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SOCI - Standing Committee

Social Affairs, Science and Technology

 

Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology

Issue 17 - Evidence


OTTAWA, Wednesday, June 7, 2000

The Standing Senate Committee on Social Affairs, Science and Technology met this day at 3:33 p.m. to examine the state of the health care system in Canada.

Senator Michael Kirby (Chairman) in the Chair.

[English]

The Chairman: Today's witnesses are from the Department of Finance. They are here to help us understand the Canada Health and Social Transfer Tax (CHST). They will explain why the federal government really does not know how much money it is contributing to the health care system.

Mr. Bissonnette and Ms Anderson, as you may know, Mr. Lalonde discussed with us the origins of the EPF. If you have not seen his testimony, it concerned the nature of the political bargain that was struck, and why it was struck. The other big change in funding, of course, has been the CHST. It is our hope that you will take a few minutes to ensure that we understand three things: What is the policy rationale? How is it calculated? And, third, since the concern of this committee is the state of the health care system in Canada, we would like you to address why the government does not know the amount of its investment in that system.

I believe that senior federal spokespersons, including possibly even the minister, have indicated that, as a result of the pooling of a lump amount of money, it is difficult to determine precisely how much money the federal government is contributing to health care. Our committee would like know whether that is a factual statement; and, if so, we would like to understand a little bit of the policy rationale for that.

Mr. Bissonnette, would you please proceed.

Mr. Guillaume Bissonnette, General Director, Federal-Provincial Relations and Social Policy Branch, Department of Finance Canada: Mr. Chairman, I do have some brief opening remarks. I have left with the clerk of the committee a reference piece on the history of the CHST.

The federal government provides support to provincial and territorial governments, primarily through three major big programs: the CHST, which we will be discussing, equalization, and territorial formula financing.

The CHST, which supports health, post-secondary education, social services and social assistance, amounts to about $31 billion per year. Its creation was announced in the 1995 budget, when the government indicated that it would create a new block fund transfer to support provincial health, post-secondary education, and social assistance services. The CHST, because it is a social transfer, requires that the provinces comply with the Canada Health Act and that they not impose residency requirements for social assistance programs.

The CHST came into effect on April 1, 1996, giving provinces more flexibility to design and administer social programs and to allocate funds amongst social programs according to their own priorities.

It is important to understand that the CHST replaced two existing programs. It replaced the Canada Assistance Plan, a cost-shared transfer, which helped fund provincial social assistance and social service programs. The CHST also replaced Established Programs Financing, a block-funded transfer, which helped fund health care and post-secondary education.

The structure of the CHST is not unlike its EPF predecessor, because it is provided through both cash and tax transfers.

What is a tax transfer? That occurs when the federal government agrees to reduce its personal and corporate income tax rates, while allowing provinces, at the same time, in a synchronized way, to raise their tax rates by the same amount. For taxpayers, there is no difference in the total tax take. For governments, however, there is a big difference. Revenue that normally would have flowed to the federal government begins to flow, instead, directly to provincial and territorial governments.

There was a major tax transfer in 1977, with the creation of the EPF. That tax transfer was, in fact, carried over into the CHST. Provinces and territorial governments continue to benefit from the transfer. Its value has grown from its initial level of $2.7 billion in 1977 to over $15 billion today.

As we look at the CHST today, much like in 1977, in the last days of the EPF, it is still the case that about one half of the CHST takes the form of cash while the other half takes the form of tax transfers.

In its 1996 budget, the federal government decided to establish an $11 billion floor below the cash of the CHST to make sure that the growth of tax points would not erode the value of the cash. In 1998, with a balanced budget in sight, the federal government acted again to increase the CHST, increasing the cash floor to $12.5 billion.

[Translation]

The 1999 fiscal conditions allowed the federal government to make an even larger investment in health care, by increasing CHST payments to provinces and territories by $11.5 billion over five years.

Of this amount, which was entirely directed at health care, $8 billion was provided through future-year increases in the recurrent CHST, and $3.5 billion was provided as a one-time supplement to the CHST from funds available in 1998-99.

Provinces were left free to draw down this supplement according to their needs and to the time profile of their needs, to best meet the needs of their health systems.

Assuming an orderly drawdown over the next three years means that total support for health care will increase by $2 billion in 1999-2000, and by $2.5 billion in each of the following three years.

The disparities in the way the CHST was allocated across provinces, at the time of the 1999 budget -- just before this budget -- would have been reduced by half by 2002-03. The 1999 budget legislation provides for the complete elimination of these disparities per capita in the allocation of this transfer by 2001-02., thus by next year. Next year, all provinces will receive identical per capita CHST entitlements, providing equal support for health and other social services to all Canadians.

We are coming to the last chapter of our history, the 2000 federal budget. The 2000 budget put another $2.5 billion in the Canadian transfer. Of course, these funds will be available to provinces when Bill C-32 receives Royal Assent. I think it is presently under consideration in the Senate.

[English]

Once again, the provinces and territories will have complete flexibility in deciding how and when to draw on this lump sum amount of $2.5 billion. They can choose to spend it now or to spread it over the course of four years, as they see fit. If you look retroactively, to the beginning of our story, this constitutes the fourth consecutive federal enhancement of the CHST. This latest enrichment will add about $1 billion in 2001 and $500 million in each of the following years.

