Fiscal Federalism: Federal Transfers to Provinces

(See this post for a closer look at federal revenues and expenditures by province.)

When discussing the issue of federal transfers to provinces, most Canadians immediately think of equalization. However, it is important to remember that the Government of Canada provides significant financial support to all provincial and territorial governments on an ongoing basis to assist them in the provision of programs and services. There are four main transfer programs: The Canada Health Transfer (CHT), the Canada Social Transfer (CST), Equalization and Territorial Formula Financing (TFF).

The CHT and CST are federal transfers which support specific policy areas such as health care, post-secondary education, social assistance and social services, early childhood development and childcare. While the CHT and CST are the major federal transfer to the provinces, the equalization program is perhaps the more contentious of the two. This is largely due to the fact that while all provinces receive the CHT and the CST, only some provinces receive equalization, which helps foster a have and have-not status amongst the provinces.

I have discussed the equalization program in some detail here, here and here. What follows is an overview of the CHT and the CST.

The Canada Health Transfer

The Canada Health Transfer (CHT) is the largest major transfer to provinces and territories.  It provides long-term predictable funding for health care, and supports the principles of the Canada Health Act which are: universality; comprehensiveness; portability; accessibility; and, public administration. The transfer will reach $29 billion in 2012-13 and will reach at least $38 billion in 2018-19. Unlike equalization, which is unconditional, the CHT is a block transfer; the funds must be used by provinces and territories for the purposes of “maintaining the national criteria” for publicly provided health care in Canada (as set out in the Canada Health Act). However, there is no way for the federal government to ensure that a province uses the funds for the intended purpose.

CHT transfer payments are made on an equal per capita basis, and include both cash and tax point transfers. Starting in 2014-15, provincial and territorial CHT transfers will be allocated on an equal per capita cash basis only.

Total CHT cash levels are set in legislation up to 2013-14 and grow by 6 per cent annually as a result of the automatic escalator. The Government announced in December 2011 that total CHT cash would keep growing at 6 per cent until 2016-17. Starting in 2017-18, total CHT cash will grow in line with a three-year moving average of nominal Gross Domestic Product, with funding guaranteed to increase by at least 3 per cent per year.

The move to an equal capita cash allocation is part of a long-term plan announced by the Government in Budget 2007 to provide comparable treatment for all Canadians, regardless of where they live. The Government will ensure that the transition is fiscally responsible by implementing a by-province and territory protection that will ensure that no province or territory will receive less than its 2013-14 CHT cash allocation in future years as a result of the move to equal per capita cash.

The Canada Social Transfer

The CST is a federal block transfer to provinces and territories in support of post-secondary education, social assistance and social services, and early childhood development and early learning and childcare. However, as is the case with the CHT, there is no way for the federal government to ensure that a province uses the funds for the intended purpose. The CST cash transfer will be about $11.9 billion in 2012-13.

The CST is calculated on an equal per capita cash basis to reflect the Government’s commitment to ensure that conditional transfers provide equal support for all Canadians. The CST base increased by $687 million in 2007-08 to support the move to equal per capita cash.  In 2008-09, the CST increased by $800 million for post-secondary education and an additional $250 million to support the development of child care spaces.

CST cash levels are currently set in legislation up to 2013-14 and have grown by three per cent annually as a result of an automatic escalator applied since 2009-10. In December 2011, the Government announced that the CST will continue to grow at three per cent annually in 2014-15 and beyond.

Direct Targeted Support

Provinces and territories also benefit from significant investments in targeted areas such as labour market training and wait times reduction.

Download a table showing Federal Support to Provinces and Territories from 2005-06 to 2012-13.

Download a table showing Total Federal Transfers to each province for 2012-13.

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