Proceedings of the Standing Senate Committee on National Finance
Issue 19 - Seventh and Eighth Reports of the Committee
WEDNESDAY, February 12, 1997
The Standing Senate Committee on National Finance has the honour to present its
SEVENTH REPORT
Your Committee, to which was referred Main Estimates 1995-96 (Consideration of the Canada Health and Social Transfer (CHST)) has, in obedience to the Order of Reference of Wednesday, June 12, 1996, examined the said Estimates and herewith presents its report.
On June 15, 1995 your Committee tabled its Fifteenth report dealing with its hearings in consideration of Bill C-76, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 1995. In that report the Committee summarized its findings on a number of topics covered by Bill C-76 .At that time, your Committee had some concerns about the Canada Health and Social Transfer (CHST) and felt that the question merited further examination .In accordance with its Order of Reference on the Main Estimates (Canada Health and Social Transfer) laid before Parliament for the fiscal year ending 1995-96, the Committee met on several occasions to hear testimony and examine the particulars of the CHST .In a first series of hearing held in November and December 1995, the Committee heard from the Caledon Institute of Social Policy, the Fraser Institute, the federal Department of Health, the Alberta Department of Health, and the Honorable Joy MacPhail, Minister of Social Services of the Province of British Columbia .At its second set of hearings held in September and October 1996, the Committee heard from the federal Department of Human Resources Development and the Coalition for Biomedical and Health Research .Our findings are presented below.
The CHST will have a significant impact on Canada's Health care, social assistance and post-secondary educational systems. Since the Senate Standing Committee on Social Affairs, Science and Technology undertook to examine the effects of the CHST on post-secondary education, that issue is not examined in the present study. However, your Committee is very much aware that the changes in federal funding for post-secondary education will have serious effects on Canada's educational system, its teachers and students. Your Committee is also concerned about any potential deterioration in the quality of our nation's educational services that might arise because of the changes in the way these services are funded. We hope that such a deterioration in the quality of Canada's educational system will not be permitted, but that changes proposed by the CHST will preserve or enhance the country's ability to deliver educational services to its citizens.
FEDERAL CASH TRANSFERS
The Committee's hearing's covered a wide range of topics. However, four broad themes dominated the attention of both witnesses and Members. The first was the level of federal cash transfers to the provinces under the CHST. Federal transfers under the CHST are composed of tax points turned over to the provinces in the 1970's and cash payments. The cash portion of the CHST transfer is set according to a formula that takes into account a number of factors that determine the fiscal capacity of each province. The intent of the cash transfer is to allow a province to provide for its citizens a level of health care, post-secondary educational services and social assistance that is comparable to that of other provinces.
The amount of cash available under the CHST is expected to be lower than what had been available under the previous programs- the Canada Assistance Plan and the Established Program Financing. Several individuals and representatives of provincial governments were concerned that this reduction in the share of federal cash transfer would have serious negative consequences for the state of health care and social services in Canada. The concern of the provinces is that the reduced transfers make it more difficult for them to deliver social programs at the previous levels of service and quality. Certainly some of the fiscally weaker provinces would not be able to deliver services comparable to that of the economically stronger provinces. While private individuals were also concerned about the effects of lower funding on the quality of health care and social services, they noted that as the relative importance of the cash transfers, as compared to tax transfers, declines in the future, the ability of the federal government to influence social policy will also diminish.
Commenting on the uncertainty about the amount of the federal transfer beyond 1997-98, Judith Maxwell of Queens University, suggested this could have serious negative repercussions on the quality and quantity of social assistance available in Canada. She suggested that such a reduction in the cash portion of federal assistance could precipitate at best a patchwork of programs or at worst a race to the bottom by provincial governments.
Professors Banting and Boadway, saw important benefits in the CHST but believed that these benefits needed to be secured and expanded. In particular they thought that the CHST should become an enduring component of the social program structure of the federal government rather than a temporary visitor. They were concerned about the possible disappearance of federal cash transfers early in the next century. If the federal government's funding disappeared, they felt that the CHST would fade away and important values held by Canadians would also be in danger of disappearing. In order to preserve these values, they urged the federal government to declare that it will continue to be a financial contributor to these programs.