What does this mean overall? It means that CHST cash, in total, will reach $15.5 billion this year <#0107> which is about 25 per cent more than in 1998-99. This year, total CHST entitlements, when you add the cash plus the tax, will exceed their previous peak. If you look only at the cash component of the CHST, then it will have been fully restored next year. If you combine the cash plus tax, look at the whole of the CHST, it will reach an all-time high of $31 billion this year.

That concludes my opening remarks. I wanted to keep them brief, given that a reference piece has been provided. We would be pleased to answer any questions honourable senators might have.

The Chairman: As much for the record as for anything else, I want to take you back through your opening statement and ask you several clarification questions.

At the bottom of page 3, you say that the CHST is provided through a cash transfer and a tax transfer like the EPF. At the time of the CHST, were there additional tax transfer points, or were the tax transfer points that you are referring to on the bottom of page 3 those that we transferred in 1977 with the EPF?

Mr. Bissonnette: They are exactly the same points. They were carried over.

The Chairman: My point is that, in effect, there was a longstanding history of tax transfer points and that, therefore, the CHST represented a cash "lumping together." What really happened is that the amount of money changed but that change was only in cash, not in tax points; correct?

Mr. Bissonnette: To make sure that we are all clear, EPF was a program that involved both tax points and cash. The tax points that were in the EPF component were simply renamed and put into a larger "house" called the CHST.

The Chairman: That is right. On the bottom of page 4, you refer to the cash floor concept. I want to make sure that I understand this correctly. In the cash floor, first, the CHST formula is calculated; second, the value of the tax points is calculated; and third, the difference between the two is calculated, and that would normally be in cash. What you are doing is making sure that if that difference was, for instance, only $9 billion, you would nevertheless make it $11 billion; correct? In effect, that increases the total value of the CHST; correct?

Mr. Bissonnette: You are quite right. That was a time when the cash was computed as a residual -- as the difference between total entitlement and the value of tax transfer points.

The Chairman: That is the way it was done since the beginning of the EPF.

Mr. Bissonnette: Correct.

The Chairman: Therefore, in terms of the cash floor, if the residual is less than the cash floor the federal government will give the provinces more money -- because the feds will always pay the cash floor.

Mr. Bissonnette: That is right. We will override the calculation with the cash floor.

The Chairman: I had some trouble with your mathematics, in terms of the 1999 federal budget. Let's deal with the $11.5 billion <#0107> the $3.5 billion upfront and then $8 billion over time.

The $11.5 billion was calculated, according to your brief, in the following way: $2 billion in each of two years, which equals $4 billion, and then $2.5 billion in each of the following three years. Hence, the $11.5 billion does not include the $3.5 billion initial one-time shot. Am I correct?

Mr. Bissonnette: Yes, it does. The best way to answer your question -- and tell me if this is a legitimate suggestion -- would be to turn to a table in the paper that we have handed out. Is that possible? It is at page 8.

The Chairman: The top paragraph on page 6 is equivalent to the second line on the table to which you refer.

Mr. Bissonnette: Yes.

The Chairman:. The $3.5 billion in 1988-89 is not included when you talk about the $11.5 billion over five years. It is in addition to that; correct?

Ms Barbara Anderson, Director, Federal-Provincial Relations Division, Department of Finance Canada: Mr. Chairman, it is included. When we put that $3.5 billion into a trust fund, we nominally allocated it over the three years. In the second bracket, it is indicated how the $3.5 billion is broken down.

The Chairman: The $3.5 billion is buried in the three figures of $2 billion, $1 billion and $0.5 billion.

Ms Anderson: Correct.

Mr. Bissonnette: The third and fourth line of that table provides a decomposition of the $11.5 billion into its two components, the $3.5 billion and the $8 billion. It is the two lines in italics on that table.

The Chairman: Let us discuss the issue that really intrigues me.

In the budget, it was indicated that this was designed to meet health care needs. Since you grant the money as a lump sum -- which, by the way, you did last year, as well, and then you talked about all the money that you are putting into health. Since the money is granted in a lump sum, how do you know it is being spent on health?

Mr. Bissonnette: Obviously, money is fungible.

The federal government contributes to each province in respect of health care, post-secondary education and social assistance through this transfer. We know, for instance, that provinces spend more than we do on health care. Obviously, one cannot actually trace dollars, but if a province actually spends a lot more, and they do, than we contribute, then I think there is a certain assurance that it is being spent on health care.

The Chairman: What you are really saying is that you claim it is spent on health care simply on the grounds that the money that that goes to the provinces that you say is spent on health care is less than the amount the provinces spent on health care, therefore it is spent on health care.

Let me go back to the early days of EPF. In the mid 1980s, it was fairly easy to establish that several provinces, particularly in the area of the country where Senator Robertson and I come from, could be shown to be spending essentially nothing on post-secondary education, because the federal government had an arbitrary way of dividing how much was being spent on post-secondary education and how much was being spent on health. When you looked at the amount that some of the smaller provinces were actually spending on post-secondary education, in at least one case that I recall it was less than the total amount the feds claimed they were giving them for post-secondary education. That may have been true out West, also.

Clearly, the federal government argument in those days was fallacious, right? I will say "right"; the record can show that you did not comment.

It seems to me that there is a huge degree of fictitiousness here, in the sense that we are saying that we are giving you money for health care but we have no way of really knowing that the money will be spent on health care. If we give a province $10 billion and we see that the province is spending $15 billion on health care, we pretend that $10 billion is federal money and $5 billion is provincial. The reality is that there is no way of knowing.

