OPINION: Provinces should not rely too much on federal dollars
· Toronto Sun
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At a recent premiers’ meeting in Charlottetown, the premiers of Manitoba, New Brunswick and Prince Edward Island called on the federal government to split the costs of health care 50/50. For perspective, Ottawa currently covers approximately 21% of total provincial/territorial health-care costs through the Canada Health Transfer (CHT).
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And in a joint statement, all premiers said “many of our provinces are looking at a fiscal cliff ” due to an expiring agreement that would result in slower guaranteed growth in health-care funding from Ottawa.
This situation underscores a major problem in Canada, and (spoiler alert) it’s not that Ottawa is too stingy.
According to the Constitution , important policy areas including health care, education and social services are provincial responsibilities (barring some narrow circumstances where Ottawa has jurisdiction). But this hasn’t stopped Ottawa from encroaching in these areas. In addition to long-standing health-care transfers, other notable federal intrusions include (but aren’t limited to) the national daycare, national dental care and national pharmacare programs introduced by the Justin Trudeau government.
In other words, provinces have allowed the federal government to intrude into their jurisdictions and now rely too much on federal funding. When that federal funding dries up, provinces may be left holding the bag.
Real risk
With the Carney government planning to increase spending in several areas, including national defence — despite projecting huge deficits and a mountain of debt — this is a real risk. And it’s happened before. In the mid-1990s, the Jean Chrétien government reduced health care and social service transfers to the provinces by 15% as part of a historic spending review that ultimately helped Canada avoid a fiscal crisis.
To illustrate this risk today, consider the following calculations from our new study. If in 2024/25 (the latest year of available data), the federal government had reduced the CHT and Canada Social Transfer (which helps fund education and other social services) by 15% across the board and eliminated funding for the national daycare and national dental care programs (pharmacare is excluded because funding didn’t start until 2025/26), federal funding to the provinces would have fallen by $19.4 billion that fiscal year.
Consequently, if provinces wanted to maintain funding for these programs, they would have to increase their own spending, ranging from increases of $85.2 million in P.E.I. to $7.5 billion in Ontario.
These are significant amounts of money, especially since every provincial government is currently in the red. Moreover, if provinces chose to raise taxes to pay for this higher spending, individual taxpayers would need to pay (on average) between $804 (Nova Scotia) and $985 (Saskatchewan) in additional taxes.
Tax cuts unlikely
Of course, if Ottawa used its savings to lower federal taxes, there might not be any change in the overall tax burden on Canadians.
However, the Carney government already plans to outspend revenues by tens of billions each year for the foreseeable future, so federal tax cuts seem unlikely.
Now, the lesson isn’t that Ottawa must forever maintain funding for programs within provincial jurisdiction. Instead, Ottawa should stay in its own lane, and provinces should be more cautious when accepting federal funding since they’re the ones left holding the bag if that funding dries up.
– Grady Munro is a senior policy analyst and Jake Fuss is director of fiscal studies with the Fraser Institute