour of central Canada and that something had to be done to make Confederation fair for all provinces. For those provinces, genuine co-operation replaced coercion, confrontation, and inattentiveness as the dominant themes of federal-provincial relations, at least for a while. In Ottawa, the change began in the dying days of the Liberal regime and accelerated rapidly under Diefenbaker.
In New Brunswick, the new and dynamic Conservative government of Premier Hugh John Flemming wanted much more federal support than had been forthcoming under the Liberals. He called a meeting of the three Maritime premiers to develop a common approach to Ottawa. In 1957, for the first time ever, Maritime politicians succeeded in having a major federal party include their demands, the Atlantic Manifesto, in a national election platform. Flemming and the other Maritime premiers then helped elect Conservative MPs, and gains in the Maritimes were crucial to Diefenbaker’s defeat of the federal Liberals. Flemming’s reward was federal assistance for the building of a new hydro-electric dam at Beechwood, something Ottawa had refused at the same time as it was pouring millions into the St. Lawrence Seaway. There followed a rash of federal spending, support for other power plants, support for feasibility studies, loans for projects, and especially the formalization of unconditional equalization grants designed to allow Maritime provincial governments to narrow the gap between the services they provided their citizens and the national average.
PEI followed New Brunswick as its government willingly accepted the new programs of grants initiated by the Diefenbaker government, especially the unconditional Atlantic Adjustment Grants that allowed the province to improve the quality of administrative programs, grants that were soon absorbed into the equalization program. PEI eagerly joined the federal programs for Roads to Resources, the Agricultural Rehabilitation and Development Act (ARDA), the Fund for Regional Development (FRED), and the Atlantic Development Board (ADB). Next door in Nova Scotia, the Conservative regime of Premier Robert Stanfield enjoyed the same federal attention and programs as New Brunswick and PEI.
Newfoundland did not fare nearly as well. While most provincial regimes had better relations with federal governments of the same political stripe, most were also wise enough to maintain a decent relationship with the federal Opposition party, hedging their bets in case their federal friends were defeated. Premier Joey Smallwood chose to regard federal Progressive Conservatives as a permanent enemy. That put Newfoundland in a rather poor position when the Conservatives won the 1957 election with the support of Conservative regimes in the Maritimes. Those three regimes and the federal Conservatives knew that Liberal Ottawa had pumped many millions of dollars into Liberal Newfoundland and little into the other Atlantic provinces.
The 1949 Terms of Union with Canada provided that within eight years, a commission would investigate Newfoundland’s finances to determine if the amount of the federal grants was sufficient to provide a level of public services equivalent to that in the Maritime provinces. The Liberal government in Ottawa appointed John McNair who, as former Liberal premier of New Brunswick, was thoroughly familiar with the issues and presumably sympathetic to fellow Liberals in both Ottawa and Newfoundland. In May 1958, he recommended a federal grant of $8 million with no time limit, instead of the $15 million Smallwood expected. Smallwood was furious and attempted to make a major political issue of it. By then, however, Conservatives ruled in Ottawa, and they were not about to be bullied by a premier who had ensured they won no seats in Newfoundland. They accepted McNair’s recommendation but limited it to four years, a major political and financial setback for the premier.
Labour relations became another problem in Newfoundland’s relations with Ottawa. In order to attract foreign investment, Smallwood provided foreign companies with a docile and underpaid labour force. In 1959, the International Woodworkers of America (IWA) went on strike against the Anglo-Newfoundland Development Company, a producer of pulp and paper. On February 12, 1960, Smallwood broadcast a highly emotional speech saying there was a war underway between Newfoundland and a foreign union containing agitators, criminals, and Communists. He accused the IWA of breaking laws and asked the federal government to send the RCMP. Although Ottawa was obliged to respond automatically to such a request, Prime Minister John Diefenbaker was a libertarian who had chafed at government abuse of police power. He was appalled at Smallwood’s handling of the strike and refused to send the police. Smallwood then sent the St. John’s Constabulary and used the death of one of them to outlaw the union. The absence of the RCMP did not lead to the chaos Smallwood had predicted, and it appeared that Diefenbaker was right—the issue was strike-breaking, not law and order.
