Thank you for the question.
I think it's easy to overestimate the incentive consequences of general transfers like the Canada social transfer and the Canada health transfer because they're unconditional, and they're not contingent on what any one province does. How you use those transfers in your province, or how your provincial government uses them is entirely up to them. I could see an argument for conditioning the transfers on demographic differences across provinces, where provinces that have, for example, older populations have more need for money, but in terms of the incentives that provinces get from unconditional transfers that are formula-based and based on nationwide averages, I think the incentives are rather minimal.
My concern is really the balance between federal revenue and transfers in provincial revenue and transfers. There's a purpose for having a vertical balance, a vertical gap in the federation, which we can see nowadays, and which they don't have in Europe. It fulfills a very important insurance function for the federation. When provinces are subject to shocks, the fiscal federalism system automatically accommodates those shocks by changes in the transfer system. That would be lost if you insisted on all provinces relying on their own revenues to finance all of their programs.