Pierre-Elliott Trudeau became Prime Minister in 1968 as Medicare—the Liberal Party’s Centennial gift to the country!—began to take effect. The legislation passed by Parliament to establish the framework promised fifty percent funding for the health care costs to be assumed by the provincial governments (since they had the basic constitutional responsibility for health care). As these large costs moved into the public budget, it would have been prudent to consider new sources of revenue to pay the costs. (We may note that the Old Age Security pension established almost two decades earlier was based explicitly on a manufacturers sales tax.)

The failure of the Trudeau Liberal Government to recognize the need and its decision to allow the wealthy to avoid proper taxation was a grievous mistake at the time and has had increasingly ruinous results for the country ever since. Through the White Paper on Taxation published in 1970 and the budgets developed by Edgar Benson, it became clear that some income would pay less in taxes than other income and that many devices would be developed to allow the wealthy to shelter income. Capital gains would not be taxed like other income, and the wealth of the country would not be tapped as advanced societies do now.

Canada had been taxing estates and this had increased the revenues needed by the Federal government, among other things to make equalization payments to poorer provinces enabling them to provide services closer to a national standard than they would otherwise have been able to do. (Sometimes these taxes produced a windfall, such as the $500 million levied on the estates of Sir James Dunn and I.W. Killam, which was used by the Liberal Government of Louis St. Laurent to endow the Canada Council in 1956.)

Leaving estate taxes to the provinces was cowardly on the part of the Trudeau Government. It was also clearly unfair because, if they chose to levy the taxes, some provinces could raise far more in estate taxes than other provinces. Such a system would obviously be to the advantage of Ontario and Québec and to the disadvantage of New Brunswick and Saskatchewan, to single out only four of the ten provinces with greatly varying amounts of private wealth. As it happened, none of the provinces took up this opportunity given to them.

Another way wealth was sheltered was by establishing a valuation day for all assets—1 January 1972—and levying taxes only on the increase in value after that day. All the wealth Canadians held on that day was sheltered from taxation. It has been estimated that this one decision sheltered some $12 billion of Canadian wealth from ever being taxed.

These decisions created fiscal challenges, first for the Federal Government and then for the provincial governments. The Co-operative Federalism of the Sixties had involved a number of shared cost programs, of which Medicare immediately became the most costly. As the time for renewal of these agreements rolled round, in 1972 and again in 1977, the Trudeau Government became more and more reluctant to maintain them. The result in 1978 was the Established-Programs Financing Act, under which the provinces received funds without being required to spend the money on the objects for which it was given. If this were designed to respect Québec’s assertion of its constitutional responsibility for social programs, the results included British Columbia’s giving less to its colleges and universities than it had received in federal grants for post-secondary education!

In health care, the freedom given provinces to spend money as they liked forced the last Trudeau Liberal Government to pass the Canada Health Act in 1984. The Act established the basic principles of Medicare and required provincial governments to observe these principles or lose federal funding. However, the financial stringencies resulting from failure to tax wealth properly precluded additions to Medicare such as dental care, even while research showed that infected teeth weakened hearts and killed people.