A big item on the political calendar for 2023 will be health funding, specifically provincial demands for a massive increase in the federal contribution. The provincial premiers want $28 billion more – about 60 per cent above the current transfer – and a face-to-face meeting with the Prime Minister to boot. Trudeau says his government is willing to increase funding by some unspecified amount, but wants to attach conditions, which is anathema to some of the premiers.
At this point it’s unclear how this quintessentially Canadian drama will play out, but it’s certain that the controversy will continue to produce a lot of numbers. So as a service to readers, here’s an analysis of some of the numbers likely to be trotted out in support of one side or the other.
The $28 billion ask
The $28 billion number is based on the premiers’ calculation of how much Ottawa would need to add to the Canada Health Transfer (CHT) to bring the federal contribution to provincial health care spending from 22 to 35 per cent. As I reported earlier:
Federal sources have taken issue with the 22 per cent claim, arguing that it is based solely on the amount of cash Ottawa sends to provinces and territories via the CHT as a share of total public health care spending. It doesn’t mention that the provinces benefit from about $20 billion a year in tax points, transferred to the provinces in 1977 for health care. If that is taken into account, federal funding clocks in at well over 30 per cent, not far off the Premiers’ ask.
Moreover, the premiers’ calculations did not include pandemic-related top-ups to the health transfer worth $6.5 billion between 2020 and 2022, or side deals on home care and mental health worth over $1 billion a year. And the 35 per cent, $28 billion targets were derived before last month’s announcement of a 9.3 per cent increase in the CHT for 2023-4.
Why 35 percent?
It’s hard to know where the 35 per cent, $28 billion figure came from in the first place. It’s much bigger than anything the provinces have asked for in the recent past.
In 2002, following years of declining transfers, the Romanow Commission on the Future of Health Care in Canada recommended setting Ottawa’s contribution at 25 per cent. The benchmark was agreed to by Ottawa and the provinces in 2004, leading to a 12-year period during which the CHT was increased by six per cent each year. But the 2004 arrangement, hailed by the Prime Minister of the day as the health care “fix for a generation” turned out to be anything but.
Despite failing to significantly improve health care delivery, between 2004 and 2010 the provinces raised their spending by rates higher than the six per cent annual increase in the CHT. As a result, by 2012 the health transfer covered just 20 per cent of health spending by provincial and territorial governments.
After a Harper government initiative (adopted by the Trudeau Liberals) reduced the rate of increase to three per cent effective in 2016-7, provincial premiers (six of whom were Liberals) united around a demand to set the rate of increase at 5.2 per cent, calculated to bring the federal share back to 25 per cent. To their discredit, the Trudeau Liberals stuck to three per cent, plus the aforementioned home care and mental health side deals. One after another provincial Liberal governments caved, as I wrote back in December, 2016.
Although they gave up fighting very hard months ago, three of the four Atlantic Provinces signed the official articles of surrender late this week by agreeing to a new health care deal with Ottawa.It was not a total surprise that New Brunswick announced on Thursday that it would accept the federal offer of more cash for home care and mental health services. When federal-provincial health talks broke down Monday in Ottawa the New Brunswick Finance minister had said her province would “pursue opportunities for a bilateral agreement.” More unforeseen was how quickly Nova Scotia did an about face, announcing on Friday that it had signed a similar bilateral agreement. This came only days after the Premier said the province would stick with the provincial and territorial common front seeking improvement to Ottawa’s “take-it-or-leave-it” deal.
Provinces short-changed but….
When the Liberal governments in power in the Atlantic provinces in 2016 accepted the Trudeau government’s take-it-or-leave offer they not only weakened the bargaining position of the other provinces and territories, they abandoned years of campaigning by governments in the region for health transfers that recognized the greater needs of provinces with older populations. The notion of a demographic top-up, which had support from the likes of the Canadian Medical Association and the Conference Board of Canada, seems to have vanished from the current discussions.P
There’s no doubting that since 2016 the provinces have been worse off under the three per cent escalator with the home care and mental health add-ons than they would have been with a 5.2 percent increase every year. Leaving out population increases, the lower escalator meant about $13.3 billion less in CHT over five years, only partially offset by $4.8 in side agreements.
But even without taking the home care and mental health transfers into account the gap between what the premiers were asking and what the feds were prepared to give back in 2016 was orders of magnitude smaller than what they’re seeking now. In 2016 the ask was about $13 billion over five years. Compare that with the current demand for $28 billion in year one, to be increased annually to keep the federal share at 35 percent. That works out to at least $150 billion over five years. An explanation for such inflation wouldn’t be too much to ask.
More help from the PBO
Canadians observing the health care performance of provincial governments and some of their spending choices – highways and tax breaks for example – could well look askance at the premiers’ demands for a mountain of federal cash. However, the provinces have an ally in the Parliamentary Budget Officer (PBO). The Premiers’ claim that health transfers to the provinces need to increase is backed up by years of analysis from the PBO.
The PBO’s annual Fiscal Sustainability Reports have projected that because of rising health care costs over the long term the current Canada Health Transfer will force most provinces to chose between raising taxes, cutting services or accumulating debt, while enabling the federal government to eliminate the national debt by mid-century or thereabouts. The PBO explanation is that under the current formula transfers are capped by growth of the economy but health care costs are projected to grow faster than the economy. Putting the two on the same trajectory would make sense, and the latest sustainability report suggests the feds can well afford to do that.
In a report released last July, the PBO projects that the feds could afford to meet provincial demands without cutting other expenditures, raising taxes or increasing its debt-to-GDP ratio. “We estimate that the federal government could permanently increase spending or reduce taxes by 1.8 per cent of GDP ($45 billion in current dollars, growing in line with GDP thereafter) while maintaining fiscal sustainability.”
The PBO defines “sustainability” as a state in which government debt as a share of the economy does not grow continuously. The PBO projects that debt-to-GDP could remain at current levels even if Ottawa cut taxes or raised spending by $45 billion a year. But if they keep spending and taxes on their current trajectory the federal debt would be eliminated by 2061.
Not all economists agree with the PBO’s optimistic outlook, something that would provide grounds for the feds to push back against provincial arguments that the full $28 billion is eminently affordable. But the main sticking point is likely to be the attachment of strings.
The health care crisis notwithstanding, many Canadians would be critical of a government that hands over billions more in health transfers without some better idea of how provinces will use it to fix the system. So far, most talk about reform emanating from provincial governments involves farming out more surgeries to private clinics, a controversial proposal, to say the least. And on top of that, there’s potential for serious political hijinks with the Liberal government facing off with eight conservative premiers, some of them grandstanding provincial rights advocates. It could get messy.
Coming up later in the week: Has Canada been scrimping on health care spending?