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In the Canadian federalism, the federal government has jurisdiction over the entire country and each provincial government has jurisdiction over particular portions of the population.

Both levels of government derive their authority from the written constitution.

The Canadian federal system is made up of federal government, 13 regional governments, ten provinces and three territories and approximately 3,900 municipalities.

Fiscal responsibility is shared between the federal government and sub national governments, with the federal government raising approximately 45 percent of total revenues in the country and being responsible for just over 30 percent of direct spending (Garcia-Milà, McGuire, and Oates, 2018).

The ten provinces have significant revenue-raising authority and spending responsibility.

They impose taxes on income (both personal and corporate) and on sales, and they are responsible for spending on education, healthcare and other social services. Canadian provinces raise a substantial amount of revenue via the broad authority granted to them by the Canadian Constitution (section 92.2); own-source revenues comprised more than 80 percent of provinces’ total revenues in 2015.

The major grants from the federal government to the provinces take two forms: two grants support specific services and a third grant equalizes resources across provinces.

The Canada Health Transfer is the largest of the grants and funds healthcare, ensuring

“universality, comprehensiveness, portability, accessibility and public administration” as delineated in the Canada Health Act of 1984. The Canada Social Transfer is a block grant that provides support for all Canadians for post-secondary education, services for children, and social programs.

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The federal government distributes both grants on an equal per capita basis, so that in each province the federal government provides the same amount of funding support per person.

The Equalization grant is a federal grant that addresses fiscal disparities among the provinces. Provinces with below average fiscal capacity receive grants to ensure that they have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation. There are no constraints on how the provinces can spend these grant monies. In FY 2018-2019, six provinces, including Quebec and Ontario, the most populous provinces, qualified for equalization payments.

Self-Assessment Exercise

Discuss the fiscal Adjustment Practice in the Canada 3.3.4 Practice in India

The Government of India (referred to as the Union Government) is the governing authority of a federal union comprises of 28 states and 9 union territories. Indian government is based on a three tiered system, in which the constitution of India defines the subjects on which each tier of government has executive powers. In the current arrangement, The Seventh Schedule of the Indian Constitution delimits the subjects of each level of governmental jurisdiction, dividing them into three lists which include:

➢ Union List includes subjects of national importance such as defense of the country, foreign affairs, banking, communications and currency. The Union Government alone can make laws relating to the subjects mentioned in the Union List.

➢ State List contains subjects of states and local importance such as police, trade, commerce, agriculture and irrigation. The state governments alone can make laws relating to the subjects mentioned in the State List.

➢ Concurrent List includes subjects of common interest to both the union government as well as the State Governments, such as education, forest, trade

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unions, marriage, adoption and succession. Both the Union as well as the State Governments can make laws on the subjects mentioned in this list. If their laws conflict with each other, the law made by the union government will prevail.

There are two distinct characteristics of Indian federal system which distinguish it from other federal states:

✓ Indian federalism, unlike many other forms of federalism, is asymmetric or unequal and gives limited autonomy to only some Indian state.

✓ It has a system of President's Rule in which the central government (through its appointed Governor) takes control of state's administration for certain months when no party can form a government in the state or there is violent disturbance in the state.

Concerning fiscal adjustment aspect, Article 282 accords financial autonomy in spending financial resources available to the states for public purpose. Article 293 allows States to borrow without limit without consent from the Union government. However, the Union government can insist upon compliance with its loan terms when a state has outstanding loans charged to the consolidated fund of India or a federally-guaranteed loan.

In addition, the president of India constitutes a finance commission every five years to recommend devolution of union revenues to state governments. Under Article 360, the president can proclaim a financial emergency when the financial stability or credit of the nation or of any part of its territory is threatened. However, no guidelines define "financial emergency" for the country or a state or a union territory or a panchayat or a municipality or a corporation.

A state of financial emergency remains in force indefinitely until revoked by the President.

The president can reduce the salaries of all government officials, including judges of the supreme court and high courts, in cases of a financial emergency. All money bills passed

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by the State legislatures are submitted to the President for approval. He can direct the state to observe economy measures.

Self-Assessment Exercise

Discuss the fiscal Adjustment Practice in India