Finance Committee on Dec. 7th, 2022

[The Chair, Liberal, Peter Fonseca]

We're at six minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Okay. In that case, I…

[The Chair, Liberal, Peter Fonseca]

But there's a little leeway, yes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I would indeed need a minute to ask my other questions, and an additional minute to hear the answers.

[The Chair, Liberal, Peter Fonseca]

You have time for a quick question and a quick response, yes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

All right. Thank you.

When we ask people from the government about health transfers, they tell us that they are going to increase them by 10% this year anyway because the transfer formula takes inflation into account.

Do you have any comments to make about this 10% increase? Have you determined whether these transfers, with inflation factored in, will be more generous than they've been for previous years?

[Yves Giroux]

Yes. The increase in the transfers is determined by the moving average of GDP growth over the previous three years. Based on our assessment, that rate will increase to 9.8%. That's to take nominal GDP growth into consideration. It takes inflation into consideration, as well as economic growth.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

All right. I'll try to get back to this later.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you Mr. Ste-Marie.

Now we'll go to the NDP.

MP Blaney, welcome to the committee. You have six minutes for questions.

[Rachel Blaney, NDP, North Island—Powell River, BC]

Thank you, Chair.

I want to welcome all of the witnesses. Thank you for your testimony today.

My first question is going to be directed to Mr. Béland.

I am subbing, in fact, for my colleague Daniel Blaikie, as was mentioned earlier. He recently read the book you co-authored, Fiscal Federalism and Equalization Policy in Canada, which he thought gave a nice overview of fiscal federalism as it exists in Canada. He also recently read A Good War by Seth Klein, whom the committee has already heard from.

One thing that Seth Klein talks about in his book is the idea of a climate transfer under the equalization payment model as a tool that government could explore using to combat climate change. As an expert on fiscal federalism, I'm wondering if you would be able to talk to us today about whether that is something you think governments could look at. What kind of consideration should governments take into account in discussions like these? Do you think there are any pitfalls around the idea of a climate transfer?

Thank you.

[Daniel Béland]

Thank you very much.

This proposal is not something I've studied directly. However, I have to say that it could be part of the mandate of the expert panel on equalization that I hope will be created soon, because we need to look into equalization, as I said, for a number of reasons. I think climate change is a factor when you deal with equalization in relation to natural resources, especially non-renewable resources.

At the same time, this could be quite contentious politically, so I think it might be a good idea to have this discussion done through an arm's-length expert body. Again, the devil is in the details. You can have this broad idea that sounds good on paper, but it's the way it is implemented.

I think we should discuss it, but at the same time we should understand that this is likely to be quite contentious, because such a proposal may advance some provinces over others, and that will probably create more tension over equalization, rather than less.

[Rachel Blaney, NDP, North Island—Powell River, BC]

That's fair enough.

I'm going to move to a different subject, but I am coming back to you, Mr. Béland.

You alluded in your testimony to some ways you thought the Canada health transfer could be modernized. In my riding of North Island—Powell River, I represent a pretty large riding with a lot of rural communities, and we've hit a really significant crisis where emergency rooms are being shut down. For example, in one month, the emergency room was shut every night for 28 days out of the month which, you can imagine, is pretty concerning when you're having any kind of health issue.

I wonder if you could talk about the thoughts you have around modernization of the CHT. Would it help to address some of these current concerns?

How could we look at it to make sure that those more rural and remote communities get some of the supports that they need to go through these significant transition times?

[Daniel Béland]

One thing that could be done to address this issue at a broad level is building some demographic factors into the calculation of the Canada health transfer. This is something we discussed with Trevor Tombe in the working paper published by the school of public policy at the University of Calgary, which is available online.

I think this could address some of the challenges that you see in some parts of the country, where the population is aging rapidly. That's a source of added cost. There are different ways you could...it could be an add-on to the CHT to address demographic and socio-economic factors beyond what the CHT already does on a per capita basis. I think that's something we could explore.

Beyond that, I think we also have to imagine what could exist beyond the CHT. The CHT was only created in 2003, but we talk about it like it has always been there. Health funding in Canada has changed a lot since the 1970s. There was a huge change in 1977, and other changes later in 1995 and so forth.

Moving forward, we have to think about whether the CHT is the only tool available, or whether we can think about tax points, which I alluded to earlier. There is also the possibility of having revenue sharing in terms of having a federal tax that will be redistributed directly to the provinces, like is done with the GST in Australia.

These are things that we explore in our paper. I very much hope that you can look at it and provide feedback to us, because the ideas are there.

