Lessons from Canada for Scotland’s constitutional debate

Shadow Scotland Office minister William Bain MP looks at the lessons we should learn from Canada for Scotland’s constitutional debate.

William Bain MP (Labour, Glasgow North East) is a shadow Scotland Office minister

This week, a cross party group of MPs including myself met with visiting Parliamentarians from Canada to discuss the constitutional debate over Scotland’s future which has intriguing parallels with those in Canada over the last few decades.

Like Canada, the United Kingdom is a big player in the G8, IMF, World Bank, and World Trade Organisation. Canada has established strong links with the US and Mexico through NAFTA – we benefit hugely through being integral members of the European Union.

Two referendums have been held in Quebec on its status within Canada in the last 32 years – in 1980 and 1995, with turnouts of 85% and 93% respectively, significantly higher than the usual turnout in federal elections in Quebec of around 60%, and narrow majorities in favour of its continuing membership of the federation in both cases.

With a Parti Quebecois Government having been elected in Montreal last year, the issue of a further referendum is once again on the agenda.

Following the likely adoption by the Privy Council in a matter of weeks of the Section 30 order on the Edinburgh Agreement, following debates at Westminster and Holyrood, the rules on the referendum on Scotland’s future will be determined in the Scottish Parliament, but the whole of Scottish society will be involved in the debate, and the eyes of increasing numbers of international observers will be upon us

There are important differences between federal states like Canada, and those like the United Kingdom, where asymmetrical devolution operates. After the first Quebec referendum, a new Constitution Act was adopted, and issues of provincial-federal finances were placed on a firmer foundation.

In Canada, unless specified under the Constitution Acts, powers are presumed to reside with the federal government, whereas in Scotland’s devolution settlement, powers are devolved to Holyrood unless reserved via the Scotland Acts. There are distinctions in terms of the devolved powers – in Canada, criminal law and procedure, bankruptcy, and marriage are federal powers for Ottawa whereas in Scotland these are almost entirely devolved under the Scotland Acts.

In Canada a share of direct taxation responsibilities are exercised by the provinces, whereas the Scottish devolution settlement will evolve by 2015 to provide £12 billion in taxation and borrowing powers for Holyrood, while the pro-devolution parties weigh up the options for any further enhancement of these powers.

Like the United Kingdom and the United States, Canada is another international example of a nation where economic resources are distributed on the basis of equity across the federation via the Federal-Provincial Fiscal Arrangements Act 1985. In the 2012-3 fiscal year, large scale transfers from federal to provincial governments amounted to some $60bn, or 19% of total provincial government funding, with as much as 25% of funding provided to the Quebec provincial government and 17% to Ontario’s provincial government by these fiscal transfers.

Canada does have a lower level of sub-national borrowing autonomy compared with the US, Germany, Argentina and Brazil. Although Quebec has opted to assume additional financial powers, these are available to all of the provinces should they so wish. The Northern and Atlantic provinces, where providing public services is more costly because of the sparser populations, are net beneficiaries of this fiscal union, as is Quebec itself – between 2003-8, net federal transfers amounted to 2.4% of GDP.

As we have seen through the eurozone crisis, an optimal currency and monetary union requires a strong fiscal union alongside it to equalise demand, and share out resources.

Scotland within the United Kingdom benefited to the tune of £75.8bn from fiscal transfers between 1999-2007/8, and such a fiscal union means sustainability of revenue streams, which over-dependence on corporate tax receipts or oil and gas revenues – both forecast to fall significantly as a share of GDP by 2040 according to last July’s OBR Fiscal Sustainability Report – does not similarly afford.

The proposals of the Yes Scotland campaign in the Scottish referendum would end fiscal union on Scotland’s succession from the United Kingdom, despite two-thirds of Scotland’s goods being traded in the rest of the UK, and provide no mechanism for managing demand across any possible sterling currency area.

Scotland would lose influence over monetary policy set by the central bank of what would be another state, have no capacity to manage the supply of money, potentially have to sign a Treaty with the state permanently limiting the parameters of fiscal policy, and lose influence over the shaping of rules regulating our hugely important financial services sector. As the recent Capital Economics paper makes clear, a separate Scotland could end up facing a monetary policy that was ill-suited to its economic needs.

So the key lessons parliamentarians of both countries learned from our shared experience this week were: decentralisation is a process not an event; it is capable of radical but evolutionary change within a modern state; and that fiscal union works on the grounds of fairness and equity, but also as a means to enhance the social union between peoples with a shared destiny.

Important distinctions on occasion, but even larger similarities in the constitutional journey undergone by our two states, and another reason why Scotland and the rest of the United Kingdom are Better Together.

See also:

Support for independence slumpsJanuary 24th, 2013

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