Like the academic witnesses, Ken Battle of the Caledon Institute, saw the CHST as probably the single most significant change in the fabric of the Canadian welfare state. However, he was not sure that it was a desirable change. Like the others before him he believed that the structure of the CHST, and particularly the reduction in federal funding, would lead to a deterioration of social services in Canada. He was also very concerned that the federal government would lose its influence over the direction of social policy formulation in Canada. To retain this influence the federal government should maintain a sizable cash presence in provincial social policy in order to maintain some kind of standards across Canada in provincial social programs and the health care system. Otherwise there is a real danger that early in the next decade, the federal cash transfer could disappear. Unfortunately, long before that time, the federal government will have lost its ability to influence policy.
However, a statement by the federal government that it intends to maintain a sizable cash transfer under the CHST may provide only a false reassurance. Michael Walker of the Fraser Institute argued that because of declining fiscal capacity and continuing debt problems, the federal government will want to get out of certain functions that are more appropriately delivered by the provinces. This includes such items as social services, unemployment insurance, and workforce training. It may even include health care services and equalization payments. As he reminded the Committee these are inherently provincial responsibilities. Because of the financial difficulties that the federal government will continue to experience in the remainder of this decade, he expects the CHST to disappear altogether.
Federal witnesses did not agree with these scenarios. Mr. David Walker, the Parliamentary Secretary to the Minister of Finance, assured the Committee that it was not the intent of this government to allow the cash component of the CHST to disappear. Mr. Van Loon, the Associate Deputy-Minister of Health, reassured the Committee that the federal government is committed to maintaining a major, predictable cash contribution under CHST. Finally, Mr. Cappe, the Deputy-Minister of Human Resources Development, pointed out that the 1996 Budget restated the government's commitment to seeing a gradual return to growth in total CHST transfers and established a cash floor of $11 billion.
QUALITY OF SERVICE AND PROGRAM STANDARDS
A second theme of these hearings involved the potential decline in the quantity and quality of health care and social assistance in Canada and whether some type of standard could be put in place to ensure that Canadians received comparable services across the country. Although many were concerned that the federal government might not be paying its fair share of the cost of providing health and social service in Canada, all witnesses were concerned about the effect of reduced federal transfers on the quality of health, social and educational services. Some witnesses felt that as federal transfers disappeared, the provinces would be obliged to cut back their services. Several witnesses feared that much of this reduction in provincial services would effect predominately those segments of the population least able to speak for themselves.
Sherri Torjman of the Caledon Institute of Social Policy suggested that special assistance programs, those directed at helping people who have special needs, such as health-related needs or disability related needs, might be the type of programs most adversely affected by the federal cut back in transfers to the provinces. Given the relatively low priority assigned to social assistance, compared to health care and post-secondary education, this situation was a concern for several witnesses and for members of the Committee.
According to Cynthia Ramsay of the Fraser Institute, the problems of quality services in the health care sector are not simply a result of reduced federal transfer to provinces. She believes that they stem from the monopoly held by the provinces in the delivery of health care services. She believes that because of fiscal pressures, the provinces are trying to curb the natural growth of health care system, a distortion in the market for health care services that is leading to a deterioration of services, higher prices, delayed innovation and patient dissatisfaction. Competition in the provision of health care would introduce efficiencies into the system that would benefit all Canadians by reducing or eliminating these problems.
The Honorable Joy MacPhail, the British Columbia Minister of Social Services noted that already as the federal government reduces its financial support, there is a growing disparity in the services offered by the provinces. The potential for declining quality in health care and social assistance raises the question of whether it might not be advisable to establish standards to guide the provinces and the federal government. It also raises the question of how to enforce the standards.
At this time the CHST attaches no conditions to federal transfers in respect to post-secondary education funding. It has only one condition with respect to social assistance transfers, and that is that a province should not establish any residency requirements for recipients of social assistance. There are a number of conditions attached to health care transfers which are spelled out in the Canada Health Act. However, all of these so called health standards are not so much standards of quality, as guidelines for the delivery of health, education and social programs. Mr. Cappe noted that the principles of the Canada Health Act affect the administration of health care in a province and not the standard of health care. Each province decides for itself what level of health care it wish to achieve. However, the method chosen for delivering health care services must conform to the principles of the Canada Health Act or the non-conforming province could face federal penalties in the form of cutbacks in transfers.