Let me put it another way. If we increased the money we give to each province, and claimed that we were doing so to increase spending on health care, there is no way that we could guarantee that that would happen. Once we give them the money, to use your finance term, it is fungible; the money can be spent on anything. We just do not have any control; correct?

Mr. Bissonnette: Let me come at this in several ways.

The Chairman: I assume that the answer to my question is yes, but I would be happy to hear your several ways of describing it.

Mr. Bissonnette: Let me come at this in several ways. First, all provinces, over the past three or four years, have been significantly reinvesting in their health care systems. After a period of deep restraint, of a plateau, they are all now reinvesting quite vigorously.

Second, we did receive, at the time of the 1999 budget, and in fact it was referred to in the legislation that authorizes the CHST increase, a commitment from all premiers, by signed letter, that this increase would be devoted to health care.

The Chairman: Why would they not do that? If we did not give them anything, their rate of increase of health care expenditures would have to be bigger than what we were giving them anyway. Anyone who would not sign that letter would be crazy.

How do we guarantee that the money is over and above what they would have spent otherwise? That is really my issue. Are we just allowing our money to substitute for money the provinces would have spent anyway?

Mr. Bissonnette: I am not sure that one can answer that question, Mr. Chairman, because it means measuring something that is observable and comparing it to a non-observable, what provinces would have otherwise done.

I think there has been an evolution in the notion of accountability. There has been a long, steady evolution away from tracing dollars and tracing inputs to broader, more modern definitions of accountability that have to do with measuring results.

One could look back at the history of these transfers, since the Second World War. In fact, there has been a constant search for an accountability link with the dollars being spent. If one looks at that evolution, one sees that, in the 1940s, we started with accountability, meaning that the federal government would actually inspect provincial hospitals to find out whether they met certain standards.

In the 1950s, we moved to a slightly more flexible form of accountability, that is, cost-sharing, where we agreed that we would cost-share a certain well-defined basket of doctor services and hospital services.

With the advent of EPF, we moved, yet again, to another notion of accountability, which was less concerned with the use of inputs and the matching of inputs. It was a form of accountability that basically gave a block fund, had some general principles, and then counted upon the provinces to use the money in a way that respected those general principles.

If we carry the evolution of this practice of accountability right up to the social union framework agreement, we are now seeing accountability being defined much more in terms of results achieved and in terms of outcomes.

In a sense, there has been a shift away from inputs to outputs to broader results. There has been a shift, as well, in the doctrine of accountability and what we mean by accountability.

The Chairman: I would love to debate that with you, but I will come back to it at the end.

Senator Robertson: I will return to your point, Mr. Chairman, about budgets and where the money is going. There is a lot of transparency in the provinces; we only need to look at the health budgets and add it up. The health budgets are easily identified, but I will not belabour that. I want to begin on a different note.

The provinces, in particular, are interested in stable funding. This has been one of their major concerns over the years. On what principles do you base the distribution of expenditures for the funding of health care between the two orders of government? As you know, the provinces have already proposed nine basic principles to establish greater stability. What would be your principles to help in that regard?

Mr. Bissonnette: I would say that we are trying to balance a number of competing notions. We obviously want to take into account the notion of affordability, which is important. We also want to take into account the notion of adequacy -- which, in a sense, is the flip side. How much is adequate? As well, we want to take into account a notion that is talked about frequently on the environmental side, but which I think applies here, too, and that is the concept of sustainability over time and the notion of stability.

Of course, there are conflicts between all those pairs of concepts. You cannot make commitments about a stability. They are so strong that when the world changes -- and nobody can control what happens in the world -- you find that your commitments are no longer sustainable. You do not want to make commitments, for example, about adequacy and then find that those commitments are not affordable -- not just by one order of government but by both orders of government.

Thus, in a sense, we are trying to balance all of these notions. Presumably, we are also trying to balance the fact that there are other spending priorities that are also meritorious. Health is important for the future of the country, but so are post-secondary education, research and innovation. They are viewing as key to the development of our country.

I believe that it truly is a balancing act, one that involves judgment.

Senator Robertson: Are the provinces aware of the enunciated principles that you have just identified to me? Do you discuss the principles that you have just identified with the provinces?

Mr. Bissonnette: Ms Anderson chairs many of those meetings.

Ms Anderson: Yes, we do discuss the principles quite frequently

Senator Robertson: That is good.

Ms Anderson: There is widespread agreement among officials that are involved in fiscal arrangements in Canada as to the principles. We have a very specific list to which we keep going back. Everyone understands that there is a need to balance between the principles. The tilt of that balance is not as easy to get widespread agreement on. Certainly, there is an agreement on the principles, and there is some agreement on the priority of the principles. However, when you get into balancing, as Mr. Bissonnette said, affordability and adequacy it gets down to making difficult decisions.

Senator Robertson: That is good. That is some progress.

The federal position includes tax points. The provincial position does not include tax points. This is the argument.

If I understand my material well -- you can correct me if I am wrong -- in 1995-96 all the transfers to the provinces, which included the EPF, the CAP and the equalization payment, accounted for about one quarter of the federal budget programs. If the equalization payment were taken out, you are looking at about 18 per cent.

