The independent office responsible for assessing the country's finances says limits imposed by the federal Conservative government on increases to health transfers will eventually make it impossible for provinces and territories to handle the costs of an aging population.
The fiscal sustainability report released on Tuesday by the Parliamentary Budget Officer (PBO) looks at whether spending policies of the various levels of government will be viable 75 years into the future, given current economic and demographic predictions.
While the report says the Canada Pension Plan and the Quebec Pension Plan can absorb what is expected to be a significant increase in the number of retirees over the coming decades, it says the provinces and territories will not be able to afford health care.
"Subnational governments cannot meet the challenges of population aging under current policy," the PBO said.
The federal government has been increasing health transfers to the provinces and territories by 6 per cent a year since the signing of a health accord in 2004. But Ottawa announced in 2011 that, after 2016-17, future increases would be tied to the growth in the nominal gross domestic product, which is a measure of real GDP plus inflation.
With an aging population requiring medical care, the PBO report says health-care costs will increase significantly as a share of the GDP and the lower levels of government will be forced to foot an increasing share of the bill.
"Provinces are responsible for health-care delivery," Melissa Lantsman, a spokeswoman for Finance Minister Joe Oliver, said in an e-mail. "Nevertheless, our government is increasing health funding at a higher rate than provinces are spending it. Record sustainable funding will reach $40-billion annually by the end of the decade."
That is about the point when the PBO says the provinces and territories will be in the best financial position, after which, increasing health-care expenditures will force a long, steep slide toward deficits and, by 2034, their budgets will be chronically in the red.
Premiers who met this month in St. John's called on the federal government to provide more money for health. Newfoundland Premier Paul Davis said the provinces and territories want Ottawa to increase the Canada Health Transfer to cover at least 25 per cent of their health-care spending.
British Columbia Health Minister Terry Lake told The Globe and Mail on Tuesday that the current system, in which the federal money is allotted on a per-capita basis, ignores the fact that some provinces have much older populations than others.
"When an older province has higher health-care costs because we have older residents, that should be reflected in the Canada Health Transfer as a population-needs based approach," Mr. Lake said.
The PBO report said some other recent federal expenditures should have little negative effect on the bottom line in the years to come.
The universal child-care benefit, which was increased in this year's budget and resulted in the delivery of $3-billion in cheques to Canadians this week, will have only a minor impact on fiscal room because the cash transfers are not indexed to inflation, the report said.
And, while the increase in the amount Canadians can put in a tax-free savings account will reduce government revenues, the PBO says those declines will be offset by increases elsewhere.
The report also says the federal government is on track to eliminate its own net debt over the next 35 years.
But, for the provinces, health-care spending will be a problem.
Melissa Newitt, the national co-ordinator of the Canadian Health Coalition, an advocacy group for public health care, said the PBO report is more evidence that a new national health accord is needed. That accord, she said, should provide stable funding, set national standards and include a national drug plan and a national seniors plan.
Opposition parties have been complaining for four years about the limits the Conservative government imposed on the health-care transfer.
Irene Mathyssen, the seniors critic for the New Democrats, said the PBO report confirms that Conservative cuts to health-care spending will put significant pressure on the provinces. If the NDP forms the next government, Ms. Mathyssen said, it will work with the provinces to write a new accord.
Hedy Fry, the Liberal health-care critic, agreed with the B.C. Health Minister that demographics should be considered in the health transfers. A Liberal government, she said, would take a collaborative approach with provinces and territories to find ways to maximize efficiencies and keep spending in check.