Issue | What are the effects of changes to the Canada Health Transfer in the transition to an equal-per-capita cash allocation by 2014–2015?
Synopsis | As currently required in legislation, the Canada Health Transfer shall move to a full equal-per-capita cash allocation in 2014–2015, following the expiry of the 10-Year Plan to Strengthen Health Care. This transition will affect provinces differently, depending on their level of per capita CHT cash relative to other provinces.
Timing | As required in legislation, the second statutory review of the 10-Year Plan to Strengthen Health Care shall be undertaken by a parliamentary committee in 2011, possibly informing discussions related to health care renewal and the Canada Health Transfer.
Before the 10-Year Plan to Strengthen Health Care expires at the end of fiscal year 2013–2014, the Canada Health Transfer (CHT) will need to be renegotiated by federal and provincial governments. Although a broad range of issues are likely to be raised during these discussions, this overview focuses on the legislated commitment to move towards an equal-per-capita CHT cash transfer.
The 10-Year Plan is an agreement reached among first ministers in 2004 that identifies areas where greater investments are necessary to support health care renewal.1 Through it, the federal government increased funding to provinces for health by $41.3 billion over 10 years. Most of this increase ($35.3 billion) was included within the CHT, while a separate payment of $5.5 billion was made to reduce wait times, and $500 million was provided for medical equipment.
The CHT is the primary source of federal support to provinces for health care. While the provinces can use this funding as they deem appropriate, they must comply with the Canada Health Act criteria (i.e., universality, accessibility, comprehensiveness, portability and public administration) and conditions (i.e., prohibition against extra billing by physicians and user charges by hospitals) to receive their full CHT cash allocation. The CHT includes a cash transfer and a tax point transfer. The total cash transfer is set in legislation and grows by 6% annually. The tax point transfer corresponds to 13.5 percentage points of personal income tax and 1 percentage point of corporate income tax.
Once the overall value of the tax transfer is calculated, it is added to the legislated total cash transfer to obtain the total CHT. The total CHT is then divided by total population to determine per capita total CHT. Each province’s per capita CHT cash is calculated as a residual (i.e., the province’s per capita share of total CHT less its per capita tax point transfer). CHT cash includes an equalizing component, since the per capita cash transfer is higher for provinces with relatively weak tax point transfers, and vice versa.
|The Canada Health Transfer, 2011–2012|
|Source: Figure prepared by the Library of Parliament using data obtained from Finance Canada on 22 December 2010.|
In response to the view that interprovincial equity is more appropriately addressed through the Equalization program, in Budget 2007 the federal government committed to remove the equalizing component of the CHT by legislating that the cash transfer move to an equal-percapita allocation in 2014–2015,2 the first year of a new agreement following the expiry of the 10-Year Plan.
Concerns about the equalizing component of the cash transfer have been raised more recently due to economic shifts resulting from high natural resource prices, a stronger Canadian dollar, and a decline in manufacturing. For example, even though Ontario became a poorer province relative to provinces with abundant natural resources, its per capita CHT cash transfer continued to be lower than average due to its relatively strong tax point transfer.
In response to these recent economic shifts, Budget 2009 facilitated the move to an equal-per-capita cash transfer for Ontario by ensuring that the province immediately receive the same per capita CHT cash as other relatively poorer provinces,3 and further committed the federal government to work with all provinces on how to transition to full equal-per-capita cash in 2014–2015.
In reaction to the move towards equal-per- capita CHT cash, some have suggested that the federal government introduce new funding to mitigate the impact on provincial finances. Others have proposed alternative allocations, such as allocating CHT cash based on the varying provincial health care pressures, or providing additional tax point transfers.
© Library of Parliament 2011