Let us look at the figures. Between 1994 and 1995, the dollars, just for CAP and EPF, I believe, were $19.3 billion. Does that sound right?

Ms Anderson: Yes.

Senator Robertson: In 1999, the CHST was $12.5 billion. That was a drop of 35 per cent, which is quite a big drop. In contrast, the federal government spending on all the other programs declined by only 7 per cent.

Why would you cut health, which is so important to the Canadian public, by 5 times the rest of the spending. There is a matter of fairness here. Maybe you cannot answer that because you only deal with dollars in health. I find the percentage of the cuts very strange. A reduction of 35 per cent is significant, whereas 7 per cent is not so bad.

I want to ask about the fairness of those figures.

Mr. Bissonnette: I would have to dispute your starting point, which is to exclude the tax points. The tax points are real revenue that we forego and the provinces get. If you were to make your comparison about what the reduction has been in terms of, say, cash plus tax, you would get a much smaller percentage.

In fact, to pursue your line of investigation, we have been pushed by the public debate to try to arrive at, based on history, a health share of the CHST that would be based on the old sharing notions that were embodied in the EPF. If one performs that operation, we find that, in fact, the cash component of the health component of CHST reached a peak in 1993-94 of $8.2 billion.

This year, because of the enrichments that we have made, that amount is back up to $8.1 billion. Next year, we will exceed the previous peak of 1993-94.

That is talking cash only for the notional health portion of the CHST.

Senator Robertson: As you know, the provinces do not agree with you on this. I want to come back to these tax points though, because I agree with Madam Bégin, who said last week that tax points were a dead issue, that we must forget about them.

Senator LeBreton: The witness has just said that it is real revenue that the federal government foregoes. There is only one taxpayer. How can Madam Begin say that tax points are lost and that we should forget about them?

Senator Robertson: Those tax transfers, as you know, have a long history. They started in the Second World War. The provinces gave up their personal and business taxes to the federal government as part of the war effort. However, that was a temporary arrangement.

Senator Banks: Like income tax.

Senator Robertson: Yes. The provinces agreed to the measure, with the understanding that it was temporary and that the seeded tax would return to them at the end of the war. However, those taxes were never returned to them. Hence, the provinces were no further ahead. There were a number of years lost to them where they did not benefit from that tax for their provincial programs. The 1977 transfer back to the provinces was just a catch-up, to what they gave up during the war.

There is a notional link between the CHST and certain tax points shifted by Ottawa to the provinces in the years leading up to and including the creation of the EPF in 1977. It is not an ongoing federal transfer to provinces any more than the provincial tax room shifted under the wartime tax. Agreement constitutes an ongoing provincial transfer.

I believe, honestly, that using these tax points creates a misleading picture of the size of the cuts to the federal health and social transfers. I think it is wrong to use them. I am on the side of the provinces, the side of the gods, with this argument on tax points. It is terribly important that we clear this up.

In 1977, there was no new-found money for the provinces. The provinces struggled after the war. Some of us are old enough to remember all the problems the provinces faced. Provincial treasuries were not flush.

I can remember when I first ran for office. I was standing on a hill in Riverview looking at 42 miles of unpaved streets. There was just no money. You know where I am coming from.

Mr. Bissonnette: Senator, you are covering a lot of interesting historical ground. I do not claim to be an expert on all that history, but the tax rental arrangements that you were referring to during the war were actually quite different from the tax point transfers.

Senator Robertson: I disagree with you, but we will come to that.

Mr. Bissonnette: Let me add one last comment. We understand full well the position of those who do not feel that the tax points are real. It is a position that is adopted by many people. The puzzle for us, though, is that if the tax points are not real how is it that several provinces are asking us for more of them? If they do not count, why are they asking for more? That is the puzzle.

Senator Robertson: The puzzle could reasonably be solved, I would suggest, because we have now balanced the act. If you are not going to give them any more money give them more tax points, to make up for money that they require.

We have spent much time on this argument, but I know the provinces feel very strongly about it. I feel very strongly about it, as you can tell. I come back again to what Madam Bégin said. We are beating our heads against a stone wall with this argument.

I may come back to this subject at a future time.

Ms Anderson: I am not disputing the honourable senator's interpretation of the two sides of it. It is important to remember that the provinces do accept fundamentally the way that we allocate the CHST. It is based on the acceptance of the tax points and what they are worth in different provinces.

I would make a distinction between their acceptance of the concept of how much the federal government transfers and their acceptance of the concept of tax points. It could be both sides trying to arrive at an advantageous number.

I sat on the other side of the table in 1977. I remember just how desperately important it was to provinces to have those tax points. I maintain that they still do accept them as fundamental to the allocation of the program.

The Chairman: I would guess that you were with a "have province" in 1977, because some of us around this table, at least Senator Robertson and myself, were not. We also understood the huge weakness of tax points. Were you from B.C., Alberta or Ontario at the time?

Ms Anderson: I am sure that that is not a question I have to answer.

The Chairman: I can tell you that if you were from anywhere else your position would be different.

Senator Robertson: Yes, in 1977 the provinces were happy that those tax points were returned to them, for obvious reasons. There was a huge grab during the war, but they did not mind giving it up then. I do not know how solidly they are in favour of additional tax points. I am reading a document from the provincial premiers and territorial finance ministers that does not give a happy picture as they look to the future with any more tax points. They are looking for cash.