We need people to talk about this and not just get stuck on the CHT and how much it should increase every year and so forth, because there's much more to help our funding than just that.

[Rachel Blaney, NDP, North Island—Powell River, BC]

I've only got a few seconds left, but the last question I'm going to ask is for you to follow up on what you were talking about in terms of demographic information. We have been noting for well over 20 or 30 years that we're going to have a huge increase in the aging population, unlike anything Canada has ever seen.

When we look at how the CHT transfers work, in terms of modernization, how would we start to plan ahead so that we're not reacting as we are now at a crisis point?

[Daniel Béland]

As we propose with Trevor Tombe in our paper, we can revise the CHT so it will actually compensate the provinces for the added cost of demographic aging. I think the federal government should bear these extra costs because it has, of course, a much greater fiscal capacity than the provinces.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaney.

We are moving into our second round, members. We have the Conservatives up first.

We'll go to MP Chambers for five minutes, please.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair.

I notice you're in a giving mood this season with your liberal use of the clock. I'll try to be on time as much as I can, but we all appreciate your generosity.

Mr. Giroux, welcome back. Every time we turn around, it seems like we're discussing one of your reports. I think this is a good thing.

We hear a lot about the Congressional Budget Office in the U.S. Out of curiosity, how does your office compare in size to that office?

[Yves Giroux]

I think, from memory, it's about 10% of the size.

[Adam Chambers, Conservative, Simcoe North, ON]

That office is about 10 times larger than yours.

[Yves Giroux]

I think so. It's significantly bigger.

[Adam Chambers, Conservative, Simcoe North, ON]

The level, the quantity and the quality of work that comes out of your office is always very high, so we appreciate this and all of your team for their hard work for us. This is a newish office. It hasn't been around for generations or even many decades, but I think it's really finding its place in our political discourse or helping parliamentarians. Thank you for your service, to all of your team.

I wanted to pick up on what my colleague, Mr. Ste-Marie...on the fiscal situation in the provinces. Do you see the improvement in the last little while as a sustainable improvement or more of a short-term improvement in the fiscal situation of provinces?

[Yves Giroux]

I see that more as a short-term improvement because of the pressure that population aging will put on provincial finances, mostly. As I've explained a few times before in other fora, population aging will have differential impacts at the provincial and federal levels.

At the provincial level, the main driver of expenditures caused by population aging will be health care. Anybody who looks at the profile of health expenditure by age cohort will see that the moment somebody turns 65 or 70, annual average expenditures for persons in that age group rise dramatically. They skyrocket when someone reaches 85 or 90, which is not unusual. It's very high in the first year of life for anybody and very high in the last years of life.

Whereas at the federal level, population aging will put pressure on old age security and the guaranteed income supplement, these costs are indexed to the CPI—to inflation—so the growth is constrained to a large extent and much more so than health care expenditures. The other big chunks of expenses at the federal level, which are transfers to provinces and territories, are constrained by GDP growth, by and large.

Structurally, expenditures at the federal level are constrained. Expenditures at the provincial level are skyrocketing because of health care costs. That's how one can explain the differences in sustainability at the federal and provincial levels.

[Adam Chambers, Conservative, Simcoe North, ON]

That's very helpful. I think most fiscal federalism is often really just a larger conversation about health care costs. It's provinces, over many governments and many decades, citing the facts of increasing health care costs and aging population. For a number of years.... It's hard to beat the law of numbers. If transfers are going up, say, only by 3%, but health care costs are going up by anything more than that, you eventually get to more of a burden on provinces where this is where the expenditures are.

Is it time, perhaps, for Parliament to consider a really tough discussion on health care about how we can preserve the universality of the system we have, but focus more on outcomes? How can we deliver the right outcomes for people and help contain costs? I'll point out that the Deputy Prime Minister recently said that we should be measuring outcomes.

That's not necessarily a bad thing. If some provinces find different ways to deliver that care while preserving the universality, is that not something we should be having a more honest conversation about, as parliamentarians?

[Yves Giroux]

I think when we know that we're heading to a wall, fiscally speaking, or to difficult decisions, the sooner we collectively as a nation or you as legislators have these discussions and come to a resolution, the easier it is to make these changes. We saw that in the 1990s with the CPP and the QPP when it was deemed necessary to increase the rate to face the upcoming wave of retirements. Had governments waited longer, it would have been a different story. We know we'll be faced with health care costs that will go on increasing. The choice is to do something now, or to do something later, but it won't be cheaper if we wait.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Chair.