Health transfers: More on flat tires and etiquette

Paul Wells on how Ottawa never offers to negotiate when preparing to cut or limit transfers


I discover, as I go over the year’s columns and blog posts, that I predicted all of this health-transfer business in April, at the height of the federal election campaign. The argument then was pretty close to the argument in Monday’s flat-tire federalism post; here’s the bit of my April column you should read if you’re only reading one:

Harper’s plan is to continue shrinking the federal government. It’s not a hidden agenda. He’s announced every part of it. Health care transfers will actually help. They’re just blank cheques to the provinces, good mostly for getting money out of Ottawa…

On the other end of the ledger, he’ll keep squeezing his revenues. That process began with the GST cuts after the 2006 election. It will continue with two policies Harper announced in this campaign’s first week. [Both, you’ll recall, are to be introduced after the budget balances – pw] Income splitting will allow a higher-earning taxpayer to transfer part of his salary to a spouse for tax purposes—and cost $2.5 billion a year in foregone revenue. Doubling contribution room to tax-free savings accounts (TFSA) will cost even more. Economist Kevin Milligan has estimated a “revenue cost” of $6.6 billion a year once the TSFA increase is fully phased in.

Add the cost of those growing health transfers and the foregone revenue from Harper’s new tax promises, and you get more than $10 billion a year in reduced fiscal capacity for the federal government. And if Ottawa is locked into a few multi-year spending increases—on military equipment and prisons—there’s progressively less room for everything else. Economist Frances Woolley has said that to reach Harper’s projected savings without cutting defence, public safety or the Canada Revenue Agency, he’d need to cut everything else by one-third.

“Everything else” here includes departments like Environment, Fisheries and Oceans, Industry, Transports and Veterans Affairs.

The main obstacle to making my point comprehensible is all the garment-rending over the “cuts” in transfers from a 6% escalator to a nominal-GDP-plus-inflation escalator with a 3% floor. Tom Walkom is pretty sure that reduction from 6% increases to 4-ish or 5-ish per-cent increases will destroy everything. With John Geddes, I prefer to see it as a lot of money. 

Now. On to the whole unilateralism thing — the vexed dismay at news that the provinces weren’t allowed to make a counter-proposal to Flaherty’s proposed fiscal envelope. I’ve poked through about 35 years of transfer politics, and what emerges is a pretty robust trend: Ottawa never offers to negotiate when preparing to cut or limit transfers to the provinces. It does propose a negotiation when promising to increase transfers.

The reason isn’t quite obvious in either case, but it’s easy to understand in both. When increasing its investment, the federal government has usually sought greater control over health- and social-program outcomes; the increased federal investment becomes the leverage for increased federal control. When cutting, there’s nothing to negotiate, no leverage, and no reason to seek “permission” from a baker’s dozen of provincial and territorial governments, since they’ll never give permission anyway.

The first modern transfer system was Established Programs Financing in 1977, which included a clause that Ottawa could not change the terms of the transfer without provincial approval for five years. So when did Trudeau get around to unilaterally cutting the federal role? Literally as soon as he could — five years later, in 1982. He restricted the rate of growth again before he was done, and Brian Mulroney did so again, in 1986, and yet again after that. And Chrétien introduced actual cuts in the amount of transfers with his 1995 budget.

That’s more than a decade of reduced growth and actual cuts, always unilaterally imposed by Ottawa — and each of those cuts, incidentally, more draconian than what Flaherty tabled on Monday. (They called for transfer growth to lag behind GDP growth by set amounts. He is planning for transfer growths to stay just ahead of GDP growth.)

Things change after that, because Chrétien seeks to get Ottawa back into the health-funding game, tentatively in 2000, more vigorously in 2003. Paul Martin goes whole hog in 2004. Every time, they invite the premiers to Ottawa — not out of the goodness of their hearts, but because each time, Chrétien and Martin seek to impose conditions on their increased new transfers.

Harper’s handling of the file represents a middle case. After the restraint and cuts of the 1980s and 1990s, and the very rapid growth in transfers under a Paul Martin who was eager to “fix health care for a generation,” we’re entering an era of more modest growth. But even that rate of transfer growth will represent continued pressure on all other federal spending. And it will join a host of other long-term spending and taxing commitments that will add more pressure. Hence flat-tire federalism.