Members of the Committee were at pains to understand why such restrictions were necessary if the standard of health services is not a matter regulated by the Canada Health Act. Members felt that perhaps the provinces could deliver good health services, just as they deliver good post-secondary educational services without federal supervision. They wondered if the principles of the Health Act do not in fact restrain the provinces from finding innovative solutions to the problems that beset the health system in Canada.
The Honorable Joy MacPhail, who also chairs the Council of Social Services Ministers, reminded the Committee that the provinces are working towards putting together a vision and a set of key principles to guide provinces in delivering social programs. This vision sees the creation of a social safety net that must achieve social and economic security and, in so doing, support and protect children and adults in need. She felt that such a system must provide opportunities to attain independence and well-being.
The Parliamentary Secretary of Finance, Mr. David Walker, also pointed out that the Minister of Human Resource Development has a mandate to invite representatives of all the provinces to develop, through mutual consent, a set of shared principles and objectives for the social programs. However, he stated clearly that it is not the Government's intention to impose a set of standards or guidelines on the provinces in respect to the delivery of social programs.
Dr. Jane Fulton, Deputy Minister in the Alberta Department of Health, expressed that province's basic philosophy with respect to the health care system, which is that a government should not be delivering health care services. Instead, a provincial government should be building standards, monitoring services, providing surveillance and dealing with problems of public health care. Consequently, the Alberta government wants to eliminate overlapping mandates, to measure results according to national standards mutually determined by both levels of government and to achieve more flexibility in fiscal arrangements. She feels that the principles of the Canada Health Act are correct, but the implementation of these principles is outdated and needs to be changed
According to Dr. Fulton this is manifested in the current difficulties between the province of Alberta and the federal government. This conflict between Alberta and the federal government is not as regards the principles of the Canada Health Act, but on how to implement health care services. They are about what type of delivery mechanisms are acceptable in the system.
For instance, Dr. Fulton spoke of the problem of waiting lists in the provision of health care services in Canada. In many instances, Canadian health services lack the resources to provide immediate care to Canadian patients, who must then wait their turn to received treatment. Although, the waiting periods are not seen as critical for the patients, many Canadians have the personal wealth to seek treatment outside of the system, in particular at U.S. facilities. In Alberta, they feel that when Canadians leave the country to obtain treatment at U.S. facilities, there is a potential loss of jobs in the Canadian health care system. Rather than lose these jobs the Alberta government has permitted the creation of private clinics which provide some medical procedures even though they are not covered under the provincial health insurance plan. For example, Dr. Fulton cited the case of cataract operations in Alberta. On an annual basis there is a need for 20,000 cataract operations in the province, but public hospitals have a capacity for only 18,000 operations a year. This would create a waiting list of 2,000 patients requiring this type of medical procedure. As a option to waiting for an opening in a public hospital or going to the United States to obtain treatment, Albertans can elect to receive treatment at a private clinic and pay for the cost of treatment themselves. Since the treatment is not covered by the provinces health insurance, the province is deemed to be in contravention of the Canada Health Act. Consequently, the federal government has threaten to withhold a portion of its CHST transfer to the province of Alberta unless it stops this service. Dr. Fulton feels that this stand by the federal government is unfortunate as it will mean less health services for Albertans, and a loss of jobs in the province.
The comments of the federal and provincial witnesses might suggest that there is some hope of establishing principles to guide public authorities in the formulation of health and social policy and in the delivery of services. Unfortunately, not all of the private sector witness felt confident that an understanding could be reached.
Sherri Torjman of the Caledon Institute feels that it is unlikely that standards or guidelines will even be negotiated between the provinces and the federal government. Should the two senior levels of government succeed in negotiating standards, Cynthia Ramsay of the Fraser Institute does not see how they could be enforced by the federal government. She does not believe that the federal government is capable of enforcing the current health care standards, and is unlikely to be able to enforce them under the CHST. She provided numerous examples of medical services, whose cost, quantity, and quality already varies from one customer to another even within the same province.
If, as Michael Walker claims, the federal cash contribution declines or disappears because of federal fiscal problems, then there will be a point at which it will become more efficient for a province to ignore federal funding and to do what is effective in an economic sense for organizing its own health care system. At such a point national standards, or principles or guidelines may have little significance in the delivery of health care and social services.
