When it comes to health care spending, the leaders of provincial governments of all stripes like to put on a show. Premiers slip into their stomping shoes and warm up their vocal cords and deliver a loud, petulant performance about big, bad Ottawa and its miserly ways.
The latest iteration of the show, which gets remounted every few years, closed with a $46-billion bouquet of flowers from Prime Minister Justin Trudeau and a new bilateral agreement for each of the performers.
The Canada Health Transfer – which is the amount Ottawa sends to provinces and territories for its share of health care spending – is one of the single largest line items in the federal budget.
It was $45-billion in 2021-22, up from $27-billion in 2011-12, an increase of 67 per cent in 10 years. It will be even larger in the March 28 budget.
And yet, as one premier said in the group’s most recent performance, more is never enough. As the chart shows, the original demand from the premiers was for an immediate $28-billion increase, followed by annual increases of at least 5 per cent.
Within 10 years, that formula would send health care transfers soaring to at least $117-billion, nearly triple last year’s levels.
Put another way, acceding to the premiers’ demands would mean Ottawa would need to spend nearly half of its projected revenue increases over the next decade just on increased health transfers. That is not financially sustainable.
All of this drama is because of a fundamental mismatch in Canada’s division of powers. The federal government has the greatest ability to raise money from citizens, but it is the provinces that need to deliver the health care services. Ottawa controls the purse strings, but Regina, to pick but one example, controls the scalpel.
It also means that when health care services are under strain in one province (or, as they are right now, in most), that premier can shift the blame on to the federal government by claiming the lack of funds for services is Ottawa’s problem, not theirs.
This makes it more challenging to hold provinces accountable.
Federal budget 2023
This is part of a series on the federal budget to be unveiled on March 28.
Seniors: Let’s close public spending’s generation gap
Child care: Ottawa must follow through on subsidized system
Defence: Canada’s indefensible military spending
So as this space has argued before, the solution is simple: Ottawa needs to get out of the way and give premiers more fiscal room to raise revenue to pay for health care.
The way to do that is to reduce federal taxes so provincial taxes have room to grow, if they need to. The mechanism for that is what is known as a tax point.
Ottawa has done this before. Before 1977, the federal and provincial governments roughly split health spending. That changed in 1977, when Ottawa reduced the amount of direct cash it sent provinces, and instead permanently transferred taxing capacity to the provinces by lowering federal income taxes by a certain amount so that provincial taxes could rise to replace them.
To the taxpayer, the total amount taxed is the same, but where it goes changes. The measure of how taxes move between federal and provincial coffers are the tax points.
Such a change would benefit some provinces more immediately than others. For example, Alberta would need to raise provincial tax rates only modestly to make up for lower federal ones, because of the wealthier tax base. Ottawa might need to adjust its formula for equalization payments in order to ensure smaller provinces are not put in a weaker position by a tax-point transfer.
But the advantages of such a system, including more direct lines of accountability, are clear. And that is something we can all applaud.