December 20, 2011 / 2:48 PM / in 6 years

Federal government imposes "sustainable" health funding formula

VICTORIA, British Columbia (Reuters) - Finance Minister Jim Flaherty imposed what he called a fiscally sustainable formula for increasing federal transfers to the provinces for health care, one that will eventually increase spending by less than the current 6 percent a year.

Flaherty angered several provincial finance ministers in setting the new funding formula unilaterally, but he said it was necessary to provide certainty and sustainability.

The Canadian government will increase healthcare transfers by 6 percent through 2016 and then only at the same rate as nominal growth in gross domestic product, forecast at about 4.5 percent in coming years. Flaherty guaranteed a minimum funding increase of 3 percent a year.

“Our landmark investment means healthcare funding will continue to grow at record levels and in a fiscally sustainable manner,” Flaherty said after meeting with provincial finance ministers.

“This investment will help ensure our healthcare system is there when Canadian families need it.”

Flaherty’s announcement came as a surprise to the provincial ministers. Though Ottawa had floated its ideas last week, the current funding levels do not expire till 2016, and no one had expected a new arrangement to be announced now.

Ontario Finance Minister Dwight Duncan, flanked by five other ministers, said he and his colleagues were caught off guard.

“The federal government has moved unilaterally ... and we think this is most regrettable,” Duncan said, adding that it would mean less health service in Ontario. “It’s not a present at all. It’s a lump of coal.”

In 2004, the federal government reached an agreement with the provinces under which it would increase spending by 6 percent a year through 2014. The current government announced earlier this year it would extend that arrangement through 2016.

The host of the meeting, British Columbia Finance Minister Kevin Falcon, said he appreciated the fiscal certainty going forward.

“I appreciate that certainty ... Obviously some of my colleagues feel differently.”

Under the formula, Ottawa will increase its health transfers to the provinces to C$38 billion ($36.7 billion) in 2018-19 from C$30 billion in 2013-14. Transfers to the provinces for social spending will continue to rise by 3 percent a year.

The formula will be revisited in 2024, Flaherty said.

“The process that we saw today where the federal government comes and says, ‘This is our non-negotiable position,’ simply is not the way to build a nation,” Nova Scotia Finance Minister Graham Steele said.

He urged the federal government to step back, since there was time, and reconsider.

With the Conservative government’s majority in Parliament, it will not have a problem incorporating the new funding plans in its federal budget, but the opposition New Democratic Party signaled its displeasure.

“I think the minister of finance for Manitoba said it best when he said this will lead to cuts in services, cuts in the number of physicians and nurses, which over the long term would lead to a serious deterioration in the quality of our public health care,” the NDP’s Peter Julian told Reuters.

($1=$1.04 Canadian)

Writing by Randall Palmer; editing by Rob Wilson

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