A closer look at Federal Transfers

One subject that sometimes arises that I have not covered in detail previously is transfers from the federal government to provincial governments and territories. The Federal Government has different transfer programs such as the CHT “the Canada Health Transfer”, CST “the Canada Social Transfer” and lastly the Equalization program. What are these transfers programs intended to help fund?

The Canada Health Transfer is the largest transfer program to Canadian provinces and territories. The intent is to provide long term defined funding to assist with the delivery of health care. Recently some claims (including TV commercials) have been made that the Canadian Health Transfer funding has been cut or otherwise reduced by our Government. In reality these claims are false and misleading. Funding in real dollars for the Canada Health Transfer increases every year. From 2011 up until 2016/17 the annual increase in funding is set by legislation at 6% per year.  In 2017-2018 the formula for increasing this health transfer funding is set to change in that it will increase at a rate based on a three year moving average of nominal Gross Domestic Product (GDP). However at a minimum provinces and territories will be guaranteed an increase of at least 3% per year or greater, depending upon the formula.  In other words, every year Canadian Provinces & Territories will receive a larger Canada Health Transfer than the year previously – there is no year when a province or territory would receive anything but an increased health transfer. Worthy of note is that the CHT monies and its scheduled increases are independent of whether the province or territory in question increases or reduces its overall spending in health care; also as provinces have jurisdiction in their delivery of health care, it is provincial elected officials that decide their own priorities and how the CHT is to be utilized.

The Canada Social Transfer is intended to assist provinces and territories in providing post-secondary education, social assistance programs as well as early childhood development, learning and daycare.  These funds are calculated on an equal per capita basis and in 2014-15 are set in legislation announced by our Government to increase annual by 3% each year. This way Provinces & Territories have certainty that Federal transfer dollars for social transfers, like the health transfer, will increase each yearly at a predictable rate. Likewise how these dollars are spent is decided by the Province or Territory.

The Equalization program is perhaps the best known transfer program that is intended for “addressing fiscal disparities among provinces”. While it is sometimes suggested this program be eliminated as it can be viewed as financially rewarding poor provincial governance, it should be noted that the equalization program was entrenched in our Canadian Constitution by the Trudeau Liberal Government in 1982. Although equalization payments are intended to provide comparable services between Provinces these transfers are unconditional and a Provincial Government can spend these funds in any manner they desire. Equalization transfers are based on a provinces ability to raise revenue, a terms described as “fiscal capacity”. Each province will have its fiscal capacity compared to the average fiscal capacity of all Canadian provinces to determine if they are below this average or not. Provinces have two options: get the greater of the amount they would receive by fully excluding natural resource revenues, or by excluding 50 per cent of natural resource revenues. Equalization transfers increases are also based on a three year moving average of GDP growth. Again, provinces decide how best to utilize these funds.

In terms of actual dollars Canada wide over the past decade the Canada Health Transfer has increased from $20.3 billion up to $34 billion while the Canada Social Transfer has increased from $8.4 billion up to just under $13 billion. The Equalization program has gone from $10.9 billion up to $17.3 billion. It should also be noted that in 2015 Newfoundland & Labrador, British Columbia, Alberta and Saskatchewan did not receive equalization as they are in effect “have” Provinces under the equalization formula.  A rough breakdown of $17 billion in equalization funding includes Quebec received $9.5 billion, Ontario $2.3 billion, Manitoba $1.7 billion, Nova Scotia $1.69 billion, New Brunswick $1.66 billion and PEI $53 million.

In total Canada wide transfers for all Provinces and Territories has risen from $ 41.9 billion in 2005 up to $68 billion in 2015. As these are your tax dollars it is important for citizens to have a clear understanding that despite false claims of federal transfers being reduced in reality each year federal transfer payments are increasing to Canadian Provinces and Territories to help fund critical services that Canadians depend upon. Your comments and questions are welcome dan.albas@parl.gc.ca or toll free at 1-800-665-8711.