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The federal government will transfer $57.7-billion to the provinces and territories for health, education and social programs in the 2010-11 fiscal year.

It uses two mechanisms: the Canada Health Transfer and Canada Social Transfer. The CHT currently consists of $25.4-billion in cash and $13.1-billion in tax points. The CST consists of $11.2-billion in cash and $8-billion in tax points. The CHT increases 6 per cent annually and the CST 3 per cent.

The transfers are crucial because they account for one-quarter to one-third of provincial health and social spending. And discussion of these transfers is timely because the accords expire in 2013-14. In fiscal planning terms, that's pretty soon and the long silence since finance ministers met in June to broach the topic has been troubling.

In recent days, however, the jockeying and posturing that invariably precedes serious negotiations has finally begun.

Back-bench Conservative MP Maxime Bernier got the ball rolling by suggesting that the federal government eliminate cash transfer payments to the provinces and territories altogether.

The attractive part of this approach, at least politically, is that it is popular in Quebec, where denouncing federal "intrusions" into provincial jurisdictions is a mantra. Federally, it would also allow Ottawa to implement more tax cuts.

Cutting cash transfers does not mean that the provinces and territories would automatically lose $25.4-billion for health and $11.2-billion for social services, though it will be portrayed that way. Rather, Mr. Bernier is proposing they get additional tax points, allowing them to get a greater share of revenue from income tax and harmonized sales tax.

Philosophically, this off-loading makes sense for Stephen Harper's Conservatives, a party that believes in decentralization and smaller government and has a narrow reading of the constitutional division of powers, which holds that health is strictly a provincial responsibility. But no province wants to be seen as increasing taxes.

Let's be clear: Mr. Bernier's job was to come forward with a position that is so preposterous that it will make subsequent proposals sound reasonable by comparison - a good negotiating tactic. (No Tory MP speaks out without the approbation of the Prime Minister's Office.)

On the other side of the table, the provinces and territories would like Ottawa simply to give them a blank cheque. They bemoan the fact that, when medicare began, the federal government committed to paying half the bill and it reneged long ago.

However inadequate the cash provided, Ottawa still has an essential role in health and social services. The CHT and CST provide long-term, predictable funding that is essential for cohesive, stable programs. The money also gives Ottawa the moral authority and legal obligation to ensure that health and social programs are held to basic standards across the country.

Those standards are set out in the Canada Health Act, and, even if the current government doesn't like the law, it should enforce it (or have the political courage to repeal it). Beyond that, Ottawa should insist on accountability and getting value for money for its health and social-welfare dollars.

But back to the negotiations leading to a new accord in 2013-14.

The same day that Mr. Bernier made his high-profile sortie in a speech to the Albany Club in Toronto, Finance Minister Jim Flaherty presented his annual economic update in a speech to the Mississauga Chinese Business Association.

Naturally, Mr. Flaherty's promise to balance the federal budget by 2015 garnered the headlines. (Ottawa had a $55.6-billion deficit last year and it projects significant shortfalls for four more years.) Reducing - if not eliminating - health and social transfers is a key element in the budget-balancing act.

If the CHT and CST continue to grow at the current rate, they will reach $47-billion in cash and $20.3-billion in tax points by 2015, meaning that Ottawa will have to collect an additional $10-billion a year in taxes to get in the black.

Mr. Flaherty hinted strongly that he wants to tie the increase in transfers to inflation and economic growth, both of which are projected to remain low in coming years. That means that annual increases in the range of 0 to 2 per cent instead of 3 to 6 per cent. It also means billions less for provincial and territorial spending on health, education and social programs, a shortfall that will require tough decisions: slashing social programs and delisting some health services so that consumers pay out-of-pocket or, alternatively, by increasing the HST, raising postsecondary tuition fees and imposing user fees.

In other words, the negotiation of health and social transfers, while seemingly abstract and boring exercises in accounting, will ultimately hit Canadians directly in the pocketbook.

In the past, the federal government has, alternately, unilaterally imposed dramatic cuts in transfers and granted huge increases with no strings attached for the sake of political expediency. Both approaches failed miserably.

This time around, we need Mr. Flaherty to show fiscal and political leadership by offering reasonable amounts of cash and tax points, but with conditions - notably some accountability for ensuring that the money is being well spent. (The Health Council of Canada, which has the role of watchdog, needs to be given some teeth.)

These discussions also need to be more public and transparent. Canadians do not need another backroom deal. They need to be engaged in a national conversation - an "adult conversation," as former prime minister Brian Mulroney said recently - on how we will pay for health and social services today and in the future.

Let the talks begin.

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