Health transfers: More on flat tires and etiquette

  1. Maybe now McGuinty will do to healthcare in the next five years what he failed to do in the previous 10 years. Get efficiencies and better service outcomes in healthcare. The fact that Ottawa has put no strings on the funding suggests that the feds are prepared to look the other way if provinces want to test different ways of delivering services as long as the single payer edict is kept in place.

  2. That’s  a very clever analysis. It’s true, the feds negotiate increases, not reductions, and they do so for exactly the reasons cited. Quite so.

  3. Ok so Paul does a good job of making something clear that should be obvious to all of us however partisan – that power is meant to be used in pursuit of political objectives and policy, whether it be Trudeau, Chretien or Harper – it  has nothing to do with who’s the nicer guy. They are there to govern.
    So Harper is shovelling the money out to the provinces and skewing revenue spending to his priorities; i don’t agree, but i’m not a conservative, It would be just the same if my kind of govt was implementing a Kelowna Accord or multi-year commitment to programme spending i supported – it’s just tough.
    My principle objection to the CHTs they’re proposing is the move to per capita funding – it has the potential to create even more of a patch work health coverage that i believe is a defining characteristic of my Canada.
    Where i think PW’s analysis is weak is not adressing the fact that Harper seems to be actively undermining  our federal democratic institutions. This can’t be brushed off as an unfortunate side effect of minority bickering anymore. It seems to be part of a deliberate choice to render our trans – national institutions dysfunctional or irrelevant. Harper may be entitled to his interpretation of the BNA act, but it doesn’t entitle him to piss in our communal democratic soup, merely because he has no pan – national vision of any description.
    IMO the man’s turning out to be a narrow minded dogmatist who’s perfectly prepared to impare or destroy democratic machinery in order to prevent his revisionistic future from being unravelled by those that are yet to come. I don’t think he’ll succeed – but that’s beside the point.

    • It is sort of funny.  People mock climate-change deniers but they are told over and over again that we have to do something about the cost of healthcare because it isn’t sustainable….and they are in denial.  It is easy to be provincial governments and bureaucrats and do a crappy job managing healthcare because you just throw your hands up and say ‘we need more money”.  It is a difficult job when you have to decide to make creative changes…build and renovate hospitals so they help people heal not make them sicker; use your healthcare staff in smarter and more innovative ways; spend more money on front-line workers and less on administrators, etc. 
      I believe this is a wake up call to the provinces…the money for healthcare is not unlimited.  Do a better job with how you are spending it.

      • I have not said i am opposed to innovation as far as i can see. My only real objection is to changing to a per capita model, and the possibility that this may not be the best bit of negotiating i’ve ever seen.
        You make a lot of  unsubstantiated assertions about how well provinces manage the h/c file. Careful, that’ll get you kicked out of the conservative sacred cow club.

        • Oh no kcm2…quite the opposite.  I have made assertions about how poorly the provinces handle the healthcare file.  As for them being unsubstantiated…you just have to look them up.  Where do you live?  What I believe and further state is that the provinces CAN handle healthcare a whole lot better than they have been without continuous increases in funding if they chose to spend the money wisely rather wasting it paying off physicians who advocate for better care or on a heathcare records system that they have no clue who to establish.  The question is should the federal government act like their “daddy” and stand over them with a strap or should they be made accountable to stand up and manage these vital service properly because afterall the citizens put them in office to do so.
          btw, I never worry about getting kicked out of any clubs….what’s that saying?  I wouldn’t belong to any club that would have me as a member.

    • I honestly don’t understand where leftists get off believing they have a monopoly on what constitutes Canada or Canadian democracy. Hence, the outrage when they don’t get their way. Canadians decide what our democracy is and who and what represents it — not you; not leftists, or any other arrogant self-righteous constituency in this country. Man.

      • I don’t think most Canadians really care about democracy. I really think that most Canadians would be equally satisfied with some Singapore-style benevolent dictatorship. Funny, actually. Singapore, too, is nominally a representative democracy.

        My trouble with the current state our of democratic institutions is that representative democracy is dead. We are down to presidential democracy with no independent legislative branch. This is the fault of both parties that have held the PMO over the last 20 or 30 years. I know you think this is just dandy now, Dennis, but cast your mind to the possibility of an NDP PM who has total control over the House and the Senate.

