New healthcare spending to add fiscal pressures, conversation on funding priorities needed
Prime Minister Justin Trudeau and his provincial counterparts meet in Ottawa next week to hash out a new healthcare funding deal that could have far-reaching implications for the Canadian government’s fiscal health.
With provincial healthcare spending expected to grow over the next decade at a faster pace than revenue, Trudeau is facing pressure to raise the federal share of the burden.
Currently, federal health transfers represent 22 per cent of spending. Premiers are asking the federal government to bring that up to 35 per cent, increasing federal spending by $28 billion.
Add an annual escalator of six per cent, and the federal government’s finances quickly become long-term unsustainable, according to a recent analysis by the University of Ottawa’s Institute of Fiscal Studies and Democracy.
That’s not even accounting for all the other non-health spending pressures on the fiscal purse, like the need to finance the country’s climate transition.
This added pressure will have implications for both the government and the healthcare system.
First, it means reform of healthcare is inevitable as policy makers look to find efficiencies, including continued experimentation with private delivery. There’s plenty of evidence showing Canada spends more on health care than global peers, without improved outcomes.
In 2020, Canada ranked second in health expenditures as a share of GDP among industrialized countries, according to OECD data. Canada has consistently been among the top spenders for decades. Yet, we are laggards on health metrics such as doctors per capita and medical equipment.
All this suggests our system is operating with high administrative costs, and savings are to be had.
Despite talk of health worker shortages, it’s also worth noting that total payroll employment in the sector has grown by about 400,000 people over the past decade, bringing it to just over 1.8 million, according to Statistics Canada data. That’s 4.7 workers per 100 Canadians. A decade ago, that number was 4.1 workers.
Second, rising healthcare costs will only amplify fiscal constraints, forcing governments to start making tough choices around budget priorities. That means scaling back future spending ambitions, taking money from existing programs or raising taxes. We can’t have it all, and higher rates and inflation have made it clear there are limits to deficit-financed spending.
The world has entered an era of supply constrained economies and policy trade-offs, which will force governments to be more forthright about the long-term cost of programs, including how they are funded.
While raising revenue is a non-starter for many politicians, polls suggest Canadians would be willing to pay more for government services they value.
A survey by Nanos Research group in January 2022 found that almost half of Canadians would be at least somewhat willing to pay higher taxes to finance new social programs like daycare and tackle climate change. At the very least, that’s enough of a public opinion threshold to begin a conversation.
Like it or not, taxes are an option. So is the chopping block.