Policy Forum: Constraints on Provincial Fiscal Autonomy Arising from Tax Collection Agreements

Since the end of the Second World War, successive agreements aimed at ensuring better coordination between Canada and the provinces in terms of income taxation have increased provincial fiscal autonomy. The current tax collection agreements (TCAs) give the provinces considerable leeway in designing their tax policies, although these agreements inevitably impose some constraints on provincial fiscal autonomy. This article examines those constraints, largely on the basis of government documents obtained through an access-to-information request. From a federal tax collection and administration standpoint, the constraints do not seem insurmountable, and in some respects, there is even a willingness on the part of the federal government to reduce them. As for the provinces' need to preserve the similarity between the provincial and federal income tax systems, there does not appear to be any room for manoeuvre with regard to the common tax base, but the framework for federal changes to the tax base deserves to be explored. In light of the constraints examined and potential solutions, as well as the colossal task of setting up a separate provincial tax administration, it would likely be difficult for a province that is party to a TCA to justify withdrawal from the agreement.