One positive element that came out of the strike was the final termination of the federal power of disallowance. When Newfoundland passed the bill decertifying the IWA, there was pressure on Ottawa to disallow it, and Diefenbaker must have been sorely tempted to strike another blow at his enemy. But Diefenbaker refused to disallow Smallwood’s controversial legislation, arguing that the power of disallowance made the federal government judge and jury of the appropriateness of provincial legislation. Since 1867 Ottawa had disallowed 112 provincial laws, sixty-eight before Laurier, only sixteen between 1905 and 1921, and the last one in 1943. No federal government has since contemplated using that power, although it was never removed from the constitution. Allowing Smallwood’s legislation to stand did not improve relations between the two governments, and decent relations were only restored in 1963 when Smallwood’s Liberal friends returned to office in Ottawa.
On the prairies, people felt as neglected by the St. Laurent government as they did in the Maritimes, and one issue was the same as Ottawa ignored Regina’s repeated requests for assistance building a dam on the South Saskatchewan River. One example of federal delay was the appointment of a Royal Commission to study the project. As far as Saskatchewan was concerned, enough studies had been done and all the facts were known. Another problem was Ottawa’s insistence on a role in the allocation of the power and the exploitation of minerals under the flooded areas, both of which were provincial matters. In 1957, the South Saskatchewan Dam was high on the agenda of the new prime minister who was, of course, from Saskatchewan. The project was approved in July 1958, and the largest infrastructure project in the province’s history was opened in July 1967. Like the Maritimes, the four western provinces were also pleased to co-operate with Ottawa on a large number of shared-cost programs and federal initiatives to develop their economies.
While federal-provincial co-operation worked well in a number of cases, that did not happen in BC. There, Premier W.A.C. Bennett saw the mighty rivers as the province’s economic engine and the key to the re-election of himself and his Social Credit government. One project was a dam on the Columbia River. The Columbia is an international river, so any agreement on its development had to involve the Canadian and American governments. Bennett wanted to develop hydro-electric power on both the Columbia River and the Peace River at the same time, selling power from the Columbia project to the United States to pay for the construction of the dam on the Peace River. Ottawa wanted Canadian power projects to serve Canadian consumers, and it favoured short-term exports of power so the electricity would be available when demand grew in Canada. The dispute with Ottawa represented yet another attempt by the federal government to use its responsibility for trade to override a provincial responsibility for natural resources. Ottawa had forgotten that it had lost all the previous battles with Ontario and Quebec over control of hydro-electric power, and it seriously underestimated the premier of British Columbia.
The struggle between Victoria and Ottawa reached epic proportions. Bennett nationalized BC Electric and amalgamated it with the provincially owned BC Power Corporation to form the BC Hydro and Power Authority. As a Crown corporation, BC Hydro could not be taxed by Ottawa, but the provincial government could devise numerous means to obtain financial and political benefits from it. In 1962, Ottawa and Victoria were still at loggerheads over the deal, but a federal election was looming. For the first time, Bennett intervened in federal politics, urging people to vote Social Credit instead of Conservative. That helped reduce the federal Conservative government to minority status, and to obtain Social Credit support in the next election, the Conservatives accepted BC’s position on sales to the US. Bennett went on to yet another electoral victory, while the federal Conservatives’ mishandling of the issue contributed to their defeat in 1963.
