The provinces cry poor on health care

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It might have been nice if they’d at least waited for the ink to dry.

Pretty much the moment Prime Minister Justin Trudeau presented his 10-year, $46.2-billion package of new health transfers to the provinces, premiers publicly declared it inadequate. About their most generous assessment was that it was an okay start. But not nearly enough to address Canada’s growing health care crisis.

The “We want more!” response was predictable, a pretty standard position from provinces in negotiations with Ottawa. But it was nevertheless disappointing, at a time when many provinces find themselves in an enviable fiscal position – and yet have done remarkably little themselves to address funding for health care, which is, indisputably, a provincial jurisdiction. At least in the short to medium term, the provinces have more fiscal capacity to help themselves than they have had in years – and yet they seem determined to keep their hands out, when they should be stepping up.

Remember that the $46.2-billion that Mr. Trudeau has put on the table is in addition to increases in the Canada Health Transfer that were already baked into the funding model. Taken together, it’s nearly $200-billion in increased funds that Ottawa will send to the provinces over the next decade to help fund health care.

This from a federal government whose fiscal health is not what it was prior to a very costly pandemic and recession, in which the federal government shouldered the vast bulk of the cost of supporting Canadians and keeping the economy afloat. Ottawa has emerged carrying $400-billion more in debt, and is still a long way from bringing its budget deficits down to pre-COVID norms.

Compare that with the fiscal state of the provinces – which, for the most part, rode through the COVID-19 crisis on the coattails of federal spending. Eight out of 10 provinces either reported a budget surplus in 2021-22, or expect one in 2022-23. All of them have lower debt-to-GDP ratios than the federal government, and most have seen that key debt-load metric improve since the COVID-19 pandemic began.

Yet despite this relative fiscal health, provincial spending on their own health care sectors has not responded in kind in the past year, even as the provinces themselves have pushed Ottawa for more funding.

The Canadian Institute for Health Information estimates that national health care spending rose a thin 0.8 per cent last year; on a per-person basis, it actually declined 0.3 per cent. As a share of GDP, it fell 7.6 per cent. This in a year when the Canada Health Transfer – Ottawa’s contribution – rose more than 4 per cent.

In seven of 10 provinces, health spending rose by less than 2 per cent – below the typical rate of inflation even in normal times, let alone in the highly inflationary environment of 2022. And that doesn’t account for population growth, or the aging of the population that implies growing demand for health care services year after year.

Yes, the slowdown follows a couple of expensive years for health care, as the COVID-19 pandemic forced up costs. Nevertheless, the provinces are loudly lobbying Ottawa for more help, while failing to step up to fill the current funding gaps themselves.

Ontario is a large case in point. This week, the Financial Accountability Office – the province’s fiscal watchdog – estimated that the government is about $12.5-billion ahead of its three-year fiscal plan, and yet its health care funding has fallen behind the plan by about $5-billion. This shortfall, the office said, means that the province “has not allocated sufficient funds … to support existing programs and announced commitments over the three-year period.”

It’s a damning revelation. Despite a healthy budget, Canada’s most populous province isn’t even funding existing health programs adequately, let alone spending available funds to resolve its mounting health care problems. The health spending numbers across the provinces indicate that Ontario is hardly alone in failing to put its fiscal space where its mouth is on health care.

Instead, the provinces are placing the problem at the feet of a federal government that faces plenty of its own fiscal pressures as it is.

Last month, a high-profile report co-authored by former Bank of Canada governor David Dodge warned that there are several scenarios in which Ottawa could miss its budget projections over the next several years, potentially pushing it into dangerous territory to both service its debts and meet its program spending obligations. One of the biggest threats, the report argues, is that the fiscal plan doesn’t adequately cover the government’s stated policy goals as it is.

Trevor Tombe, an economist at the University of Calgary, wrote on online policy service The Hub this week that Ottawa’s existing commitments to increase transfers – both to individuals (children and seniors’ benefits) and to provinces – leave it very little fiscal breathing room. Even without any further commitments, he said, “Outside of these two buckets, total federal spending is currently slated to fall.”

“Canada’s finances are on a knife’s edge, leaving little room for provinces,” he warned.

This is the environment in which the provinces are demanding more, and more again, from Ottawa. Perhaps they should instead seize on Mr. Trudeau’s offer as the moment to substantially step up their own commitments, and build them into long-term fiscal plans, while they have the opportunity.