Senator Fairbairn: I would like to poke around this murky area a bit more. One thing strikes me about the evolution of the various ways of setting up arrangements with the provinces. When the CHST was brought in, the general feeling among people who do not spend a lot of time delving into these matters was that this was a health transfer. The rest of it is lost in translation. Perhaps that was intentional; I am not sure.

I will repeat a point that has been made by Senator Robertson and the chairman. We still do not know the proportion of the CHST that is spent on health, on education, and on public assistance, do we?

Mr. Bissonnette: You are raising a very deep and important issue. It is not just an issue of accountability; it is an issue about the nature of federalism. I would ask you to allow me to develop that notion.

This transfer currently leaves provinces free to decide what proportions they devote to health versus post-secondary education versus social assistance. The idea, of course, is that different provinces will make different choices. They will make different choices for a number of reasons: perhaps because they have different values; perhaps because they have different needs; perhaps because they feel that a particular social system is well enough developed but that a neighbouring system, say, education, is not. They are given the flexibility to make those choices.

Of course, it probably has a perceived cost in terms of the accountability for the federal dollars being spent. I recall that Allan Blakeney, who was quite an éminence grise on these fiscal federalism issues, once explaining that that there is a fundamental trade-off. If you believe in equalizing opportunity across Canada, if you believe in the federalism principle, which says that if the provinces have certain areas of responsibility we should respect them, if you want to reconcile that with the quality of opportunity principle, to ensure that things are not too different in our hospitals and schools between the various parts of the country, and if you want to respect those first two principles and those first two goals, then you have to be flexible on the issue of accountability. You cannot achieve all three. To achieve perfect accountability, in terms of being able to trace where every federal dollar goes and what those dollars are accomplishing in every province, ultimately, you would need to run the schools and the hospitals for them.

I thought it was quite a deep comment, that there are three principles, three goals, and that if you want to achieve two of them you have to be flexible on the third one; you cannot achieve all three. It is like an impossibility theorem. If you achieve two, the third one must yield a bit.

Senator Fairbairn: I understand the three goals. However, two of those goals are subject to penalty; correct? There is the health part, which is subject to the five principles, and there is the public assistance part, which is subject at least to residency requirements. In the middle is the education part, and it is just sort of there. It is not subject to the same kind of scrutiny, unless it is so within your discussions on the guidelines. You do not have a hammer, at all, on the education part, but you do have one on the other two.

I was present when the CHST was formed, but there is a certain symmetry on the part of two of them, and not in the other. This is not, by any means, a perfect or logically defensible grouping. This is a health study, but at the same time, we have lumped into it the second-most vexing problem for Canadians -- post-secondary education. I would like your comment on that.

Ms Anderson: One must go back to the history of the support that the federal government gave in each of those three areas. Federal support for post-secondary education was never of a cost-sharing nature. The support was always given as a block fund.

When federal support for health and post-secondary education were put together, they came from different places in their little universes. It was similar when social assistance was folded in. That was the development of an extremely difficult, exact cost-sharing mechanism, where every penny was accounted for. Thus, the three sectors grew up differently.

Where they meshed was in the understanding that the relationship between governments had changed, had matured, and that block funding, because these programs were established, would provide provinces with the flexibility to allocate among the three sectors. Remember as well where we were when the CHST was established -- in the middle of a massive social security review. We wanted the provinces to have the flexibility to design programs that would better match the needs of the future. Hence, that whole evolution of giving them more flexibility came to be.

That is why it is difficult to look back and understand why they do not have the same kind of history. They came from different places.

Senator Fairbairn: I can understand having two of them together under this kind of formula. I sometimes wonder whether education gets value for its money, being part of this threesome, or whether it would do better on its own.

I think there is probably a discipline that has come with the CHST, and I would like that confirmed. We are no longer in a situation where these sums of money that, from the federal perspective, are designated for a certain area end up in another direction, such as road construction, public works or whatever. Under the CHST, this is not something that would easily happen now. Is that correct?

Ms Anderson: A province could, I suppose, stop spending on post-secondary education; hence, one could make the argument that the money we give to them for CHST is, in fact, not going to post-secondary education. They have the flexibility to decide if that is a priority over health, and they have citizens to decide that there has to be some balance between them.

Senator Fairbairn: Still, through that particular door, you could still find that money being used for something other than health, public assistance and education. It is still possible.

Ms Anderson: Once the calculation leaves our building, the money goes to the provincial treasury. We do not trace that exact dollar. There would have to be a situation where there was no spending in a certain area before you could say that there is no money being spent in that area from the CHST.

Senator Banks: I will pursue Senator Fairbairn's question a little bit. I had always assumed that the envelope of this money went to health and social matters in the provinces. If we gave a province $10 and they spent $3.33 on each of social services, education and health care, I assumed that if that province reduced the spending in social assistance, say, by $2.33, down to $1, then that $2.33 was now being spent on either post-secondary education or on health. You are saying that they could build roads with it. Is that right?

Ms Anderson: Legally, I suppose that is right.

Senator Banks: The flexibility is complete.

Mr. Bissonnette: Yes, it is.

Mr. Bissonnette: The flexibility is complete. Again, the way this works is that the provincial treasurers get a cheque. There are no cheques going to education ministers, to social services ministers or to health ministers. In fact, the financial administration acts of all governments forbid that. All money received must flow into the Consolidated Revenue Fund. An appropriation act is required to decide how to allocate that funding.

