Declining federal transfers.

• Author: Wells, Richard A.
• Position: Canada's policy of reducing fund transfers to the provinces

In its 1991 budget, the federal government of Canada continued to transfer more of the burden of deficit control to the provinces. The two most important transfers affected were the Established Programs Financing (EPF) arrangement and Canada Assistance Plan (CAP) funding.

Freezes and the Budgets

Significant spending reductions had been announced by the federal government in its 1990 budget to deal with a mounting deficit problem. The primary instrument of this spending restraint was a reduction in planned federal transfers to the provinces. The major component was a two-year freeze in the per capita growth of the Established Programs Financing transfer, beginning in 1990/91. The 1991 federal budget extended this freeze for a further three years. Exhibit 1 shows the effect of these measures in the province of British Columbia.

For a number of years, the federal contribution has been declining as a share of provincial spending on health care and post-secondary education. The latest change to the EPF formula will accelerate this decline. Whereas the federal contribution once offset just under one-half of the cost of this programming, in 1991/92 it accounts for only 37 percent of British Columbia's costs; this proportion will fall to 27 percent by the end of the decade.

The EPF transfer is split into a cash portion and a tax transfer portion. When growth in the overall EPF contribution (cash and tax) is curtailed and growth in the tax point transfer component is determined by generally faster growth in income tax revenues, it is only a matter of time before the cash transfer, as the residual, disappears. It is estimated that this will happen within the next 12 years.

The cash transfer is the only amount which is recorded as a federal contribution. Its disappearance will leave the federal government with no "lever" with which to exercise management control over program standards (as is now done through the Canada Health Act). The federal government recognizes this and in the 1991 federal budget announced plans to bring in legislation to allow it to exact funding penalties from equalization and Canada Assistance Plan transfers for noncompliance by the provinces with federal conditions.

Canada Assistance Plan

The CAP transfer assists the provinces in the funding of social assistance and social services to those in need. It represents 40 percent of the value of federal transfers to British Columbia.

The 1990 federal budget announced limits on the...