The following electronic version is for
informational purposes only.
The printed version remains the official version.
Ministry of Finance and Corporate Relations
Province of British Columbia


Cuts in Transfers to Provinces Continue Unabated

The 1997 Federal Budget left cuts to provincial transfer payments unchanged from what had been announced in the two previous federal budgets. While these cuts will have a major impact in 1997/98, they are not mentioned in the 1997 Federal Budget. This reflects the federal government's "timed release" budgeting strategy -- announcing changes that will not be felt until future years.

The latest round of federal transfer restrictions continues the federal practice, in evidence since the early 1980s, of restraining or reducing transfers to provinces as its primary response to deficit and debt problems, problems which provincial program spending did not create. What has made the post-1995 transfer cuts pivotal in changing the federal-provincial fiscal relationship is their very large size.

The scale of the cuts was obscured by the federal device of combining the two major existing social transfers -- the Canada Assistance Plan (CAP) and the Established Programs Financing (EPF) transfers -- into a single new block transfer called the Canada Health and Social Transfer (CHST).

Total CHST cash transfers to all provinces are shown in Chart G1. Compared to 1995/96 funding levels, federal funding for all provinces' social programs is reduced by $3.3 billion in 1996/97 and a further $2.4 billion in 1997/98.

Impact on British Columbia

Chart G2 illustrates the negative impact of the CHST arrangement on British Columbia and projects this to the year 2002/03.

In 1996/97, the province's major cash transfer is $369 million less than the province received in 1995/96. The 1997/98 entitlement will be about $600 million less -- a reduction of 28 per cent over two years.

A Partnership in Critical Condition

The offloading totals presented thus far do not include the ongoing effects of federal transfer restrictions prior to 1995. When these are combined with the 1996 Federal Budget measures, the federal government's long drift away from its social program funding partnership with the provinces becomes evident.

Chart G3 reveals that cash transfers once paid for almost a third of British Columbia's health care, post-secondary education and income assistance expenditures. This share has been falling dramatically over the past few years and is projected to fall to 10 per cent by the turn of the century.

Provinces Bear Almost All Federal Restraint Burden

The federal government's deficit reduction efforts are placing a far greater burden on the provinces than on itself.

Chart G4 compares the change in major cash transfers to provinces (including the CHST and equalization payments) to the change in all other federal program spending over the two year period 1995/96 to 1997/98.

It reveals that excluding provincial transfers, federal program expenditures would actually be rising. By the end of this period, major cash transfers to provinces will have been reduced by $6.7 billion, while all other program spending will have increased by $0.5 billion.

British Columbia's Share of Federal Transfers
Continues to Erode

Chart G5 shows that British Columbia's share of federal transfers is steadily falling, a reflection of federal decisions to skew transfers away from the three provinces that do not receive equalization (British Columbia, Alberta and Ontario). This is particularly disturbing in light of British Columbia's steadily increasing population share.

The Future Federal-Provincial Relationship

The provinces, having been forced to endure a momentous change to the federal-provincial fiscal relationship, have little reason to be assured of the future stability of federal transfers.

This is one of the reasons why the provinces have engaged themselves in a review of social policy which involves a reassessment of major components of the federal-provincial relationship. The body mandated by the provincial Premiers to oversee this review is the Provincial/Territorial Ministerial Council on Social Policy Renewal. Reforms identified in this process could well include a significant rebalancing of the roles and responsibilities of the federal and provincial orders of government.

This rebalancing, of necessity, will have an important financial dimension. Provincial ministries of finance are working to ensure that social policy renewal proposals are accompanied by appropriately redesigned financial arrangements between the federal government and provincial/territorial governments. The intent is to ensure that financial arrangements for the future reflect important objectives, in particular: financial security for vital programs; fiscal balance (balancing a jurisdiction's spending responsibilities with its revenue raising capacity); accountability; and inter-provincial equity.

The offloading that provinces have borne has provided a solid impetus for making significant reforms in the federal-provincial fiscal relationship. These reforms are needed to produce a more effective federation -- one which can provide better protection to national social programming priorities such as health care and education.

  Topic Box G: National Child Benefit


Budget 97 Reports

BC Budget 97

BC Ministry of Finance and Corporate Relations

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