        • No, you don’t think Canadians care about what you think is democracy, which isn’t democracy at all. You want to force your views on others, and get mad when you don’t get your way. Well, too bad. That’s democracy. Thank God.

      • “Hence, the outrage when they don’t get their way. Canadians decide what our democracy is and who and what represents it — not you;”

        That’s a real classic, a beauty DF. As an example of misrepresention as i’ve seen from you in awhile.

        Can you read? Where did i claim to have a monopoly on what constitutes Canada – quite the contrary. 

        As for Canadians deciding what our democracy is: are you suggesting that democratic rules, conventions, process are entirely situational? Are you seriously suggesting that now that Harper has his majority he can interpret rules in whatever manner he so chooses since ‘Canadian” have spoken?. 

        But i’ll just assume ,as is invariable with you, that you’ve just chosen to read whatever meaning into my words as fits your pre- packaged, pre- formed bias shall i? 

        Man you’re a disgrace to honest debate You have no intellectual honour!

        • These are your words, not mine:

          “…it has the potential to create even more of a patch work health
          coverage that i believe is a defining characteristic of my Canada.”

          Why the heck should we be slave to “your Canada?”


          ” It seems to be part of a deliberate choice to render our trans –
          national institutions dysfunctional or irrelevant. Harper may be
          entitled to his interpretation of the BNA act, but it doesn’t entitle
          him to piss in our communal democratic soup, merely because he has no
          pan – national vision of any description.
          IMO the man’s turning out
          to be a narrow minded dogmatist who’s perfectly prepared to impare or
          destroy democratic machinery in order to prevent his revisionistic
          future from being unravelled by those that are yet to come. I don’t
          think he’ll succeed – but that’s beside the point.”

          Who in the world are you to define what Canadian democracy is? Why should I care if you get “pissed” off at not getting your way? Again, Canadians decide, not disingenuous snobs like you who get outraged when exposed for this nonsense.

          • “i don’t agree, but i’m not a conservative, It would be just the same if my kind of govt was implementing a Kelowna Accord or multi-year commitment to programme spending i supported – it’s just tough.”

            You really are a moron Dennis or least unbelievably dense. Of course they are my views, that’s self evident to any reasonable person, which is your let out i guess.

            Don’t bother responding. i have better things to do then feed trolls like you.

          • What in the world are you going on about now? And what are the two knee-jerk types so far “liking” in that insane post of yours? lol. Wow!

            That quote isn’t mine. You see, people like you go haywire when you’re exposed for this nonsense. Amazing. Next.

  4. Would it really be wrong to ask so much that provinces at least examine more efficient care rather waiting for the next transfer check to cover rising costs? If it improves healthcare delivery so much the better.

    • EXACTLY!  Everyone agrees that the healthcare system is not sustainable, efficient or even enviable the way it is being run now.  Should the status quo be maintained where we just keep throwing money at it OR should we look at innovative ways to make the system better.  It is about time the citizens demanded answers of their provincial govt on why the healthcare in their province is subpar. 

      • Who is this ‘everyone’ who agrees?

        We’ve done studies for years

        Is ‘throw money at it’ the meme of the week?

        • I am sorry Emily, if you have been living under a rock and have been completely unaware of the current consensus regarding problems in the healthcare system.  Like I said, you mock climate deniers but now you are going to deny that the healthcare system is inadequate and we may not be able to fund it in the future….wow!
          You can malign me but that is not going to change the reality that we do spend a lot of money and still the wait times for seeing specialists and for surgeries are unacceptable.  There are also problems with overflowng emergencies rooms and we have a severe shortage of family physicians.
          Yes, studies get done but how often does research get put into practice as far as taking measures to make the population healthier or to provide better cheaper community services?

          • I’ve been around for 65 years, kiddo….and am well aware of the Con gripes about the healthcare system. They are the same gripes that were used when we first started this system. It all comes down to their precious pocketbook, and the usual whining about taxes.

            Canadians simply want it fixed and updated….not changed or removed….and we’ve studied it to death over the years. The recommendations, however, collect dust on a shelf.

            The usual suspects intend to leave them there, while introducing the word ‘privatization’…..again.

            This is the basic problem.

