In our assessment of the way federal transfers are allocated, we find a mixed picture. A number of transfers do have clearly stated and reasonably fair principles for allocation. For others, there are major deviations from a principled approach and no public explanation offered as to why. Addressing these distortions is important for both a coherent approach to fiscal federalism and a more transparent accounting to Canadians. Significant, unexplained deviations from principled allocation approaches can also be a source of public cynicism and intergovernmental or inter-regional tensions.

Unprincipled allocation is felt by people in real ways. It is felt by workers in Ontario who have access to fewer funds for job training. It is felt by people with disabilities in Quebec, where the province receives less than an equal per capita share of Labour Market Agreement for Persons with Disabilities funding to provide employment supports to those who need it. It is felt by people in British Columbia who have less access to social housing.

The path forward is both clear and achievable. We propose four guiding principles to determine the appropriate approach for allocating federal transfer payments throughout the federation. Allocations should be:

• Clear and transparent
• Fair to Canadians regardless of where they live
• Consistent with the policy objectives of the transfer
• Predictable, with the flexibility to adapt to changing circumstances.

Allocations consistent with these principles could take a variety of forms. Comparative experience in federations highlights four different kinds of principle-based allocations that can be used, depending on circumstances:

• Per capita
• Per client
• Need-based
• Merit-based

Our review of comparative experience found that other federations overwhelmingly use these approaches. In Canada we also use all of them, but not consistently and with too many exceptions. We also found that in other federations governments regularly reported on which approach they used and why—because using the wrong principle-based approach in the wrong situation (for example, adopting a per capita approach when a per client approach should be used) undermines transparency and policy goals.

Because the federal government does not consistently use principle-based approaches, Canadians in different parts of the country have different access to essential public services funded with their federal tax dollars. In particular, funds for training, infrastructure and housing defy logic and deprive some Canadians—in all these cases, Ontarians—of equitable access to programs and services.

There is no reason why the federal government should not move immediately to a principle-based approach for all fiscal transfers. There is also no reason that it should not report publicly on its allocation decisions and their rationale. Since the federal commitment in 2007 to move to a principle-based approach, it has failed to do so. There is no explanation for this that we can see.