The Spending Power in Federal Countries

Abstract

The use of the spending power by the federal government to affect activities not within its normal legislative powers has long been a contentious issue in Canada. Controversy over such federal "intrusions" on state power of course arises in various guises in other federal countries also. This paper first sets out how the federal spending power appears generally to be understood in Canada, the country in which the issue has been most explicitly discussed under this label. It then considers more briefly for four other developed federal countries - Australia, Germany, Switzerland, and the United States - three questions. First, is any formal equivalent to the spending power explicitly recognized? Second, are there other operationally equivalent ways in which the federal government acts to influence outcomes in areas that are constitutionally state responsibilities? Third, to what extent is the operation of such federal "intrusions" on areas of sub-national responsibility institutionally constrained? This discussion shows that more or less the same problems arise with the spending power in all federal countries, although it is difficult to make comparisons across countries without considering much more than this single element of the complex puzzle that is federalism. The paper concludes that any federal country, developed or not, is likely to achieve better and more sustainable policy outcomes if the issues raised in this discussion are handled in a more transparent and institutionalized manner than is now the case in most countries.

Keywords: federal-state relations, Canada, United States, Germany, Australia, Switzerland

JEL Classification: H77