          • “Canadians simply want it fixed and updated”
            That is what we are talking about…..fixing it so it works for Canadians.  As for privatization…if the feds give the money to the provinces with no strings and the provincial govts are NDP or Liberal, how is that encouraging privatization?

          • @57fc79f8528c0aa6c4b4330d53700334:disqus 

            We already know how to fix it….we just don’t do it because of this continual nagging about privatization.

            And we can’t be sure provincial govts will be Lib or NDP.

  5. It’s simple downloading.  A classic Mike Harris move.

    Ontario is still trying to recover from that era.

    Meanwhile, his buddies are now in the federal Con party….and practicing the same voodoo economics.

  6. This story seems consistent to me. Just a word about my $6Billion TFSA number. That calculation was, as Paul notes, for when it is fully phased in–I’m talking 2020s here, not this decade. Current cost is much smaller than that. But when you keep adding $5K of room a year, this starts to add up through time. After 15years, that’s $150K of room for a couple. Even more if the $10K/year expansino promised in the election is ever realized. But that’s kinda Paul’s point I think–changes are being made now that seem small at first but in the future will be big, as well as hard to change.

    • Kevin,

      When Harper was announcing a 2% GST cut, what were you calling for?  No tax cut; or different tax cut (ie corporate or personal)?

      If we had taken whatever your advice was at the time, how would the structural deficit be different today?

  7. But if I may, if Paul’s argument has a weakness, it is in that ‘hard to change’ bit. Nothing legally stops any future parliament from changing things (as we all now from the recent Wheat Board theatrics, you can’t bind a future parliament.) Paul’s argument, I think, is that these things will be politically hard to change.

    Could be, but I don’t find it a stretch for a Prime Minister Topp to start adding conditions in the future. It would be an even smaller stretch to imagine some future FinMin caught in a sudden recession/deficit deciding that the promised escalator is too much and imposing unilateral cuts or slower growth. Actually, I think that is more likely than not. Any takers on a bet? I bet that come 2025, this deal will have been altered and long-forgotten.

    • Well, I think that’s a fair prediction, because who really knows what the numbers are going to look like in 2025.  It’s like those actuarial predictions that were made 15 years ago based on historically typical interest rates.  Remember them?

    • As I was reading your first post, I was thinking that when a normal Prime Minister comes to power, he just says “up to” whatever it is that a maxed out TFSA is worth.  And after that limit is reached, you can do no more.

    • Thanks to Kevin for helpful clarifiers and caveats. Indeed it’s worth noticing that he projects costs for TFSA many years out.

      As for trend lines reversing, they sure can do that. I remember a colleague from Quebec City, otherwise lucid, telling me he’d seen a Quebec government-sponsored study on the fiscal imbalance showing that by 2020 the provinces would have 80 jillion dollars of debt and Ottawa would have massive surpluses. “If nothing changes,” I said. He nodded. “So something will change.” He looked at me like a poor naif.So yeah, trends can reverse. Another of Harper’s goals is to make it politically unpalatable for even opponents to propose reversing them. So the $100 per-child cheque and the GST cuts and, I’m pretty sure — espeically if the next non-Conservative government is NDP-led — the gun-registry abolition may not be things the opposition is fond of, but they’re things the opposition won’t take away in power. Harper Conservatives see Joe Clark, and often even Mulroney, as ineffectual conservatives who didn’t have any reason for opposing the Liberals except muscle reflex. They see Clark and Mulroney as a pure product of an environment where Liberals usually won and Liberal assumptions dominated. They want to instal a Conservative environment where even when Conservatives lose an election here or there, cowed centre-leftists don’t dare touch Conservative values.Their likelihood of succeeding isn’t great, because it’s a tall order, but they’re closer to succeeding today than they were in 2006. 

      • I have a sneaking suspicion that whenever the next government replaces the current one, the whole crime agenda will be ripped out. It is just so insane on the face of it. I suspect everything else will stay.

        An increase in the GST might be difficult, but I could see a carbon tax being on the table in the future. BC implemented one fairly successfully, and British Columbians seem satisifed with it. Just don’t expect anyone to campaign on it.

      • “So yeah, trends can reverse. Another of Harper’s goals is to make it politically unpalatable for even opponents to propose reversing them.”

