Below is the first entry in my blog, the Nova Scotia Observer. It is adapted from a briefing note prepared for decision makers and others who may be concerned about the fairness of federal health transfers to the Provinces in the wake of the Harper government’s decision to give Alberta a 37.75% increase in the current fiscal year and pay for it with money skimmed from the other provinces. The Official Opposition has promised that if it forms the next government it will continue to increase overall health transfers by 6% a year. However, as this piece argues, that it is not enough just to extend the 6% annual increase in health transfers beyond the 2016-17 expiry now mandated by the Conservatives. It is also necessary to restore the base funding eroded for nine provinces in 2014-15.
-RS Dartmouth NS
In keeping with their December 2011 announcement the 2014 Conservative budget included the controversial decision to raise health transfers to Alberta to the national per-capita average, effective in fiscal year 2014-15. It resulted in a 38% increase in health transfers to Alberta in 2014. Given the differing needs and fiscal capacities of the different provinces, the fairness of this approach is debatable. However, you do not need to have this debate. Instead, you can debate the impact of this decision on future health transfers. That is because the Conservatives departed from precedent and paid for Alberta’s increase from the overall health transfer allotment. The health transfer envelope increased by 6% from 2013-4 to 2014-5, but Alberta’s large increase meant that no other province received anywhere close to a 6% increase. Newfoundland was at the bottom, with no increase at all, while Saskatchewan, with a jump of 4.3%, was the only province to even come close to 6%. Each of the Maritime provinces received increases of less than three per cent.
The “take-from-Peter-to-pay-Paul” approach in 2014 differed from previous practice. In the 2009 budget when Ontario was raised to the national per-capita average for health transfers, the additional funds came from outside the health transfer envelope, meaning that transfers to other provinces did not suffer. In 2007, in bringing Alberta, Ontario and British Columbia to the national average for social transfers (CST), the Conservatives increased overall CSTl transfers by 24% over two years (from $8.50 billion to $10.55 billion). Although this meant a windfall increase of 127% for Alberta 2007 to 2009 and a nice gain of 26% for Ontario over the same period, the extra cash put into the transfer envelope ensured that all provinces received protection for their base CST funding.
I have seen no evidence of a similar approach with health transfers, meaning that the shortfall experienced in 2014-15 by nine provinces will continue and accumulate while the windfall accruing to Alberta will grow. (I did not include the Territories in this analysis because it is not clear what, if any, impact the increase to
Alberta had on their health transfers for 2014-15. Yukon received a 6.25% increase, Northwest Territories 44.4% increase while Nunavut received no increase). In the case of Ontario with its growing population, the accumulated shortfall would exceed $1 billion in 2015-16. It will be over $150 million for the Atlantic Provinces. At the same time, Alberta’s windfall will be nearly $1.5 billion for the two years 2014-2016.
Federal and provincial debt
The federal Conservatives are patting themselves on the back for their debt management, specifically improvements in the federal debt-to-GDP-ratio. However, a closer look at the numbers shows that the Harper government has not reduced Canadians’ debt, they’ve simply shifted more of it to the provinces.
Measuring government debt
In his fiscal update of Nov. 12, 2014 Finance Minister Oliver used a figure of 32.3% to describe the federal government’s debt-to-GDP-ratio in 2013-14, while predicting that the ratio would be reduced to 25% by 2017. The 32.3% estimate is based on a definition of debt made up of net debt minus non-financial assets. Finance Canada’s on-line Fiscal Reference Tables show both net debt and non-financial assets for the Federal government, but provide only net debt figures for the provinces. For consistency, this analysis will use net debt only for both levels of government, a calculation which shows a federal debt-to-GDP ratio of 36.0% in 2013-14 and a combined federal-provincial ratio of 64.4%. This combined ratio is 7.15% higher than in 2005-06 when the Conservatives took office. Net debt for the feds and provinces combined increased by 43.8% between 2005-6 and 2013-14 while GDP increased by 34.2%, producing the overall increase of 7.15% in the debt/GDP ratio. However, because the federal net debt increased by only 27.1%, the federal level saw a small improvement in debt/GDP ratio. However, the debt did not go away – it was downloaded to the provinces. The provinces were responsible for 36.7% of the country’s debt when the Conservatives came to power and 44.1% in 2013-14, a 20% increase.
The fact that some provinces – notably Ontario, Quebec and New Brunswick – have seen big increases in net debt during the Harper years has given rise to warnings that provincial profligacy will lead to combined federal-provincial debt that will put Canada in the same dire straits as Greece or Italy. Canadians heard similar fear-mongering before, notably in the 1994-95 period when then Finance Minister Paul Martin, with help from the Wall Street Journal and several of Canada’s leading newspapers, created debt panic as a prelude to deep cuts in federal spending. At that time, according to the Finance Canada’s Fiscal Reference Tables, combined net debt of Ottawa and the Provinces was $777.3 billion while our GDP at market prices was $786.6 billion, producing a combined net debt/GDP ratio of 98.8%.By 2000-2001 the combined ratio was down to 77.9% and it hit 62.5% in 2009-10 before bouncing up to 64.4% in 2013-14 in the wake of the Great Recession. So Canada’s finances are in much better shape now than they were in 1994-95, and significantly better than they were in 2000-2001 when the Chretien-Martin government embarked on a three-pronged initiative consisting of tax cuts, debt repayment and social investment. The bad news is that the provinces have seen their share of the debt increase steadily over the period – from 27% in 1994-5, to 33.2% in 2000-2001, 40.5% in 2009-10 and 44.1% in 2012-13. For provinces such as the Maritimes and Manitoba with less fiscal capacity this trend means federally-enforced belt-tightening affecting services like health, education and social welfare.