Appendix B: Implications for
Provincial Budgets

The analysis and simulation above imply that both the provincial and the federal government hold spending constant in nominal terms in order to reach the critical 34 percent level of total spending.

The effect of cash tax rebates by the federal government would be to leave provincial revenues unchanged, since in all provinces except Quebec, provincial taxes are specified as a percent of federal taxes owed. Provincial revenues would decrease if provinces kept their rate of taxation unchanged whenever the federal government reduced its tax rates. However, these revenue losses would not create provincial deficits if total spending is held constant.