Will the Feds Cut Provincial Transfers to Balance the Books (Again)?

As everybody who reads this blog knows,  then Finance Minister Paul Martin brought the federal budget back into balance in the mid 1990s by, in significant part,  slashing federal transfers to the provinces and eliminating automatic escalators in the new transfers he created.

That cannot and will not be allowed to ever happen again, says Canada’s (now not so) New  Government. Never, ever will we cut transfers to the provinces, says Finance Minister Flaherty (who got stuck with a big chunk of the federal deficit when he was Minister of Finance in Ontario.)

His speech to the Empire Club on November 20 this week has yet to be posted. It sounds like he re-stated what he said in Brampton on October 23. http://www.fin.gc.ca/n08/09-104_1-eng.asp

“..  we intend in the medium term to return to balanced budgets. Along the way, we will neither raise taxes nor put in jeopardy the growth track of major transfers to persons—our seniors, our children, those receiving EI benefits—or transfers to other levels of government. We will not balance our budget by slashing funding to provinces and territories that is essential for the health, education and social well-being of Canadians.”

This promise has been widely reported. But what does it mean?  The planned growth of two major transfers – the Canada Health Transfer and the Canada Social Transfer – comes to an end in 2013-14 – just over two years from now in terms of fiscal years. We know that both have been on an upward trajectory of late, but we have no idea what will replace them.

So does the “no cuts” promise – which is being repeated by les liberaux – mean a freeze of the transfers at the 2013-14 level  of approximately $40 Billion per year – leaving the provinces on their own going forward to deal with soaring health care and socil services costs. Or does it mean no reduction to the current pace of increase?

From the Department of Finance website:

“The Canada Health Transfer, or CHT, is the largest major transfer. 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. CHT transfer payments are made on an equal per capita basis, and include both cash and tax point transfers. 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 CHT cash transfer will reach $24 billion in 2009-10 and will reach over $30 billion in 2013-14…

The Canada Social Transfer, including transition protection payments, will be about $10.9 billion in 2009–10. The CST base increased by $687 million in 2007–08 to support the move to equal per capita cash. In 2008–09, the CST will increase by $800 million for post-secondary education and an additional $250 million to support the development of child care spaces. CST cash levels are set in legislation up to 2013–14 and will grow by 3 per cent annually as a result of an automatic escalator, effective 2009–10.”

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