Researchers suggest Ottawa eliminate health transfers, give provinces room to tax

MONTREAL — A new report by researchers at the Université de Montréal’s HEC business school is calling for the end of federal transfers payments to the provinces.

The report published Thursday suggests that ending the health and social transfers — while giving provinces more space to raise tax revenue of their own — could end the “tug of war” between the provinces and the federal government over the money.

Released by the Centre for Productivity and Prosperity – Walter J. Somers Foundation at HEC, the report recommends that equalization payments be maintained and that the Canadian Institute for Health Information be given more power, and turned into a sort of Parliamentary Budget Officer for health care, in an effort the make provincial health-care systems more accountable to the public. 

The plan would require political will from both the federal and the provincial governments, said Robert Gagné, the director of the HEC centre and one of the authors of the study.

“There are things we’ve done historically (that were) more radical than this,” Gagné said in an interview. “If the will is there, it’s doable. Do they want to do it? That’s another question.”

He said he worries the current system works for both levels of government, even though the provinces regularly complain about the amount of money they receive.

Under the current system, provincial governments can have their cake and eat it too, he said: “They don’t have to bear the burden of taxing, and they receive a cheque from the federal government. The downside of this is the federal government can say, ‘I’ll send you a smaller cheque.’ “

It also allows the federal government to enter into areas of provincial jurisdiction, he said. 

The provinces are currently calling for a $28-billion increase in annual federal funding for health care — from $42 billion to $70 billion.

The report suggests Ottawa could end transfer payments and give power over corporate taxation, currently worth a little more than $50 billion, and half the GST, worth $18.7 billion, to the provinces. The total, $68.7 billion. represents almost exactly the amount the provinces are calling for.

“The system is out of balance and a bit unhealthy too,” Gagné said, because the capacity of different levels of government in Canada to levy taxes isn’t proportionate to their responsibilities. 

The approach would only require the federal government to cede space to the provinces, so that provincial governments can raise the revenue to meet their needs. Gagné said that has happened before. When former prime minister Stephen Harper lowered the GST by two percentage points, Quebec increased its sales tax proportionately.

Gagné said Canada also needs an independent body to keep health-care systems — which consume roughly half of provincial spending — accountable.

“Are we getting value for our money? That’s the other big question, and there’s no way of knowing right now,” he said. “When we are able to evaluate performance, when there is more transparency, systems work better.”

Gagné’s report also aims to correct the “vocabulary” and false perceptions around fiscal exchanges between Ottawa and the provinces.

“When (Quebec Premier François) Legault says, ‘We’ll ask for more from the federal government,’ be careful. The federal government is nothing more than an intermediary in all this We’re asking for more from Canadian taxpayers, including Quebecers,” Gagné said.

The same goes for Alberta Premier Jason Kenney, Gagné said.

“Mr. Kenney suggested several months ago that it’s Alberta that finances the equalization program. No, it’s not Alberta that finances the equalization program,” he said. “It’s Canadian taxpayers, wherever they are in the country, who fund the equalization program. Words are important because people who don’t follow this closely start saying that it’s the government of Alberta who sends a cheque to Ottawa to fund daycares in Quebec, which is completely false.”

Gagné said that in his proposed system, equalization would continue to ensure that provinces are able to offer comparable services, even if they don’t have the same ability to tax corporations.

This report by The Canadian Press was first published May 20, 2021.

Pierre Saint-Arnaud, The Canadian Press