SOME PROVINCIAL CONCERNS
Ms MacPhail, British Columbia's Minister of Social Services, noted that the Council of Social Services Ministers is concerned that the federal government by offloading its debt problems onto the provinces is changing the social safety net across Canada. Federal spending reductions are placing very significant fiscal burdens on provinces. Furthermore, when the federal government unilaterally changes these types of programs, it frequently fails to take into account the financial burden it imposes on provinces. A prime example of this lack of foresight occurred in her own province when the CHST was introduced.
Ms MacPhail reminded the Committee that British Columbia is a province of destination for many of Canada's unemployed persons. In 1994, over 92,000 Canadians came to British Columbia from other parts of Canada and many ended up collecting social assistance. Ms MacPhail informed the Committee that in 1995, an average of 2,400 persons a month entered B.C. from other parts of the country and went directly onto social assistance. She noted that 28 per cent of British Columbia's new social income recipients come from other provinces. Although the provincial government supports the principle of labour mobility in Canada, the arrival of such large numbers of unemployed persons into the province at a time of federal fiscal restraint places an onerous burden on the provinces social assistance programs. When the federal government decided to reduce it transfer to provinces under the CHST, it did not seem to have taken into consideration the impact this would have on internal migration in Canada. As many provinces responded to the cutbacks by reducing the benefits under their own programs, many Canadians seem to have decided to move to British Columbia, in part because of the relatively better economic conditions of the province, but perhaps also because it was one of the few provinces that did not reduce its social assistance in line with the federal reductions in funding.
However, the high levels of inter-provincial migration were placing increasing pressures on the province's social services budget. To help control its costs, without reducing the overall benefits of its social assistance programs, the B.C. government introduced a residency requirement for persons seeking social assistance. Such a requirement is in direct contravention of the only criteria set out in the CHST for receipt of a federal social assistance transfer. The CHST specifically forbids the use of residency criteria in the provision of social services. The federal government subsequently announced that it would withhold $47 million in CHST transfer payment to British Columbia if the province did not remove its residency requirement for social assistance recipients.
British Columbia feels that it is being penalized for being a province of destination. Ms MacPhail notes that because of differences in economic growth, some provinces are more likely to attract unemployed Canadians from other provinces. The province attracting this immigration is often left providing social assistance for which it receives no supporting transfers from the federal government. British Columbia is such a province. The problem is that the CHST does not recognize that migration places a cost on the recipient province's social service budget. She believes that some consideration should be given to population changes in the determination of the cash transfer. She also believes that the consequences of the CHST have not been contemplated by the federal government.
Your Committee notes that the 1996 Budget put in place a new allocation formula that takes into account migration and population growth. Furthermore, Mr. Cappe told the Committee that he expects that both the cash portion and the tax point component of the transfers will grow over time, thereby easing the burden placed on the provinces in the early years of the CHST.
British Columbia's early experience with the CHST would seem to suggest that more consultation is needed when the federal government contemplates changing its participation in areas where both levels of government are involved. According to Ms MacPhail, there is a need for a clear mutually determined definition of the jurisdiction and roles of each level of government in these fields. She feels that the country cannot have the federal government withdrawing its participation in social services and keeping the money required to run these programs.
INNOVATION IN CANADA
Dr. McLennan, the Chair of the Coalition for Biomedical and Health Research is concerned about the ultimate effect that the transfer cut backs will have on Canada's competitiveness in world trade in general and on the health of Canadians in particular. If the CHST reductions in funding lead to lower research activity in post-secondary educational facilities, then the country will produce fewer innovation and Canada's position relative to its trade competitors will deteriorate. Already in 1996, the cuts to transfer payments for health and secondary education translate into an 18 to 30% decline in support for health related research and research infrastructure at Canadian academic health centers. He believes that the country must strike a balance between preserving and enhancing its quality of life and maintaining its competitive position in the world. He feels that Canada's research activities are descending to dangerously low levels.
