The money is still at least a year away, but the federal government is giving some clear indications that it is steering the country in a radically different direction in order to deal with its perpetual fiscal tug-of-war with the provinces.
Yesterday's federal budget essentially defines the fiscal imbalance bugbear that has pitted government against government for most of Canada's history.
And it sets out five principles that will serve as a basis for Ottawa's proposals to deal with the provinces' complaints that the federal government has too much money and they have too little.
In setting out its framework for negotiations with the provinces, the federal government gives a taste of the federation of the future: a country in which Ottawa focuses on stripped-down roles in international affairs, defence and security, and cedes responsibility for health and social programs to the provinces.
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"For this government, fiscal balance means that the federal government and the provincial governments have to be able to focus on their core responsibilities," Finance Minister Jim Flaherty said in his first federal budget speech.
"They have to have the resources they need to meet those responsibilities."
His principles include: a clarification of the responsibilities of each level of government; budget data that are more transparent; predictable, long-term funding; a competitive economic union; and collaborative management of the federation.
All in all, they add up to a foundation that aims to steer the country away from the Liberal past -- where federal spending often intruded on provincial responsibilities or came with strings attached -- toward a federal government that is more inclined to transfer fiscal capacity to the provinces and lets the provinces decide what to do with it.
While Ottawa's concrete proposals won't be brought forward until the fall, the declarations were enough to win the crucial support of the Bloc Québécois.
With the other opposition parties suggesting they will not vote in favour of the Conservatives' first budget, the Bloc's support is necessary to keep the Conservatives in office.
"The government's firm intention to attack and eliminate the fiscal imbalance is a major advance for Quebec, and that's why the Bloc Québécois will support this budget," Bloc Leader Gilles Duceppe said. "We are obviously far from where we'd like to be," he added.
The budget does not set aside extra cash to deal with provincial demands that will no doubt total billions of dollars annually. (The budget does mention about $2-billion over two years that is not yet allocated to anything in particular).
The budget statements signal a radical change in direction for federal-provincial relations and for the role of the federal government, said expert Tom Courchene, an economist with Queen's University in Kingston.
"It's really a commitment to classical federalism," he said in an interview. "It's very respectful of the provinces."
A recent experts' report, commissioned by the provinces, recommended that Ottawa boost federal payments to the provinces by about $5-billion every year. Part of the money would enrich and overhaul the equalization formula that is meant to make sure all provinces can afford to provide their populations with the same high standards of social programs.
Another part would go toward helping every province pay for postsecondary education and training, including Alberta and Ontario.
Ontario, which is a major contributor to the equalization program despite a lacklustre economy, has already dismissed those proposals as insufficient. And Ottawa gave no indication yesterday that the provincial platform was something with which it could work.
Instead, Mr. Flaherty says he wants to wait to see what a federally sponsored panel of experts has to say on the subject later this year.
And he hints that with Ottawa cutting taxes, there is even more room available now for the provinces to raise taxes if they feel they're not able to make ends meet. The budget documents make a point of saying that no taxation area is out of bounds for the provinces.
"Both orders of government have access to all major sources of tax revenue," the documents say more than once.
Still, Mr. Flaherty presents some interesting ideas that may intrigue the provinces:
He suggests that if the federal government has money left over at the end of the fiscal year, some of it should be allocated to the Canada Pension Plan or the Quebec Pension Plan. That way, all Canadians can share the benefits, and end-of-year spending sprees are less tempting. For now, any leftover money automatically goes toward paying down the debt. The provinces have argued that Ottawa consistently underestimates its revenues and overestimates its costs so that it can build up huge surpluses that should be shared with the provinces.
He promises to revisit equalization so that it's based on a formula again. The previous Liberal government amended the formula recently to allow for some provinces' natural-resource revenues and other special circumstances, and the Conservatives have argued that the integrity of the program has eroded. They have not said how they want to rewrite the formula, which is notoriously complex and contentious.
He commits to setting up long-term federal funding for postsecondary education and training, as well as infrastructure. Again, there are no details, but the budget recognizes that federal cuts to education in the 1990s are still a major problem for most provinces. Mr. Flaherty hints that the Liberal preference of providing direct funding to educational programs is not the way the Conservatives would go, opting instead for transfers to provinces.
He allocates $3.3-billion of last year's money to trust funds that will help the provinces cover short-term costs associated with affordable housing, public transit and postsecondary education.
While the fiscal-imbalance exercise will no doubt reshape the nation and could cost billions of dollars that are not included anywhere in the budget, Ottawa should be able to find the money, said Royal Bank's chief economist, Craig Wright.
"I think the lesson of today's budget is there's lots of money to be found."
High corporate profits and strong economic growth across the country have improved Ottawa's fiscal position. The opposition Liberals, however, criticized the Conservatives for bringing Ottawa perilously close to a deficit by abandoning the Liberals' practice of putting aside a rainy-day fund for emergencies and by announcing spending cuts without identifying where they would come from.
Plus, there's a risk that the fiscal imbalance could become a catch-all for any program a cabinet minister may want to push through. There were already signs of that happening in yesterday's budget.
In presenting its discussion on the fiscal imbalance, the government said it was already taking concrete measures to address provincial concerns, and then listed all of the major announcements made elsewhere in the budget.
"They have their budget and then they reclassified it a second time," Mr. Courchene said.
The budget also stresses that the Conservatives' commitment to reducing patient waiting times is a key measure to addressing provinces' fiscal problems. But there is no new money for health care or waiting times.
