The time has come for the federal government to let the provinces know that transfer payment growth has seen it's day. In bringing down the new(ish) budget today, the main areas of restraint can be found in the gradual elimination of the vote subsidy and the promise to find savings totaling $11 billion over the next four years within Ottawa's $80 billion operating budget. This will allow the deficit to be eliminated by fiscal 2014-15.
That's nice. But it just scratches the surface when it comes to reigning in runaway growth in provincial transfers in order to be prepared for increased healthcare spending as Canada's population ages. As it stands, the next five years will see the national debt stop growing and even shrink, ever so slightly. But if our current fiscal health is to last through the next 50 years, there needs to be much more done.
Right now the provincial governments as a whole are tending to spend like drunken sailors, with Ontario's massive $14 billion deficit merely leading the way. The problem is that even this level is reliant upon massive federal transfers. Partly this is a result of the muddled way of funding programs which has grown in Canada over the last 50 years. It is also partly a result of the system of transfer payments which were initially meant to balance services, but instead now allow Canadians in Ontario, BC and Alberta to subsidize superior levels of service in PEI, New Brunswick, and Nova Scotia.
These transfers, and the confused means of federal funding for provincial responsibilities, represent the single biggest drag on federal spending – and the single biggest excuse used by provincial governments to disguise their fiscal incompetence. The McGuinty government in Ontario gives massive pay raises to government employees, along with a $7 billion gift to Samsung which will supposedly bring all kinds of wind-power equipment manufacturing to Ontario – if the stars, planets, and galaxies align, the Maple Leafs win the Cup, and Ontarians are lucky beyond belief. Then it passes a budget with a projected deficit in the coming year of $11 billion. Why? “The federal government...”
Alberta has been doing the same, ignoring it's own mismanagement of oil revenues, abortive royalty increases in the oil patch, and out of control spending. Instead the blame is laid on Ottawa. The same can be seen in provincial capitals across the country.
The means to fix this system is fairly simple, though. It starts with the Ottawa getting out of funding programs such as health and education which are a provincial responsibility, and transferring the tax points which formerly funded these to the various provincial governments. The transfer payment system should be abandoned and replaced by a new one which covers just the most basic services, with adjustments being made to reflect relative cost of living and differences in costs to the governments of providing equivalent services.
For example, if the cost of hiring a nurse in New Brunswick is only 95% of the cost in Ontario, the transfers should be adjusted to reflect that. Right now it isn't, and as a result, the level of service found in a Charlottetown hospital is far superior to that in a Belleville hospital. A dollar simply goes further in some parts of the country.
The net effect of this would be to make clear to the voter precisely which level of government is wasting their tax dollars in a given area, and thus allow Canadians to vote accordingly. It would also mean the end of Ontario, Saskatchewan, Newfoundland, Alberta and BC subsidizing Quebec's grossly over-subsidized nanny state and general fiscal mismanagement.
And if we fix this system soon, maybe we'll be able to nurse our healthcare system through the next 50 years.
