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The Globe and Mail

In Ottawa, health-care funding hits the wall

Darrell Dexter has a simple solution to his province's health-care funding problem. The federal government should go broke

Nova Scotia's Premier told Tom Clark on Global TV Sunday that "the necessity for the partnership with the federal government to be a real partnership" means that Ottawa's health transfers to his province should increase to 25 per cent of total costs from 20 per cent.

That so won't happen. Instead, finance ministers meeting in Victoria on Monday will receive a stark message from Finance Minister Jim Flaherty: The second decade of the 21st century is turning into a mess. Everyone is going to suffer; no government can afford to spend more money; every government must instead spend less.

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Canada will endure this foul weather better than most other developed countries, thanks to its well-capitalized banks, ample natural resources and sound finances at the federal level. But the weather will still be foul.

The provinces already know that Ottawa is looking to cut growth in health-care funding from the current level of 6 per cent annually to something like the nominal increase in gross domestic product – say about 4 per cent – after 2016.

Ontario Finance Minister Dwight Duncan figures that would cost the provinces $25-billion over 10 years in lost health transfers.

"This would damage health care and make it more difficult to transform the system," he wrote to Mr. Flaherty in protest. The two men met Sunday night to discuss it.

The fact remains that Ottawa simply doesn't have the money to continue funding health care at present levels. The Harper government now confronts projections of economic stagnation as far as the eye can see.

The Economist Intelligence Unit recently lowered Canada's growth projections for 2012 to 1.7 per cent, "to reflect the deteriorating external outlook." The outlook includes a deepening recession in Europe that could drag down the United States, taking Canada with it.

Growth of 1.7 per cent is not enough to lower unemployment or significantly increase government revenues, which is why the Tories will take an axe to every department in February, cutting them by 5 per cent or 10 per cent without exception.

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The provinces can hardly expect Ottawa to boost transfers to them even as it slashes its own spending. They will have to fend for themselves. Thanks to another Harper government policy that is receiving far too little attention, some will fend better than others.

The Prime Minister is no fan of equalization, which is the policy of weighting federal transfers in favour of smaller and poorer provinces. He hails from the West, and all western provinces except Manitoba send out rather than receive equalization funding.

The Conservatives are determined that all future health care or other social transfers must be funded on a strictly per-capita basis, with any existing equalization component stripped out.

And Mr. Harper has made it clear that when the equalization program itself comes up for renegotiation in 2014, the Tories don't envision any significant growth in the funding envelope.

Even worse for the Maritime provinces and Quebec, unless all sides can agree to a different formula, Ontario threatens to suck up much of whatever money is available, since the Moody-plagued giant is slowly but implacably turning into the sick man of Confederation as its manufacturing base continues to erode. Ontario is already the second-largest recipient of equalization, which makes no sense, since it is also the biggest contributor.

So whether it is finance ministers meeting in Victoria this week, or premiers meeting in Victoria in January, the message will be the same.

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Provinces looking to fund health care while paying down their deficit before Moody's comes knocking on their door should not look to Ottawa for help. The feds have got enough problems of their own.

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