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Is there life after death (of federal transfers)? Mendelson, Michael Jan 31, 1996

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I£\-=--=- '\\\Centre for Health Servicesand Policy ResearchIS THERE LIFE AFTER DEATH(OF FEDERAL TRANSFERS)?Michael Mendelson\\'-BPRU96:1D January 1996IHealth Policy Research UnitDiscussion Paper SeriesTHE UNIVERSITY OF BRITISH COLUMBIAIS THERE LIFE AFTER DEATH (OF FEDERAL TRANSFERS)?Michael MendelsonHPRU 96:10 January 1996Health Polley Research UnitCentre for Health services and Polley Research429 - 2194 Health SCiences MallUniversity of British ColumbiaVancouver, B.C.V6T1Z3The Centrefor HealthServicesand Policy Researchwas establishedby the Boardof Goveroors ofthe University ofBritishColumbiain December1990. It was officiallyopenedin July 1991. TheCentre's primaryobjectiveis to co-ordinate, facilitate, andundertake multidisciplinary researchinthe areasof health policy,health servicesresearch, populationhealth, and healthhumanresources.It brings togetherresearchers in a varietyof disciplines who are committedto a multidisciplinaryapproach to research,and to promotingwide dissemination anddiscussionof researchresults,inthese areas. The Centre aimsto contribute to the improvement of population health by beingresponsiveto theresearchneeds of those responsible for healthpolicy. To this end, it providesaresearchresourcefor graduatestudents; developsand facilitates access to health and health caredatabases;sponsorsseminars, workshops, conferences and policyconsultations; and distributesDiscussionPapers, ResearchReportsand publicationreprintsresultingfrom the researchprogramsof Centre faculty.The Centre's HealthPolicyResearchUnit Discussion Paper seriesprovidesa vehiclefor thecirculationof preliminary (pre-publication) work of Centre facultyand associates. It is intendedtopromotediscussion andto elicitcomments and suggestions thatmight be incorporated within thepapers for this purpose, the viewsin the papers are those of the author(s).If there wasevera titleof a speech begging for theMarkTwain quip "Reports of mydeath havebeengreatly exaggerated," this is it But it's a littlepremature. We do notknowwhether reports of the demise of federal social transfers havebeenexaggerated, becausewe havenot yet beentoldhowor evenwhether thenew, consolidated federal socialtransfer, theCanada Health andSocial Transfer (CHST), will be indexed.Without full indexing, thereal purchasing power of anycashpayment will shrink: overtime. Evenwithlowinflation of fourpercent a year, a dollar is worth halfas much afteronlyeighteen years. Eighteen years is nota longtime for a federal-provincial fiscalarrangement - it is the life spanof theEstablished Programs Financing (EPF) Act that theCHSTis replacing. But,evenif it shrank in real terms, a cashpayment would still retain atleast its nominal value. Notso for theCHST.Eachprovince's CHSTentitlement is made up of tax points pluscash. A 'tax point' is apercentage pointof the basic federal tax; for example, if a province's income tax is 50percentof the basic federal income tax, this is 50 tax points. As partof fiscal negotiations in1977, the federal government transferred 13.5 personal income tax points and 1 corporatetax pointto theprovinces. Quebec has a special 'abatement' of additional points due toprevious arrangements onlyit tookup. EachyearOttawa will calculate the up-to-datevalue of the tax points transferred in 1977. Theirvalue increases moreor less in line withgrowth in theeconomy. This is not partof anyfiscal formula, it is just a function of the taxsystem. The up-dated value of the tax points is thensubtracted from CHSTentitlements.The resultis the amount of realcashpaid.Whatall thismeans is that if the value of the tax points goes up morequickly than theentitlements, there is a reduction incashpaid to the provinces. So if CHSTentitlementsare not fully indexed and do notgrowwith theeconomy, thecashpayments undertheCHST willdecrease evenin nominal dollars. Andtheywill decrease evenfaster in terms ofreal purchasing power.2Failureto fully index the CHSTputs it on an accelerated downward escalator. with itsnominal payments falling quickly andthe real valueof its payments collapsing evenmorerapidly. In the past a partialindexing formula. GNPgrowthminus three percent. has beenusedfor the EPF.H partialindexing such as this is also applied to the CHST.all federalcashwill be eliminated within ten to fifteen years [Battle. 1995]. Becauseof the specialabatement. Quebecwouldbe first to stop receiving any federal cash payments.' Nextwouldbe provinces with the highesttax pointyields. such as Ontario. Albertaand BritishColumbia. Theywouldsoon be followed by all the otherprovinces.In light of including tax pointsas part of the entitlement. we also have to revise ourunderstanding of the fiscal impact of the 1995 Budget The Budgetdecreased totalprovincial entitlements by $4.5 billion from what theyotherwise wouldhavebeenin 1997­98. But the cash paid to the provinces will decrease by a lot more.Cash will be $6.6billion less in 1997-98 than in 1994-95. In 1994-95 combined CanadaAssistance Plan(CAP) and EPFcash payments were$16.9billion: in 1997-98 cash payments undertheCHSTwill be $10.3billion[Canada 1995a:51. Table 4.4]. Six pointsix billion is aheadline grabbing figure. but even biggercuts do not seemto warrantany attention at all iftheyare madeover a sufficiently lengthyperiod. Partialindexing