In May 2005, Premiers announced the establishment of the Council of the Federation Advisory Panel on Fiscal Imbalance.

The panel’s mandate was to:
• Look at the underlying causes of fiscal imbalance
• Review a full range of mechanisms to address fiscal imbalance
• Make recommendations on ways to restore fiscal balance.

Robert Gagné, a professor at the Institute of Applied Economics at HEC Montréal and Janice Gross Stein, a well-respected academic with the University of Toronto headed up a five-person panel looking at ways to ensure that provinces and territories have the resources to provide services that are vital to the well-being and prosperity of Canadians. Other panel members included public-policy expert Peter Meekison, Senator Lowell Murray, and northern businessperson John Todd. See biographical information for more on the panel members.

Fiscal Imbalance makes it increasingly difficult for provinces and territories to maintain and improve crucial services such as health care, education, and other social programs, while continuing to fund other priorities including environmental protection and enhancing job training, transportation, agriculture and infrastructure to strengthen Canada’s competitiveness.

The panel explored two aspects of the fiscal imbalance:

• Vertical fiscal imbalance refers to a gap between revenue sources and spending responsibilities between orders of government. It means that one order of government collects more tax dollars than it needs to support its responsibilities, crowding out the ability of the other order of government to raise the revenue it needs to fund its responsibilities.

• Horizontal fiscal imbalance refers to the differences in the ability of provinces/territories to raise revenues to meet the needs of their citizens. It means there is some disparity in the ability of individual provinces and territories to deliver comparable, high quality services.

For more information on the Advisory Panel on Fiscal Imbalance, please see Media Release and Media Backgrounder