Every provincial government must face that collective decision of how and where to allocate the federal funds received.

Senator Banks: To put it most simply, we have no control?

Ms Anderson: We have no control about how they allocate that money, no. There is considerable political pressure and there is considerable accountability to citizens. Provincial governments know how much is coming from the federal government, and they know that they have to defend that money as being spent in those three sectors.

Senator Banks: As has been pointed out by other senators, they do not know, because they one story over here and another story over there.

Under what instrument of government is this money distributed to the provinces? Is there a federal-provincial agreement that stipulates the amounts and the means by which this will happen? If so, does that mean the Government of Canada could not, without the approval of the signatories to the agreement, increase the amount spent on the CHST?

Ms Anderson: The Fiscal Arrangements Act is a federal piece of legislation. We certainly consult with provinces regularly, but there is no federal-provincial agreement. It is all done under federal legislation.

Senator Banks: It is largess. I know how absurd that sounds, but it is not subject to any joint agreement. The Government of Canada could, unilaterally, do anything to any of those transfers, in terms of amounts?

Ms Anderson: They could do anything, yes.

The Chairman: In fact, they did. It was one of the problems when the budget-cutting exercises took place.

Senator LeBreton: I am following along on Senator Bank's question. I will go back to the point about Madam Bégin saying that tax points are lost and that we should not talk about them any longer. I have a fundamental problem with that statement. As you point out, tax points is real revenue that the federal government foregoes. No wonder the public is confused.

Do you believe that this whole tax point system has added to the confusion of the public as to knowledge of the level of contribution from the federal government versus the provincial governments? How, in your view, could we simplify this whole discussion, so that the public does understand?

Tax points are tax points. There is one taxpayer. Revenues that the provinces are able to collect directly that the federal government transferred over to them -- it is still one taxpayer. Is there some way to aid the public in understanding this? To go back to the chairman's original question, how do we know where that money is being spent? Is there some way that there can be more accountability, without hiring an army of accountants?

Mr. Bissonnette: You are posing two tough and good questions. I will take the second one first, because it is slightly easier, and then I will come back to the first.

The more I reflect about the accountability issue, the less I am convinced that tracing dollars is the way to go. I wonder if the modern accountability doctrines do not have to shift the emphasis from tracing dollars and tracing inputs to measuring results. I sense that the direction we are heading in health care is having all governments report each in their own way, more frequently, more meaningfully, to their constituents on the results that are being achieved with the moneys that they use. Rather than trying to trace federal dollars and find out what they are doing, we are trying to get all jurisdictions, us and provincial governments, to do a better job every year of giving Canadians a sense of what results have been achieved and how much progress was made, based on concrete indicators. It may be that -- and I am thinking out loud here -- that is a more promising avenue for getting at flexibility.

Coming back to your first question, we have all been grappling with that. We live in a democracy, and it is always upsetting when there is something that cannot be easily understood to Canadians, so that they can form their own judgments. We have been struggling long and hard to find a way of explaining those tax points, of making them concrete, of making them more real. However, it is not an area where we have made much progress.

Ms Anderson: Certainly, we tried to be very clear in all of our public documents regarding the split. We always show the cash, the tax, and the total. However, it is a hard concept -- like a lot of the concepts in fiscal arrangements -- to make concrete for the average person.

In the post-budget period this year, when there was a lot of focus on a certain province in which we all happen to be sitting at the moment and a concern about tax points, I explained them many times to many reporters in Canada, probably never with much success.

In 1977, we gave approximately $6 billion to the provinces to support two sectors. At one point, we gave them $3,000 cash and $3,000 in tax points. Let us look at it from the point of giving an allowance to a child. Let us assume that one day you say: "I am taking you from $100.00 per month to a car and $50." That is the concept of tax points.

What happens over time and they develop is very difficult to explain, and both sides can make their arguments. However, the concept of that transfer was a different way of providing exactly the same amount of money, based on perceptions of whether it would make it more sustainable for one side and more advantageous for another side.

There were just as many different perceptions. It was a mechanical way of delivering the exact same support.

Senator LeBreton: Canadians realize that we have an excellent health care system. What undermines and erodes public faith in the system is when Canadians see a political football, with one level of government taking out ads against another level of government. There should be some way of taking the heat out of it and explaining it to people. I know that it is a tall order. We need to explain tax points to Mr. and Mrs. Joe Public. They need some way to understand tax points; it would help ease some of the stress. Most people, if you ask them, cannot cite a personal example of having had a problem with the health care system but do not understand who is, or is not, paying for it.

It goes back to the chair's point. How can we explain to the public that the money is being properly directed to the health care system?

Better minds than most of us have figured this out. It is rather simplistic to say that we should not talk about tax points anymore. They do represent money.

Senator Robertson: They are balanced out.

Senator LeBreton: To not talk about them is like saying that there is no oxygen in the air.

Mr. Bissonnette: This is something that we take very seriously, Senator LeBreton. Recently, I gave a two-hour press backgrounder. We prepared a booklet that goes through the history of these arrangements and the history of the tax points. That backgrounder is available on a Department of Finance Web site.

I got the impression that the journalists who attended left with the feeling that there are generally two legitimate views regarding the same reality, that both viewpoints are legitimate, both show something different, and that neither, in a sense, can debunk the other.

