Here we go again. One newspaper headline proclaimed that the federal government’s deep cuts in health care financing would prove “disastrous.” Another newspaper headline anticipated that these deep cuts would “deny health care to the sick and the aged.” Dangerous cuts, these – and, possibly, lethal.
The word “cut” is incredibly expressive and inherently violent. It conveys mayhem in a three-letter word – making it especially efficient in headline uses. To cut means to chop or to sever; indeed, as horror films confirm, to gash or to slash. In etymology, it denotes “knife.” As everyone knows, either by instinct or by experience, cuts hurt – even small ones.
In fact, in his controversial health care fiscal fix, Finance Minister Jim Flaherty cuts nothing whatsoever in the next five years, and then cuts nothing whatsoever in the subsequent five years. You can extrapolate from here to the next century and not find a single year in which the government will cut health care transfers to the provinces. Mr. Flaherty is no Freddy Krueger.
In 2016-17, however, Mr. Flaherty decrees that a smaller increase in federal health care transfers will occur. In describing this smaller increase, the English language is of precious little help. We don’t have a single, simple word to describe a projected increase in government spending that is slightly less than the previous projected increase. We need such a word. One candidate: to decelerate or, when the rate of spending increases, to accelerate. This would give us headlines such as: “Flaherty decelerates health-care transfers.”
This is not to say that Mr. Flaherty’s small act of restraint isn’t important. It is extremely important. In its independent analysis of this relatively small act of federal restraint, for example, the Parliamentary Budget Office (PBO) calculates that it could, all by itself, end the government’s “fiscal gap” – eventually turning a permanent $42-billion revenue shortfall into a permanent $7-billion surplus.
For an example of an actual cut in federal health care funding, look back to the mid-1990s when then-prime minister Jean Chrétien and finance minister Paul Martin slashed government spending across the board, producing a real-dollar decline in spending and briefly returning it to 1950s levels. Mr. Flaherty’s restraint, in contrast, will take longer – but will be accomplished without metaphoric bloodshed.
First, the government will continue its present payment schedule for the next five years – meaning no change of any kind for the entire period from 2006-07 through 2016-17.
Second, beginning in 2018-19, it will increase health care transfers for the next five years by a formula that ensures annual increases greater than the rate of inflation – with a guaranteed floor of 3 per cent. In its analysis, the PBO projections suggest the actual percentage increase will average 3.9 per cent. This formula will apply from 2018-19 through 2023-24.
The provinces have presided over average annual health care spending increases of 6.1 per cent in the past few years – close to the rate of increase in federal contributions. The PBO thinks that the provinces will themselves limit this rate of increase – because they must. It anticipates that the provinces will limit increases to 5.1 per cent – producing a gap between provincial spending increases and federal transfer increases [5.1 per cent minus 3.9 per cent] of a mere 1.2 percentage points.
This modest restraint will be enough, as noted earlier, to eliminate the federal “fiscal gap” altogether. Yet without comparable restraint, the provinces will experience higher deficits. As the numbers show, provincial success in this exercise will be determined by the slightest deceleration in spending increases.
The PBO says federal health care transfers will decline from 20.4 per cent of provincial spending to 18.6 per cent by 2036. This gives the provinces a full generation to adapt to the slower rate of increase. The problem is that, if they don’t adapt – worst-case scenario – provincial debt could increase from 20 per cent of provincial GDP in 2010 to 125 per cent in 2050 and to 480 per cent in 2085. This ominous projection requires that the provinces adopt a slightly slower rate of increase, precisely as Mr. Flaherty has done.
Health care is a provincial responsibility. Ottawa passes along $60-billion a year in various transfer payments to the provinces, which want much more. They should take their constitutional responsibilities seriously – and cut the whining.