        Surely that will depend on the circumstances, and on whether the policies are working, or possibly more importantly popular?
        I can see arguements succeding for increasing consumer taxes if say personal IT is lowered. The gun registry is likey a goner, although events may decide otherwise.
        As Andrew says below, if the crime agenda is a bust, out it will come.
         So it may come down to are Harper’s ideas good enough to stand the test of time?I simply cannot comprehend why he feels it necessary to carry on as if some of his programme cannot stand the test of public scrutiny in the normal way of things – through open debate and consultation. Unless of course he doesn’t believe his own bs, that the country is essentially conservative not liberal in outlook.
        It seems he is prepared to win in all circumstances but unable to tolerate the possibility of failure or compromise in any circumstance. Does the man have so little faith in his ideas/worldview to sway ordinary Canadians?

  8. There’s something wacky about PW’s carrot and stick federal/provincial two step here. If you’re worried about future federal commitments to escalting h/c costs why would you continue to fork over 6% and a guarantee of at least 3% until 20 something or other, particularly when costs may be leveling off? Where’s the real incentive to innovate in the short term? The provinces now have a number of years to mount a campaign against future levelling off of tranfers; there may even be a more acommodating future federal govt.
    On the face of it, it appears to be a good strategy to gradually move provinces into a more innovative and cost effective model[s]. But if PW is right[ i’m sure he is] wouldn’t it be more effective to call the guys ‘n gals to Ottawa in order to negotiate a new deal using the 6% carrot as leverage for innovations in the overall h/c system? The stick [3%] would presumably.be kept back. 
    Is this one more example of Harper’s appetite for good politics over good policy?Harper has shown himself a poor negotiator before this [soft wood ].I wonder if this isn’t yet a further example?

    • Most of the provinces are running deficits. The incentive to innovate is to use the increased transfers to reduce the deficit rather than shovelling it into health care.

      • Or new lawn mowers as Ralph did.

  9. Why do you label it flat-tire? Is a smaller more efficient federal government necessarily a bad thing?
    How do you expect people to take your arguments seriously?

    • It’s ‘flat tire’ because you can’t go anywhere with a flat.

      Govt shouldn’t be ‘big’ or ‘small’….it should be the size that suits the population.

  10. This kind of governance comes as a breath of fresh air to us out here in taxpayer land.  For virtually all of my 50 years, all levels of government have grown at rates that far outstrip inflation and population growth.  That growth has been unsustainable for decades. 
    Ditto for wages and benefits paid out to govt. workers.  It used to be that govt. jobs paid less in exchange for modest but guaranteed pensions, and a largely (economically) risk free environment.  Now, not only do govt. jobs pay higher than private sector for comparable work, but provide pensions that are (unsustainably) considerably more lucrative than what even the most diligent savers and investors in comparable private sector incomes can hope to achieve.
    So great is this discrepancy that every dollar that a private sector worker saves for retirement, he must pay one dollar in taxes just to cover public sector pensions.  Plus, the private sector worker’s pension/savings aren’t guaranteed, yet he is obligated via taxation to guarantee the public pension.
    Thus, whenever we hear of efforts to cap the growth of govt., people like me heave a sigh of relief.  Generally speaking, govt. doesn’t ever solve the problem simply because govt. usually IS the problem.
    Fire half the federal civil service, trim Parliament by 100 MP’s, trim every provincial legislature by half, and eliminate the federal equalization scheme, and you’d have at least a walking start at solving a lot of this nation’s problems.

    • Fascinating how the ‘solution’ always involves cutting other peoples wages or pensions.

      Odd how it never seems to involve cutting things like jets and jails.

      • In fairness to bill, jets’n jails are funded by all tax payers. What his narrow argument seems to overlook is that public sector workers also pay taxes. What’s more if they were taken back enough pegs along with the unions eventually he would see them coming after him in the private sector.

        • Yeah, lowering or eliminating the wages and pensions of others harms the ecomomy by eliminating their ability to pay taxes, or buy cars and groceries.

          And trying to buy jets and jails after that, won’t work.

          But it’s this constant attacking of others that concerns me. Whether it’s someone in a high-profile job, or a union member…..envy and hatred is promoted and aimed.

          Only their own, the chosen few, are allowed to make a living.

    • The breezes are warm in the Libertarian Paradise.

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