Federal transfers: New ideas for an old debate

TheStar.com – opinion/editorials
Published On Tue Dec 28 2010

When the federal and provincial finance ministers met in Kananaskis, Alta., last week, the spotlight was on pensions and how to make sure Canadians are properly looked after in their retirement years. But another issue was also on the table, with implications just as profound for Canadians: federal transfer payments.

Ottawa transfers trainloads of cash to the provinces and territories annually — some $57 billion in the coming fiscal year — for a variety of purposes. Some of the transfers are equalization payments to “have-not” provinces. Others are grants to all the provinces for health care, welfare and post-secondary education — areas that fall under provincial jurisdiction but where Ottawa has agreed to share the costs.

The provinces have long complained that there is a “fiscal imbalance” between the revenues raised by governments, with Ottawa getting the lion’s share, and their expenditures, with the provinces facing the greatest pressure due to rising health-care costs.

Accordingly, under a deal negotiated by then prime minister Paul Martin with the premiers back in 2004, the transfers for health care were pegged to increase by 6 per cent a year — about triple the rate of inflation. That deal is due to expire in 2014, however, and the provinces are worried about what happens after that as Ottawa struggles to cope with a huge deficit.

In the 1990s, the Liberal government in Ottawa slashed transfers to the provinces in order to balance the federal budget. The current Conservative government has promised not to cut transfers, but it has sent out strong signals that future increases will be tied to the inflation rate. For the provinces, this effectively means a cut in real terms, as the costs of providing universal health care are rising faster than inflation, due to new technologies and drugs and an aging population.

“Some tough decisions will have to be made by all governments,” said federal Finance Minister Jim Flaherty in Kananaskis.

This sets the stage for a lot of finger-pointing when negotiations begin in earnest over the next year. Ottawa will argue that the provinces have to do more to rein in health-care costs, and the provinces will accuse Ottawa of shirking its duty.

As an alternative to this counterproductive posturing, some are proposing a different approach, under which Ottawa would transfer not cash but taxing authority to the provinces — specifically, the GST. It would be almost an even swap, with the GST expected to bring in $28.8 billion next year while the health-care transfer will cost Ottawa $27 billion. But with the tax in the hands of the provinces, they could raise their own money for health care and be accountable to their own voters on how it is spent, rather than point fingers at Ottawa.

Others argue that such a swap would remove Ottawa’s leverage to defend medicare’s universality or to seek changes in the delivery of health care. But that leverage was last exercised in any meaningful way a quarter-century ago. The 2004 Martin deal came with strings attached, but they were mostly things the provinces were going to do anyway, such as reduce wait times.

As for maintaining universality, the real check on the provinces is not Ottawa but their own voters. That’s why even arch-conservatives like Mike Harris and Ralph Klein stopped well short of introducing two-tier medicare: they knew it was a third-rail issue.

Another idea on the table that would maintain a significant role for Ottawa in health care is a national pharmacare program, uploading responsibility for prescription drugs from the provinces.

These are ideas worth considering as Ottawa and the provinces head into another round of negotiations over transfer payments.

< http://www.thestar.com/opinion/editorials/article/911836–federal-transfers-new-ideas-for-an-old-debate >

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