Skip to main content
A scary good deal on trusted journalism
Get full digital access to globeandmail.com
$0.99
per week for 24 weeks SAVE OVER $140
OFFER ENDS OCTOBER 31
A scary good deal on trusted journalism
$0.99
per week
for 24 weeks
SAVE OVER $140
OFFER ENDS OCTOBER 31
// //

When Finance Minister Jim Flaherty rises to table his budget on Thursday, his tone will be self-congratulatory. The recession forced the Conservatives to disobey their instincts and boost spending through the downturn. But their grand plan to shrink the federal state is back on track.

Measures already announced by Mr. Flaherty will mean a significant reduction in federal spending in coming years. Before long, Ottawa will again have more revenue than it knows what to do with. It could even begin another round of tax cuts by the next federal election.

To be sure, the Finance Minister will issue stern warnings about the need for further belt-tightening in the face of weak domestic growth and an unstable global economy. Barring a major external shock, however, Ottawa's finances are sitting pretty as far as the eye can see.

Story continues below advertisement

Even Mr. Flaherty's soon-to-depart nemesis, Parliamentary Budget Officer Kevin Page, has declared federal finances to be "fiscally sustainable" over the long term. Ottawa could increase annual spending by $25-billion today and still deliver balanced budgets in coming years.

This is nothing to sneeze at. Governments around the world have made promises they simply can't keep. The U.S. government has $87-trillion (U.S.) worth of unfunded liabilities for health care and pensions. Millions of Europeans are already experiencing a painful reckoning after years of government as pyramid scheme.

Canadians can look to the future knowing their federal government has the wherewithal to meet its obligations. Generation Xers will wait a little longer to draw Old Age Security benefits – Mr. Flaherty has raised the eligibility age to 67 starting in 2029 – but they can rest assured that Ottawa has prepared for their retirement, even if they haven't.

Unfortunately, the flip side of this flattering financial portrait is the disastrous state of most provincial budgets. The PBO estimates that, cumulatively, provincial and local governments would need to cut spending or raise taxes by $36-billion annually to achieve fiscal sustainability.

One reason provincial finances are so bleak relates to declining federal transfer payments. The Finance Minister will insist on Thursday that annual transfers for health care, postsecondary education and equalization will still increase in coming years. But they won't grow fast enough to keep pace with rising health-care costs or improve underfunded universities.

Some provinces will suffer more than others. Starting next year, Mr. Flaherty will dole out health transfers to the provinces on a strictly per capita basis. The change will be especially beneficial to Alberta, which has a younger population than other provinces and is attracting tens of thousands of twentysomethings every year.

Many of the young heading to Alberta are leaving provinces with terrible demographics, further greying the age pyramid in Atlantic Canada and Quebec. Average annual health-care costs for Canadians between 15 and 64 amounted to $2,500 in 2010, according to the Canadian Institute for Health Information. Between 65 and 69, they hit $6,200; at 80 and above, $20,000.

Story continues below advertisement

Mr. Flaherty has also said that, starting in 2017, the increase in annual health transfers will only match nominal growth in GDP – instead of the 6-per-cent annual increase the provinces have been receiving. The Council of the Federation estimates the changes will mean $36-billion less in federal cash for the provinces by 2024.

Roll in the cap Mr. Flaherty has imposed on the growth of equalization payments, and paltry increases in transfers for postsecondary education, and you see how the very moves that have made the federal budget sustainable have contributed to the unsustainability of provincial finances everywhere east of Saskatchewan.

Perhaps Mr. Flaherty is doing the provinces a favour. The end of the federal gravy train is the stick. But the ability to experiment in order to deliver more cost-effective health care, free of federal meddling, is the carrot. It could produce a virtuous cycle of reform. Or the Finance Minister has set the stage for a vicious cycle of federal-provincial squabbling that the opposition will be only too happy to exploit. Quebec is already warning about the "return of the fiscal imbalance"; Ontario and the Atlantic provinces could join the chorus.

Mr. Flaherty's budget will have a good story to tell, until you read between the lines.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies