The great federal-provincial health care battle ended, to quote the poet, not with a bang but a whimper. The provincial premiers ratified the articles of surrender on Monday, settling not for a half, or even a quarter-loaf, of the billions in new funding they had been demanding.
It was a political defeat for the premiers, whose feckless two-year crusade featured a demand for an immediate $28 billion boost in the Canada Health Transfer, plus an increase from three to five per cent in the annual escalator, in perpetuity. The Trudeau Liberals responded with zero increase in the CHT, a five per cent escalator expiring in five years and $2.5 billion per year in bilateral deals.
That combination produced the oft-cited $46 billion in federal “new money” over ten years, a stark contrast with the $300 billion in new cash that the federal government would have put into health care over a decade if provincial demands had been met.
The premiers’ failure to get what they were asking for is no surprise, given their ineffectual campaign and the damaging optics of arguing about money amidst a crumbling health system. But the scale of their setback is shocking and bodes poorly for the future of universal health care in this country.
And while the premiers look inept, the federal government looks duplicitous. By settling for what amounts to 15 cents on the dollar the premiers are giving the Trudeau Liberals a pass on a health care record that, rhetoric aside, is most notable for fiscal restraint and broken or watered-down promises.
The Liberal record
Let’s start with broken promises.Trudeau pledged during the 2015 campaign to negotiate a new health accord with provincial leaders. Last week was the first time Trudeau was in the same room as the premiers with health transfers on the agenda. But he was there to present a take-it-or-leave proposal, not to negotiate.
And then there’s the promise of national pharmacare. It was a prominent part of the Liberal election platform in 2019, but nowhere to be found in the deal.
In terms of the bent but not-quite-broken promises, the 2021 Liberal campaign platform brought the promise of a Mental Health Transfer worth $4.5 billion over five years. That eye-catching commitment has not exactly been broken. But it has been put on the list along with oft-heard promises about long term care and family doctors – all to be funded from the $2.5 billion a year set aside for bilateral agreements.
Like the commitments on mental health, long term care and family doctors, the Liberal approach to the Canada Health Transfer has also involved smoke and mirrors. In opposition they were critical of the Harper government’s plan to cut the annual increase on transfers from six to three percent in 2017. On the 2015 campaign trail the Liberals ducked the question, only providing an answer a couple of years later by retaining the escalator of three per cent, while offering modest side deals on mental health and long term care.
in the seven years following expiry of the six per cent escalator the replacement formula left the provinces with $25 billion less than they would have received had the formula in place since 2004 been continued. (See table below) From that $25 billion total we could deduct pandemic-related top-ups and $4.8 worth of side deals, leaving an overall shortfall to provincial transfers of $11.8 billion since 2017. That $11.8 billion deficit makes the $46 billion in “new money” look even more modest.
The Liberals seem fully aware of their lacklustre record, seizing every opportunity to crow about what they would have Canadians believe is a “historic investment.” Taking questions from the media after the federal take-or-leave-it offer was released last week Trudeau rolled out the big number – the $196 billion that includes increases already scheduled – at least half a dozen times. And mission accomplished, the inflated number was featured in many news media headlines
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It bears repeating that for some years analysis from the Parliamentary Budget Office has concluded that the feds had plenty of fiscal room to be much more generous with health transfers. Last July, the PBO estimated that the federal government could permanently increase spending by $45 billion in current dollars, while keeping its debt-to-GDP ratio at the current level of about 42 per cent. That’s $45 billion per year, not over the 10 years covered by the health deal.
The PBO report also projected that if the federal government maintains spending and taxes on its current trajectory it would be on track to eliminate its debt entirely by 2061. (In November, the finance minister’s Fall Economic Statement was even more optimistic, projecting the federal debt to disappear by 2055-56. Look it up, it’s on page 59).
It’s a different story for the provinces, of course, as the PBO has reported on numerous occasions. With the health transfer formula that has been in effect since 2017, over the long term health care costs will force most provinces to chose between raising taxes, cutting services or accumulating debt. That is because under the current formula transfers are capped by growth of the economy but health care costs are projected to exceed economic growth.
The new health deal, by increasing federal spending, may slow the decline in the debt/GDP ratio projected last fall but its modest outlay also leaves room for lots of other spending initiatives without increasing the debt ratio – at least $40 billion worth based on the PBO’s latest sustainability report.
The deal will also give the provinces some short term help, but the fact that the guaranteed escalator is set to drop from five to three per cent in five years suggests that in the long term the tough fiscal choices will still be there for the provinces – cut services, raise taxes or increase debt.
In the immediate future nobody knows how the limited amount of new federal spending will improve the situation. By international standards we don’t have enough family doctors, hospital or nursing home beds. We may have enough nurses, but too many of them are exiting the public system because of dire working conditions. Wait times for elective surgeries are far too long, too much of prescription drug costs are borne by individuals and families, and mental health services are inadequate.
Some, if not most, of the Premiers who accepted the crumbs on offer this week, would have no ideological objection to embracing more privatization as one response to the crisis. That would not solve anything, but by limiting its fiscal commitment, the federal government has left that door open wider.
As the table shows, in the seven years following expiry of the six per cent escalator, the replacement formula left the provinces with a $25 billion shortfall. From that total we need to deduct pandemic-related top-ups and $4.8 worth of side deals, leaving a shortfall of $11.8 billion.