Ottawa’s relations with Quebec also underwent important changes after the 1957 election. By then, Duplessis was tired of the seemingly endless battles with the federal Liberals. He understood that the federal Conservatives had a much greater respect for the provinces, and in 1957 and 1958 his support was crucial to Diefenbaker’s victories. Unlike St. Laurent, Diefenbaker had no major battles with Duplessis, who died on September 7, 1959, and co-operated very well with his successor, Paul Sauvé, who tragically died just four months later. Both governments wanted to resolve problems, and one of the most important was that of federal aid to universities. Premier Sauvé negotiated a face-saving arrangement by which Ottawa allowed Quebec to collect an additional 1 per cent corporate income tax, an amount roughly equal to what Ottawa would have provided the universities. The Quebec government was then to provide grants to the universities equal to that amount. The province’s complete control over education was preserved and the universities got their money. The ease with which they reached a solution demonstrated the real problem—when Ottawa sought to exercise power and control, Quebec resisted; when Ottawa did not, co-operation was welcome.
More Federal Programs, More Problems
One area where the Diefenbaker government was in full agreement with St. Laurent was that of shared-cost programs. Both saw them as the basic formula for federal-provincial co-operation into the distant future, as the means to develop and manage the entire economy, and as a way of avoiding the difficulty of constitutional amendment. In the 1950s, Diefenbaker’s criticism of shared-cost programs was that there were not enough of them and existing ones were underfunded. Doing more was a key element of the Conservative campaigns of 1957 and 1958, and the Conservatives received strong support across the country, including in Quebec.
The new federal government moved quickly to honour many of its promises. It turned the hospital insurance scheme into reality by dropping the condition that it could only begin when five provinces with 50 per cent of the population signed on. Five smaller provinces then joined the scheme, another four in 1959, plus Quebec in 1961. This program represented another major building block in the welfare state, making it possible for all Canadians to afford hospital treatment. It laid the foundation for Medicare because Saskatchewan used the money freed up by Ottawa’s contributions to hospital insurance to launch the next program in its plan for the welfare state, namely Medicare.
The onset of a recession in 1958 was met with shared-cost programs, one of which supported public works constructed in winter when unemployment was always highest. A major program was called Roads to Resources, in which Ottawa paid part of the cost of roads running from south to north within provincial boundaries in order to tap forestry and mineral resources north of the agricultural zones. This was part of the government’s “Northern Vision.” Shared-cost programs were also used to enhance tourism, two famous examples being the reconstruction of the Fortress of Louisbourg and the building of the Cabot Trail, both on Cape Breton Island where the decline of coal mining was leading to severe economic problems.
St. Laurent had introduced equalization in the 1957 tax agreements, but Diefenbaker was the first prime minister to embrace the concept with genuine conviction. He began a very deliberate policy of transferring money from wealthy provinces to poorer ones, and from urban to rural areas within provinces. Both policies cost him votes in central Canada and the cities, but earned him votes elsewhere. The calculation of the equalization formula was made more fair, being based on a national average of income, including all sources of revenue. Two huge programs addressed the economic discrepancy between city and country within every province, namely ARDA and FRED. The local problems they addressed had previously been seen mainly as provincial responsibilities and were defined as provincial in the BNA Act.
Under the Conservatives, existing shared-cost programs received additional infusions of federal money and new programs were launched, five major ones and 15 smaller ones. No area of government activity seemed too small for a special program, such as assistance in building houses and vocational schools. In parallel, the abatement on personal income taxes was increased to 13 per cent so that provinces could raise more money for their programs, including their portion of the shared-cost ones. Statistics documented the burst in federal activity in shared-cost programs, from a budget of $144 million in 1958 to $606 million in 1962. This was built on the foundation of St. Laurent’s programs, and in the decade from 1953 to 1964, federal spending on such programs increased twelve-fold, from $75 million to $935 million. Those funds were matched by the provincial share, an indication of how much provincial spending was now being determined by federal initiatives.