As the Associate Dean of Research at the College of Medicine of the University of Saskatchewan, he believes that this has serious implications for health care services in Canada. He cited studies which indicate that health care research produces new and useful information; creates new instrumentation and methodologies; develops new skills among those engaged in research, which includes scientists, graduate students, faculty and physicians; and it allows the researchers to access and participate in world wide networks of the research community. If Canada is to enjoy top notch medical services it will need not only the equipment and facilities, but also the personnel capable of understanding and using the technology available in the world. To be effective, such personnel needs to be exposed to research activity either in their work or in their studies. In fact, access to qualified scientist graduating from Canadian university in sufficient numbers is a critical factor in attracting global research and development investment in Canada. The Medical research Council's work helps to meet this objective by supporting the research of university students. In 1995, the Council's $241 million budget offered training opportunities for some 11,000 graduate students and post-doctoral fellows in Canada.
Furthermore, creating and sustaining a research community in Canada is important if the nation wants to attract and retain investments in research and development activities. This includes retaining graduate students and scientist in the country. If the investment community does not see in Canada an environment where research can be done adequately and capably by a cadre of well-trained people, they are not going to invest in the country. If we are to preserve Canada's health care system, we also need to be more innovative in health research funding.
The Coalition for Biomedical and Health made a number of recommendations, which if implemented would help to ensure that sufficient levels of research are maintained. First: Health care spending must be stabilized for a minimum of three years at current levels, to give the sector time to allow optimal use of evaluative research in adapting the health care system to new fiscal realities. Second: That the Committee urge the government to bring corrective measures in the February 1997 budget that will provide the granting councils with funding levels competitive with our competition. Third: That the Advisory Council to the Prime Minister on Science and Technology evaluate the impact of the government's deficit reduction measures on research in Canada. It is the opinion of the Coalition that if implemented, these recommendations would have the potential of creating 32,000 jobs in the near future. At an annual cost of about $5,500 per job, this is a relatively inexpensive job creation measure.
Dr. McLennan reminded the Committee that business does not do basic research. They follow their own agenda. They cannot do the broad spectrum and total quantity of basic research that we must do as a nation. It is the academic health centers that are expected to and must conduct health research in Canada. Unfortunately, cutbacks to post-secondary institutions are creating a crisis in the academic community. He fears that basic research in the academic health centers will vanish in a short period of time. He therefor makes a fourth recommendation: That the Committee undertake a comprehensive evaluation of the impact of macro-economic decisions made by governments on Canada's research system and recommend corrective measures that will ensure adequate public support for both research infrastructure and research activities in Canada.
Although there have been reassurances that federal transfers will increase as the economy fully recovers and as the deficit and debt are brought under control, Dr. McLennan doubts that the health research community could survive even three to five years under the current funding levels. He noted that the support for doing research in the health centers has been whittled away so drastically in the last few years that there is a real danger of the entire system collapsing. Already, the cutbacks to the Medical Research council have resulted in a decrease of about $82.1 million in potential research activities in 1995. This is research opportunities that could have contributed to the growth and development of the country. More disconcerting, is that the loss of research activities will eventually manifest itself in the quality of medical services available in the country. It is not an immediate effect, but one that will be evident after about 15 years.
Canada will not be able to rely on other countries to provide the technology. Although, they may be willing to sell us the technology, Canadians lacking experience in research may not know what to import, or even what is available.
CONCLUDING COMMENTS AND RECOMMENDATION
In its Fifteenth Report, the Committee concluded that there may be a role for the Senate in monitoring the changes and innovations that occur under the CHST and in reviewing a joint federal-provincial statement of principles that might result from the consultations that are undertaken by the Minister of Human resource Development. Your Committee believes that this remains a role for the Senate.
Your Committee is also very concerned about the impact of the cutbacks in transfers on the level of research in Canadian academic health centers. Although it may be necessary to control spending on health services in general, we must not jeopardize our long term ability to make sound decision on the delivery of health care in Canada. The most direct method of ensuring that the country produces the personnel capable of administering Canada's health care system in the future, seems to be lie in supporting the work of medical research in Canadian academic health centers. Therefore, your Committee recommends that the Federal government immediately increase its funding to the Medical Research Council.
Respectfully submitted,
THURSDAY, February 13, 1997
The Standing Senate Committee on National Finance has the honour to present its
EIGHTH REPORT
Your Committee, to which was referred Bill C-270, An Act to amend the Financial Administration Act (session of Parliament), has, in obedience to the Order of Reference of Wednesday, December 11, 1996, examined the said Bill and now reports the same without amendment
Respectfully submitted,
DAVID TKACHUK
Chairman