Harper's Health Transfer Plan Offloads Costs to Provinces: Budget Officer

By Heather Scoffield
The Canadian Press
January 12, 2012

OTTAWA - Parliament's budget watchdog says the new health-care funding formula will slowly reduce Ottawa's support for medicare, but it will also put the federal government on a solid fiscal footing for the future.

The trouble is the provinces will have to shoulder a growing health-care burden over the long run and they can't afford to do that without cutting spending elsewhere or raising taxes.

Kevin Page, the parliamentary budget officer, crunched numbers from the federal government's recent announcement on how health care will be funded until 2024. He projected costs and revenues out to 2040-41.

In his report released today, Page found that Ottawa's promised cash transfers will keep pace with projected increases in provincial health spending until 2016-2017.

But after that, Ottawa's funding will be tied to expansion of the economy. Increases will likely average 3.9 per cent annually, compared to the previous six per cent, the report forecast.

That means Ottawa's share of provincial health-care funding will fall to an average of about 18.6 per cent for the coming two decades from about 20.4 per cent today. It will continue to slide significantly after 2035 if the policy persists.

As a result, Ottawa's debt burden will decline steadily, the report said. The federal government will have some room to cut taxes or increase spending and still maintain fiscal health.

The provinces, however, will find their debt rising and some jurisdictions will have to increase taxes, cut spending or both in order to stay on track.

The report comes as the premiers prepare for a crucial meeting on health-care financing in Victoria starting Sunday.

They will attempt to figure out how provinces should deal with health care after suddenly being handed a funding formula from the federal government last month.

Finance Minister Jim Flaherty announced increases in funding with no strings attached — signalling a federal step-back from health-care policy-making and a slow erosion of federal funding increases.

In another report released today, a coalition of health associations said federal and provincial leaders need to confront the deterioration in the health-care system, clarify their roles and then get to work fixing things.

The Health Action Lobby of 34 national health organizations polled leading health-system experts and compared Canada's regime to others around the world.

They found a consensus on what the problems in Canada's health care system are, as well as general agreement on how to fix them.

But they also found a lack of political leadership at both the federal and provincial levels.