Federalism and Quebec Nationalism
After the defeat of the Union National government in 1960, relations between Ottawa and the new Liberal government in Quebec deteriorated as a result of a complex set of developments. The rapid increase in the number of shared-cost programs was a major factor, as Quebec knew that it was being forced to accept more and more programs essentially devised for English Canada, programs that did not reflect Quebec’s priorities or values, programs that were in provincial jurisdiction. French Canadians had never been well represented in the federal civil service that designed these programs, and they were even less well represented in cabinet and the Conservative caucus than under the Liberals. That produced a growing feeling that Ottawa and the rest of Canada did not understand or care about Quebec’s views and concerns, a view that correctly reflected federal policies since at least the 1920s. The CCF had almost no representation in Quebec and was far more supportive of “national” policies than the other federal parties. In the early 1960s, Quebec was increasingly disenchanted with the rest of Canada, particularly the federal government, which happened to be Conservative.
The growing problems between Ottawa and Quebec also reflected a profound change in the way French Canadians in Quebec viewed themselves. By 1960, many of them had come to the conclusion that French Canadians outside the province were rapidly being assimilated into English-Canadian culture, a view solidly supported by statistics. French Quebeckers increasingly redefined themselves as Québécois, as separate from French Canadians in other provinces. This was a historic shift in their nationalism, from seeing themselves as part of a pan-Canadian nation to seeing themselves as a nation exclusively identified with the territory and political state of Quebec. The government of the Québécois was the one in Quebec City, not the one in Ottawa. There were exceptions, of course, the most famous being Pierre Elliott Trudeau, but the majority of Québécois endorsed the French nationalist view. English-speaking Canadians, on the other hand, were likely to regard Ottawa as their national government and the provinces as their local ones. The rise of Québécois nationalism had profound effects on politics within Quebec, between Quebec and Ottawa, and between Quebec and the rest of Canada. In terms of federal-provincial relations, the Québécois were dealing with a prime minister who believed very strongly in a single, pan-Canadian nationalism that included all ethnic groups. He rejected out of hand the idea that English Canadians and French Canadians had some sort of special place amongst Canadians, and the implication that all others—including himself—were second class-citizens.
In the late 1950s, Quebec experienced a dramatic and rapid change in society marked by an extremely swift decline in the influence of the Catholic Church. It was inevitable that the state would replace the Church as the provider of health, welfare, and education, and the Union National had been moving in that direction. Then, on June 22, 1960, the UN was replaced by the Liberals under Jean Lesage. As the Opposition, the Liberals had adopted policies to reflect the new realities, but they were also determined to resist all federal encroachments on provincial jurisdiction; to control their own programs in health, welfare, and other provincial spheres; and to maintain and increase the province’s control of adequate revenue to achieve those goals. The Quiet Revolution was not an overall rejection of the past, as many English-Canadians thought, but the maintenance of the goals of successive Quebec governments since 1867, only with the state replacing the Church to deliver public services and champion nationalism.
Had the 1867 division of responsibilities still been in effect, the change in Quebec would have presented few difficulties to federal-provincial relations. By 1960, however, Ottawa had taken a major role in health, welfare, education, and local infrastructure. Given the sums involved, turning down federal shared-cost programs was no longer a viable option. The stage was set for a dramatic clash between the two governments, as Ottawa sought to maintain and expand its involvement in provincial affairs while Quebec sought to prevent any further incursions and to force Ottawa out of existing programs.
The first strong hint of serious confrontation came at a federal-provincial conference in October 1960. Newly elected Premier Jean Lesage announced that Quebec would now join all the shared-cost programs it had been boycotting, but only on a temporary basis. He said that these programs were in provincial jurisdiction, and he expected Ottawa to pull out of them and turn over to the Quebec government the amount of money it had been spending on those programs. What Ottawa and the other provinces did about those programs in the rest of Canada was of no concern to Quebec, but federal programs within provincial jurisdiction would no longer be rejected as Duplessis had done in some cases, or tolerated, as he had done in others. The government of Quebec would now take control of all the programs for which it was constitutionally responsible, replacing both the Church as the administrator and the federal government as a prime source of funds. The initial enthusiasm English-Canadians had shown for the Quiet Revolution started to evaporate when they realized what it was really about.