Senator Banks: You have suggested that we have a results-based view of accountability. Perhaps this is simplistic, but it is precisely the results-based view of accountability that is causing problems right now. The results-based view is that hospital wards were not previously shut down because there was not enough money to operate them. Previously, there were not five-month waiting periods for 75-year-olds needing a hip replacement. Now there are waiting periods. That is a results-based assessment that is made by the public. They do understand that. It is difficult to explain the reasons for that.

You mentioned earlier that we would soon approach $8.1 billion in money actually spent on health care, whereas previously it was $8.2 billion. I would like to have the rationale of how we painted those dollars pink. I would be very grateful if you could explain to me later, not now, on a piece of paper that we can all have, how it was determined that next year we will spend $8.1 billion on health care.

Ms Anderson: We can certainly provide some sense of the way in which we calculate it. That is not a problem, but I do have to point out that, under the legislation, there is no allocation between the health, post-secondary education and social assistance.

The numbers did not actually direct anything. It is a block fund, and the provinces decide how to spend their CHST.

Senator Banks: You said that $8.2 billion had previously been spent on health care and that, next year, the provinces will spend $8.1 billion. How do we know that?

Ms Anderson: Just to correct that, Mr. Bissonnette was referring to the transfer.

Under EPF, under until 1995-96, we actually did what we call a notional allocation. We said that such and such a percentage of the EPF is for health and that X-percentage is for post-secondary education. Even under EPF, from 1977 to 1995, that had no legal standing. Provinces did not have to spend that money in either of those two sectors. That practice was extended into CHST, but there was no notional allocation done under CHST.

In response to a media campaign by a province this spring, we notionally allocated the health part to explain where that province's number was coming from and where our number was coming from. We can do that. It was a simple calculation, based on the amount that went to health and post-secondary education under EPF. That has no legal standing under the federal law.

The Chairman: The booklet that you talked about I assume contains this notional explanation. Our clerk will get copies of that for us, which will be helpful.

Senator Callbeck: I apologize for being late today. If this area has been covered, I will wait and read it the transcript. My area of concern regards the change to move to equal amounts per capita.

When the CHST was set up, it was based somewhat on the EPF. There was an escalator amount in there, minus a certain percentage. There was a formula.

In Bill C-71, I think it is, it says that it is going to a per capita amount. Why did the federal government decide to do that?

Ms Anderson: EPF had always been delivered to the provinces on a per capita basis. CAP had very different kinds of allocations.

The Chairman: Just for purposes of our records, CAP is the Canada Assistance Program.

Ms Anderson: The Canada Assistance Program had a different kind of allocation, because it was a cost-matching program.

In the first year that the two were put together, we took provincial shares from the last year of both of those programs, and those were the provincial shares for the first year of the CHST. By definition, it was uneven. Over the years, CAP had become quite uneven, because there had been a cap put on the CAP program. Certain provinces got more than others. There was an unequal presentation of the CHST. Within a year, and after consulting with the provinces, the federal government started to move closer to equal balance per capita. That movement was accelerated in 1999. Does that help?

Senator Callbeck: Did all the provinces agree to this?

Ms Anderson: To the allocation of equal per capita?

Senator Callbeck: To per capita?

Ms Anderson: There is certainly, as I understand it, a difference of opinion among provinces. Some provinces want equal per capita cash, and others want equal per capita entitlements, which is the combination of their cash and tax. Therefore, I would not say that there is a fundamental agreement, but they certainly have accepted it. It has not been an issue for the last two years.

Senator Callbeck: In your estimation, and with your expertise, do you feel that going to per capita is going to be harmful to the smaller provinces?

Ms Anderson: No, it would not be harmful. The manner in which we do the allocation on an equal per capita entitlement basis actually takes into account the different strengths in the province's capacity. The value of their tax points is taken into account, and that means that for the very prosperous provinces tax points are worth more and their cash is less. The less prosperous provinces get more cash per capita.

Senator Callbeck: I do not understand. I thought that, in the year 2001, we would be on a per capita basis, regardless of what the province's tax point was worth. I understood that in Ontario the tax point is worth an awful lot more than in Prince Edward Island, but that, per capita, Ontario would be worth the same amount as Prince Edward Island. Am I wrong in that?

Ms Anderson: Each province is on an entitlement basis, so that the total CHST -- cash and tax -- will be exactly equal in every province. That is what will be equal. It is not a per capita cash allocation but rather a per capita entitlement, which is the total.

Senator Callbeck: I was looking at a document from the parliamentary research branch that refers to dollars per capita. I did not think the tax points were in there, but they are.

Senator Robertson: Returning to the tax points, Mr. Chairman, I will give an example. If you were to give me $100 a month for 10 years, and then if I were to pay back the $100 per month for 10 years, we would be pretty well equal, excepting for the interest, would we not?

The Chairman: That is right.

Senator Robertson: Thank you. The CHST does not grow, as I understand it, with the province's economy, or does it? I am not quite sure, but I thought that it did not grow.

Mr. Bissonnette: Let us remember that this transfer has two components. It has a cash component and a tax component. The tax point component grows at roughly the rate of the economy. In fact, sometimes it can even exceed the rate of growth of the economy. The cash portion of the transfer, for Canada as a whole, is actually set out as a five-year track in the legislation. The parameters are laid out for every year.

