The Liberal government of Mackenzie King created the Royal Commission on Dominion Provincial Relations in 1937, whose task was to assess the economic relationship between the federal government and the rest of Canada. Between 1937 and 1940, the Commission received reports and initiated studies from every province. It documented the Saskatchewan people's reaction to the regional disparity evident in their province after the Great Depression. Information in the Rowell-Sirois Report indicated that Saskatchewan experienced huge social and political upheaval in the decade following the Stock Market Crash of 1929, and that it experienced more financial setbacks than most of the other provinces. Saskatchewan residents voiced concerns over the federal government's capacity to provide for them in times of economic instability. Ottawa exhibited limited success in helping the provinces recover from the fiscal damage after the Depression and other global financial crises. Saskatchewan, Quebec, Ontario, and Alberta introduced income tax, and taxes on gasoline increased by 50% across the country; Saskatchewan and Quebec introduced sales tax at this time to help deal with financial losses suffered during the 1930s.
The four western provinces opposed the federal government's policies of freight rates, control over natural resources, and tariffs on the sale of wheat, and protested the differences in the standard of living between central Canada and the prairies. In 1940, the Rowell-Sirois Report recommended that unemployment insurance and contributory pensions become federal responsibility and that each province collect 10% of the mining and petroleum revenues from the federal government. It advised that health care remain within provincial jurisdiction, but with guidance from the federal government, further suggesting that the federal government take over all provincial debt. Saskatchewan was to receive exceptional grant status based on needs defined by the nature of its farm economy.
The Report stated that provinces would surrender income taxes, corporation taxes, and succession duties to federal jurisdiction: in exchange, the federal government would provide a guaranteed income for all provinces. Saskatchewan, Manitoba, and the Maritimes saw the recommendations as a way of addressing the inequality between themselves and the more affluent provinces. The Rowell-Sirois Report was eventually deemed a failure and shelved. Some of the recommendations were in evidence in the policies of federal governments that followed the Liberals of the 1940s. The federal government established control over Employment Insurance, and the National Adjustment Grant proposal paved the way for present-day equalization principles. The Royal Commission on Dominion Provincial Relations (Rowell-Sirois Report), although shelved, is to this day the most complete investigation into the fiscal relationships between the federal and provincial governments.