At this conference, Lesage found support from a number of provinces, especially Ontario, Manitoba, Alberta, and PEI. Manitoba Premier Dufferin Roblin complained that the federal programs were seriously distorting provincial priorities, and PEI Premier Walter Shaw complained that provinces never knew when Ottawa was going to launch or change a program. Like Duplessis, they now saw the rapid growth of shared-cost programs as a threat to provincial autonomy. They said the programs were forcing them to accept federal priorities in their own areas of responsibility. The Atlantic premiers said their provinces could not afford to accept or reject federal offers.
In fact, by 1960, the post-war policy of shared-cost programs had become a major problem for all eleven governments. Many of the programs had been launched without overall planning, clear objectives, or rational standards. A number of programs were launched deliberately before federal elections, the baby bonus and hospital insurance being excellent examples. Some programs included equalization elements that overlapped the equalization program itself, especially in Atlantic Canada. The objectives of the ARDA and FRED programs were so vague that provinces had to submit proposals and wait for Ottawa to decide if they met the criteria.
Some programs addressed the problem of recessions but were then retained for political reasons after the recession was over, an example being additional aid to the unemployed, which was continued during the prosperous years of the mid-1950s. There was support for some roads, some educational facilities, and some medical programs, but not for others that were arguably as deserving. Ordinary hospitals received grants while mental hospitals did not, which caused provincial governments to spend on general hospitals and ignore mental health institutions. All shared-cost programs violated the most basic principle of democracy, namely that the governments that spent money—in this case the provinces—should be responsible for raising it, so that taxpayers could make informed decisions regarding their taxes, services, and governments. Another complaint was that federal requirements for auditing were excessive, complex, time-consuming, and duplicated provincial auditing.
Diefenbaker was not persuaded, and the October 10 meeting was a failure. However, Ottawa did respond in that the rapid growth in shared-cost programs that had characterized federal-provincial relations over the previous decade slowed down, and some programs were phased out. The other major issue in federal-provincial relations, the renewal of the 1957 tax agreements, led to the complete abandonment of the 1942 tax system. It was replaced in 1962 by tax collection agreements, in which each province set its own income tax rates as a percentage of the federal one and Ottawa collected the taxes for them. This time, eight provinces agreed to having Ottawa collect their taxes, Quebec continued administering all its taxes, and Ontario collected its own corporate income tax and succession duties.
Under the agreement, the provincial share of federal income tax rose to 16 per cent and would continue rising by 1 per cent a year until it reached 20 per cent in 1966. If the provinces wanted an even higher level of taxes, they had to pass laws to that effect. Several provinces did raise their tax rates, and Ottawa’s post-war goal of imposing uniform provincial tax rates throughout the country came to an end. The fact that rates were then different in different provinces did not create any serious problems for the Canadian economy, calling into question Ottawa’s rationale for imposing uniform rates after 1945.
Diefenbaker was defeated in 1963, twenty years after the federal civil servants dreamed up the welfare state and the centre-dominated federation. Part of that plan now lay in ruins or sat on the shelf. It had proven impossible for the federal government to maintain control of provincial income taxes and succession duties. Ottawa had been partially successful in implementing Keynesian economics—but only partially. There was no comprehensive federally administered welfare state, and in particular, Ottawa had failed to impose on Quebec the sort of control it came to exercise over the English-speaking provinces in the 1950s.
The 1945 welfare scheme had nevertheless been implemented in some major areas. Provincial governments in English-speaking Canada now accepted that Ottawa had a permanent role in welfare, education, health, and local infrastructure. All four of those areas had ceased to be under the “exclusive” control of the provinces as allocated in the 1867 BNA Act. They were now, in effect, shared jurisdiction, although the constitution continued to identify them as provincial. What had not been settled was how big or small the respective roles of the federal and provincial governments would be in those new shared areas and how Quebec would fit into the puzzle. This would have to be worked out in an environment in which both Ottawa and the provinces were on the offensive in terms of expanding the role of the state and their roles in these four areas. And that would produce the most serious clashes in the history of Canadian federalism.