Trudeau’s smooth provincial relations face first test over health care

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The Trudeau government's honeymoon with the provinces risks coming to an abrupt end as premiers push for billions in new transfers for health care.

Since forming government last fall, the federal Liberals have won provincial praise with major new infrastructure spending and also managed to get nine of the 10 provinces to support an expansion of the Canada Pension Plan.

But as premiers prepare to gather this week in Whitehorse, provinces are expressing concern that Ottawa appears unwilling to spend more on health, which is a major budget concern for provinces as the proportion of elderly Canadians rises.

"The table is set to really have a federal-provincial problem, not just with Quebec but with all the provinces," Quebec Health Minister Gaétan Barrette said in an interview on Monday. Dr. Barrette said the impression he's received from Ottawa is that it is not interested in increasing transfers.

Provincial anxiety is coming to a head now because a long planned change to health transfers is about to kick in. A guaranteed annual transfer growth of 6 per cent is ending next year. Instead, transfers are scheduled to increase in line with the rate of economic growth and the guaranteed increase will drop to 3 per cent.

Manitoba Premier Brian Pallister said in an interview that economic growth is unrelated to issues driving health-care costs, such as demographics. He said Ottawa should heed the warnings of the Parliamentary Budget Office, which recently reported that provincial budgets are not sustainable over the long term owing to rising health-care costs, while Ottawa has room to spend.

"We'll do everything we can in our jurisdiction and co-operatively with our neighbours to find savings, but we need a partner in Ottawa that is not backing away from its obligations, and that is I think what the premiers are encouraging to happen now," he said.

The new formula based on the rate of economic growth is already leading to fluctuations in what the provinces can expect.

The 2015 Conservative budget estimated the new formula would lead to a transfer of $39.1-billion to the provinces for health in 2018-19. Yet one year later, the Liberal government's 2016 budget said the transfer that year will be only $38.5-billion.

Federal Health Minister Jane Philpott has been leading the discussions with the provinces on a new health-care accord. Dr. Barrette said Dr. Philpott has indicated that any decisions about money are out of her hands, meaning they must be decided by Prime Minister Justin Trudeau, Finance Minister Bill Morneau and the rest of cabinet.

Prior to entering politics, Mr. Morneau co-authored a 2012 book in which he argued that maintaining health care in its current form would require either extensive spending cuts in other areas, a series of "punishing" tax increases or means-testing certain services so that they would no longer be free to Canadians with higher incomes. He and co-author Fred Vettese wrote that "future increases in government spending cannot do more than track GDP growth if the country is to remain economically and fiscally sound."

The provinces want Ottawa to commit to funding 25 per cent of the cost of health care. The Parliamentary Budget Office has estimated the federal share stood at 20.4 per cent in 2010-11 and will decline steadily under the new formula that takes effect next year.

Annie Donolo, a spokesperson for Mr. Morneau, said in an e-mail that Ottawa's focus is on "transformative actions" that will make the health-care system more efficient and produce better health outcomes.

"Once agreement is established on how the priorities will be achieved, decisions on targeted federal funding in support of these priorities will be made," she said.

Ontario Health Minister Eric Hoskins, who chairs the federal-provincial health talks, said he remains hopeful Ottawa will announce a transfer increase at some point soon.

"This is an important issue and we're hoping to see an expression of commitment – including financial commitment – by the feds in the near future," he said.

Some provinces, primarily those in the east with a higher proportion of older Canadians, also want the federal transfer formula to take demographics into account. That proposal could divide the provinces, given that it would be of less benefit to Western Canadian provinces with younger populations.

"The first criteria should be demographics," said Dr. Barrette, Quebec's Health Minister. "I don't want to start an east-west war. That's not the idea. The idea is that when it comes to health, above all else, we should be objective. And objectively, there's no argument against the fact that the main factor in health costs is tied to age and demographics."

Cindy Forbes, president of the Canadian Medical Association, said all provinces should receive a transfer increase to address the aging population but that provinces facing the most pressing challenges should receive more.

"Seniors' care is the paramount health issue in our health-care system right now," Dr. Forbes said.