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COVID-19 has exposed deep fault lines in Ontario’s health care system. Surgeries are backlogged after more than two years of periodic freezes brought on by sporadic lockdowns. And, as last week’s census results underscored, Canada is getting older, increasing the cost pressures on health care.

So it is a bit of a mystery why Ontario’s Progressive Conservative government thinks that it will be able to aggressively rein in growth in health care outlays – an approach that actually amounts to significant reduction in spending adjusted for inflation and population growth.

In last week’s budget, the government laid out its spending forecasts for health, with projected expenditures rising each year in nominal terms. By fiscal 2024-25, health-care spending is to hit $78.3-billion, nearly $14-billion higher than fiscal 2020-21.

That sounds like a big jump. But look closer at the year-over-year changes, and some odd patterns emerge. Starting in the current fiscal year of 2022-23, the growth in health care spending starts to decline: 5.92 per cent this year, 3.19 per cent in fiscal 2023-24 and a boost of just 0.9 per cent in fiscal 2024-25.

But there is inflation to consider. Once inflation is taken into account, those increases shrink considerably. For this year, inflation-adjusted spending rises just 1.2 per cent; then, an increase of 0.7 per cent the next year. In fiscal 2024-25, health care spending actually falls by 1.2 per cent in real terms. (And that analysis is a bit generous, since the inflation rate in the health care sector often runs ahead of that in the general economy.)

Population growth also has to be taken into account. Once that’s done, the magnitude of Ontario’s proposed retrenchment in health care spending becomes clearer. Real per capita spending peaks at $4,627 in fiscal 2021-22, and then falls each year through to fiscal 2024-25, when it hits $4,419. Again, that’s most likely understates the extent of Ontario’s parsimony, both because of sector-specific inflation and the growing number of older Ontarians.

So far, the province has not offered much of an explanation. However, in an emailed statement, the Ministry of Health pointed to the average annual growth of 3.3 per cent in health care spending between 2021-22 and 2024-25. That statement also noted that the province’s contingency funds are designed to be used for unexpected costs, including in health care.

Ontario doesn’t have a lot of company in its assessment that circumstances are ripe for reining in the growth of health-care spending between 2021-22 and 2024-25. Quebec, for instance, is forecasting steady growth in health care expenses. In fiscal 2025, its projected increase of 4.5 per cent is five times greater than Ontario’s. Even Alberta, which is trying to bend the cost of its public services toward the provincial average, is outlining bigger increases to its health care budget than Ontario.

Without that flattening of health care costs, Ontario’s projection of a balanced budget by fiscal 2027-28 would be in severe danger. (Of course, fiscal 2027-28 is at least two election campaigns away, with the first of those set to get underway this week. Last week’s budget is dead on arrival; a re-elected PC government or its replacement will table a new budget following the vote.)

Ontario’s budget forecasts a budget surplus of $2.8-billion in fiscal 2027-28 – $1.3-billion after a contingency fund is set aside. Each percentage point increase in health care spending costs $751.7-million, according to the provincial budget. So, keeping pace with inflation and population growth would easily add $2-billion in health care expenses, tipping the budget back into the red unless contingencies went unused.

Taxing questions

In response to last week’s Tax and Spend on Nova Scotia’s plan to hit non-residents with higher property taxes, one reader wondered: Is it legal for a province to discriminate in that way against fellow Canadians?

Sadly, there are many examples of such parochial taxes, and their popularity seems to be growing. Prince Edward Island, for instance, already charges non-residents property taxes that are 50 per cent higher than for residents. British Columbia’s version provides a generous credit to residents that nullifies the tax’s bite for virtually all of them. Ontario’s New Democrats are proposing a similar measure.

And such parochialism extends beyond property taxes: Ontario’s new “staycation” travel tax credit is available only to those who file their incomes taxes in the province. (Which, come to think of it, is a missed opportunity to be pan-national and lure tourism dollars from Canadians in other provinces.)

Line Item

Emissions and equalization: Revenue-neutral carbon pricing at the provincial level could not only reduce greenhouse-gas emissions, but also narrow fiscal disparities between the provinces, writes Wilfrid Laurier University economics professor Tracy Snoddon in the most recent edition of the Canadian Tax Journal. Her analysis concludes that if provinces reduced personal income taxes to offset the rise in fuel charges and other carbon pricing, those disparities would narrow, since emissions are more evenly distributed across Canada than is the base for personal income tax. But, she writes, the fixed-increase rule of equalization means that while the cost of the federal program would not change, the split between provinces would. Quebec and, less often, Ontario would be the main beneficiaries.

Follow me on Twitter, @PatrickBrethour or ask your Taxing Question here.

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