In addition to the division of powers between Parliament and the provinces, another key feature of the Constitution Act, 1867 is the division of debts, assets, and sources of revenue between Canada and the provinces. Before Confederation, a number of the colonies in British North America had accumulated large debt loads to finance the construction of public works such as railways and canals. One advantage of Confederation was that the larger political unit would be in a better position to service this existing debt load and to finance additional railway construction needed for westward expansion. These matters were dealt with in Part VIII of the Constitution Act, 1867 comprising sections 102 to 126.
Part VIII of the Constitution Act, 1867 establishes Consolidated Revenue Funds for Canada and each of the provinces, and provides that all revenues under the control of either Parliament or the provinces shall automatically accrue to the appropriate Consolidated Revenue Fund.179
No moneys can be appropriated from the Consolidated Revenue Fund without statutory authority.180These constitutional requirements were by no means novel, since the Bill of Rights in England in 1688 had provided that all expenditures of public funds must be authorized by statute. However, they also constitutionally entrenched the principle that had been recognized in British North America in the 1830s that the Crown was not entitled to any sources of revenue independent of the Consolidated Revenue Fund (as discussed in Chapter 2, section C(2)). Because all revenues accruing to the Crown from its property or any other revenue source must automatically accrue to the Consolidated Revenue Fund, the Crown is forced to go to Parliament to obtain moneys necessary to fund the operation of government. The underlying purpose was to buttress the constitutional conventions associated with responsible government, since the government would not be able to carry on its operations without maintaining the confidence of the House of Commons.181Part VIII also divided the assets and debts of the former British colonies between Canada and the provinces. All provincial debts in 1867 were to be assumed by Canada,182and Canada received title to the public works that had occasioned these large debts, particularly canals and railways.183All other Crown property not specifically transferred to Canada was to remain in the hands of the provincial governments.184The provinces were also entitled to the revenue derived from this property. In 1867, however, the revenue from Crown property was relatively modest. Moreover, the provincial taxation power was limited
to direct taxation, which accounted for a small proportion of government revenue. The provinces therefore had to rely on annual subsidies from the federal government to fund their basic operations. The federal taxation power was legally unlimited, defined in section 91(3) as the right to raise money by "any Mode or System of Taxation." The right of the provinces to receive an annual subsidy from the federal government - equal to $0.80 per person, based on the 1861 census - was constitutionally entrenched in section 118. In the years immediately following Confederation, federal subsidies made up close to 60 percent of total provincial revenue, reflecting their financial dependency on the national government at this time.
By the early twentieth century, the provinces had begun to develop new sources of revenue, and federal subsidies made up only one-quarter of provincial revenues. However, disputes over the fairness of these subsidies were a continuing source of federal-provincial and interprovincial conflict. Many of the poorer provinces argued...