Senator Robertson: I understand; however, I am not talking about tax points. What was the cash portion per capita in 1994-95? If you do not have those figures now, I will be glad to accept them later.

Mr. Bissonnette: We may have them here. I will check.

Senator Robertson: While you are looking through that, I want to know the cash portion per capita today.

Mr. Bissonnette: Is that for the CHST?

Senator Robertson: Yes. I want the cash portion, not the tax points. Also, what were the payments that were made by the provinces for health care per person in 1994-95. That figure should be the cash portion only, please.

Mr. Bissonnette: Is that for provincial health care spending in 1994-95? I do not believe that we have that with us. I believe that you had a witness, Mr. Cliff Halliwell, from Health Canada, who, I think, gave you two booklets that had the entire provincial spending information.

The Chairman: We can get that.

Senator Robertson: As long as I get this information sometime, that would be fine. I would like to know if you have any projections on what the provinces will be spending on health care five years out and ten years out. Does your projection include the aging population and the demographics? Working with the provinces, are you looking ahead to where this expenditure will be in five or ten years?

My last question pertains to statistical matters. If the federal government had not brought in the CHST, if the existing restraints on EPF and CAP had expired as scheduled in 1995-96, if programs had reverted to the old formula, as they were supposed to come back but then we changed to the CHST, and if EPF and CAP had kicked back in again, what would you now be sending to the provinces in cash under the EPF and CAP programs?

Mr. Bissonnette: Could I ask you to rephrase that? That was a complicated question.

Senator Robertson: If the federal government had not brought in the CHST and if the existing restraints on EPF and CAP had expired as scheduled -- we had kept established programs financing and CAP and they had expired as scheduled in 1995-96 -- the programs, then, would revert to the old formula. What would you now send to the provinces in cash under the EPF-CAP formula? In this instance, I am suggesting that CHST had not been introduced in the middle. CHST was introduced when EPF-CAP was supposed to come back to its original formulation. I do not expect the answers now, but I would like to have that information.

Ms Anderson: We will certainly add those. The last one is very difficult because it is such a hypothetical situation. However, we will try.

The Chairman: I am not sure that it is any more hypothetical than the way you arrive at your number for health care spending. In any event, I would not want to pursue that.

Senator Robertson: I want to pursue those figures.

The Chairman: Thank you both for coming. You have been very helpful.

I think, Mr. Bissonnette, that your comment is correct, that there are two legitimate points of view on the tax points question and that there is no way of reaching the so-called absolute truth, in the sense of proving one position right or wrong. It is a wonderful indication of the non-partisan nature of most Senate committees, and this one in particular. For example, we have Senator Robertson and Senator LeBreton of the same party but with conflicting views. We also had Mr. Marc Lalonde and Ms Monique Bégin of the same party with sharply conflicting opinions on the tax points question.

It is amazing to me that outcomes measurement in the health care field, such as the performance of hospitals, other than the sort of observable evidence that Senator Banks talked about, has never historically been done until only recently. In the last two years, the Ontario Hospital Association attempted to measure the performance of hospitals. It has been an input measurement for business -- how much money, how many nurses, how many beds -- but we did not attempt to measure outputs.

Any attempt at measuring outputs would be a significant improvement relative to where we are now. It is an extremely difficult thing to do, but, in the end, there is no other business in the world that would measure its performance on the basis of inputs other than the health care system. That is not unique to the federal government; it is just a comment on the system.

You may want to think about this. I understand that one must achieve a balance, as you put it. There are things that you give away when you go to block funding versus tied funding. You get more flexibility, but on the other hand, you get less ability to direct the money. There is a trade-off.

I come from the federal-provincial area of the 1970s and early 1980s, which was more directive and less flexible than the late 1980s and 1990s. It does seem to me, for example, that we have gone too far in the flexible direction.

We read in the newspapers that there is a significant shortage of MRI machines and other technologies across the country. Am I correct that under the current system in thinking that, if the federal government wanted to contribute money specifically and solely for the purchase of MRI machines, unless it did it from some new program it could not be done? If the federal government said they wanted to put $400 million into new MRI machines, for example, it could not be done under existing programs; am I correct?

Ms Anderson: Mr. Chairman, we could and did in 1999 designate a certain amount of money under the legislation for health.

The Chairman: We will agree to disagree on how much of that was smoke and mirrors.

Ms Anderson: We did not say that if the province did not buy MRIs, for example, the money would be taken back. The legislation is flexible enough to have a purpose clause in it, backed up by provincial agreement, perhaps, as we did in 1999, to put money towards things like that. The legislation would not vis-à-vis the kind of withholding provisions that we have for the Canada Health Act on that kind of a commitment.

The Chairman: Therefore, the answer to my question is yes. A deal that is not enforceable is not that great a deal. As I understand you, the federal government could say that we only want this money spent on MRI machines, and the provinces can agree and take the money but not spend it on MRIs. There would be nothing that the federal government could do about it, from the legal standpoint. Do I understand you correctly?

Senator LeBreton: Could you not withhold any funds?

Ms Anderson: That is another step. We would need to amend the legislation to withhold further funds.

The Chairman: I understand that Mr. Marc Lalonde made a very good case of why we were too rigid in the old days. I would argue that we have become too flexible. That is an issue for another day.

Thank you for attending here. We appreciate you taking the time to be with us. You were very helpful.

The committee adjourned.


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