Quebec Premier François Legault did not get far when he trekked to Ottawa in September to plead for more federal cash for health care.
Not only did Prime Minister Justin Trudeau ignore his request in the Speech from the Throne, delivered the following week, he has remained coy about the issue ever since.
Yet, fiscal updates tabled by Canada’s two largest provinces suggest Ottawa will not be able to avoid the issue for much longer. Ontario and Quebec both face pernicious structural deficits after the COVID-19 pandemic subsides. And both have concluded that there is no way for them to balance the books without more cash from Ottawa.
They are not alone. The combined deficits of Canada’s provinces will approach $100-billion this year, expanding an already surging national public debt burden driven by an expected federal shortfall of as much as $400-billion. Ontario ($38.5-billion), Alberta ($24.2-billion), Quebec ($15-billion) and British Columbia ($12.8-billion) have all projected record deficits for the current fiscal year.
The profound economic uncertainty caused by the pandemic has rendered fiscal projections beyond the current fiscal year highly unreliable. But it is a reasonable bet that overall provincial debt levels could rise by $200-billion by 2023, with more than half of that total coming from Ontario. The province’s net debt-to-gross-domestic-product ratio is projected to rise to 49.5 per cent in 2023, from 39.6 per cent before the pandemic.
Hence, Ontario has adopted the same cap-in-hand approach as Quebec.
“The federal-provincial transfer system is a key component to ensure the long-term fiscal sustainability of all the provinces and territories. More can be done to make this system work better for Ontario,” Finance Minister Rod Phillips’s Nov. 5 fiscal update said. “The people of Ontario deserve a federal transfer system that recognizes the province’s priorities, supports fiscal sustainability, and is based on clear and consistent principles.”
A 2018 review conducted by Ernst & Young found that Ontarians sent $12.9-billion more in taxes to Ottawa than the federal government spent in their province. But all provinces, even Alberta, will be net beneficiaries of federal spending this year as Ottawa provides unprecedented levels of aid to individuals and businesses across the country.
The problem is what happens when the pandemic is over. The provinces were already facing a rising health care cost curve before COVID-19 struck, owing to their aging populations and continuing investments in new technologies. But the pandemic exposed major deficiencies in long-term care that most provinces have no choice but to address.
The issue has taken on political urgency in Ontario and Quebec, where long-term care homes have accounted for more than two-thirds of COVID-19 deaths in Canada. Mr. Trudeau has suggested his government could impose national standards in long-term care, but has not said how much money Ottawa is willing to provide to pay for them.
Quebec Finance Minister Eric Girard did not beat about the bush in detailing his province’s demands for more health care cash in his fiscal update last week. Quebec is seeking an additional $6.2-billion under the Canada Health Transfer beginning in 2021-22, or a two-thirds increase from the $9.4-billion the province is getting under the CHT this year. (The latter sum does not include one-time aid from Ottawa to help provinces cover pandemic-related costs.)
Quebec is leading the charge for a reform of the $42-billion CHT that would see Ottawa commit to covering 35 per cent of provincial health care costs, up from about 22 per cent now. As it stands, federal transfers are projected to fall to 19 per cent of provincial health spending by 2030 under the current funding formula implemented in 2017.
To meet the 35-per-cent threshold demand, Ottawa would need to increase the CHT by $28-billion next year alone, raising overall health transfers to the provinces to $70-billion.
“If they want to make a difference for Canadians, that’s where they need to help,” Mr. Girard said last week in referring to the federal government.
Health transfers will top the agenda at the federal-provincial first ministers' meeting in early December. It will be difficult for Mr. Trudeau to plead poverty, having continually boasted of Ottawa’s strong fiscal position to justify pandemic-related spending.
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