of the CHSTis a onehundredand fifty percentgreatercut than the 1995 Budgetreductions. it wouldjust take afew yearslonger.However. this scenario may not be what is in store for us. Recentsignals out of .Ottawaare that the cash portionof the CHSTwill not be allowed to disappear [GlobeandMail.5 July 1995:4]. Of course. thereis a lot of difference between maintaining the cashvalue of the CHST and not lettingit fall to zero.Ten point three billiondollars difference.to be exact As well. there are rumoursthat the federalLiberal Caucusis not altogethercomfortable with takingon the role of Conservatives in a hurry. Nevertheless. one maysafelyassume that the Department of Finance willcontinue its twentyyear old campaignto get Ottawaout of social programsand return to the good old days of the 1920s.sonothing shouldbe takenfor granted.3Therearealsomany waysto disguise cutsandmake partial indexing more palatable orat leastmore confusing. For example, it mightbe possible to takeadvantage of theproblem of redistributing theCHSTamong the provinces to disguise partial indexing. Atpresent the interprovincial distribution of theCHST is unjustifiable, ranging from a lowof$840per capitain Alberta to $1,001 percapitain Quebec [Mendelson, 1995]. Thereis nopossible justification for maintaining thepresent distribution. This will be oneof the topicsaddressed in theforthcoming federal-provincial discussions. IfOttawa freezes provincesabove thehighest percapitawhile fully indexing those below, theresultwould be adecrease in the totalvalue of theCHST. In short, this would be a tricky wayof not fullyindexing.So...it will be sometimebefore we know whether weare indeed looking at the deathof federal socialtransfers. Butwhether or not theyaredead, theyare certainly nowin theIntensive CareUnit Let'slook at whatit will mean if they do notrecover.Theobvious consequence - if federal transfers disappear or diminish to insigniflcance,it will be impossible for thefederal government to impose anyconditions or nationalstandards on health careand otherprovincial social programs. The Budget implementationlegislation, BillC-76, givesthefederal government thelegal rightto reduce federalpayments otherthanthe CHSTin theeventof a penalty being warranted underthelegislation. However, this is totally unrealistic. Could a future federal government reduceunconditional equalization payments, when someprovinces would not bevulnerable at allto suchwithdrawals? Howcan national standards be imposed on onlyparts of a nation?This provision of BillC-76should beseenas thesmoke screen it is.Without federally imposed national standards, thesingle payer medicare system willcertainly erode. Some provincial Fmance Minister will at some timebe unable to resistthelure of saving budgetary expenditures or obtaining additional revenues through this4lucrative source. Thereare dozens of ways this could be done. Straightforward userfeescould be initiated for some services. A private tier, eitherpartially subsidized orunsubsidized, couldbe permitted. In thefavourite of befuddled editorial writers, a specialincome taxsurtax could be imposed on sickpeople for the value of theservices theyreceive from medicare. Forreasons which are obscure, this is oftenseen as preferable toeveryone paying theirincome taxin thefirstplace. Doctor's extra-billing, which has neverdisappeared completely, could be legalized again. Creative minds candoubtless think ofmany otherpossibilities.All these alternatives have onething in common, Canadians endup paying moremoney for health care,except they have theprivilege of notpaying it in taxes. Politiciansknowtheycancounton a healthy dose of blindanti-tax rhetoric to confuse the issuesufficiently so thatmostpeople will never know its costing them more money. Physicians,hospitals and otherhealth careworkers would also be tempted by the promise ofadditional revenue," This creates a ready made constituency of self-interest in favour of theerosion of single payeruniversal medicare. The more private money thereis in the system,the biggerthe third partyinsurers become. Theythenare an evenstronger lobbytomaintain andifpossible expand theirbusiness. As for-profit firms become involved, theywill use all thestandard advertising andothertechniques to drum up business andincreaseprofits.These arepowerful forces. If the dam springs a leak- a smallcurrent of paymentsoutside of thesingle payer system - the precedent willbe created and the next.littlelargerbreach willbe all theeasier. Shoring up thedam is the willof the Canadian people, whooverwhelmingly support a single payer health caresystem butwhocan all tooeasilybeconvinced to tolerate just a littleextraout-of-pocket costs, without beingaware of thelonger termconsequences.Unlike the provinces. thefederal government can take a more objective viewof theeconomics of health care, for a very simple reason - theydon'thave to paythe billswhen5the costsgo up and theydon'thaveto takethe heatof tough choices to keep the costsdown. Thisannoys provincial politicians. Butfrom theperspective of maintaining singlepayermedicare, it means thatat least the federal government is not tempted by thesirensongof usercharges.However, we should make no mistake about it Thedamwill surely burstif thefederalgovernment pullsits fmger out Theonlyquestion thenwill be where thesystem willrestabllize. Willwe endup witha twotiersystem like the United Kingdom, with justbarely adequate care for mostpeople but luxury carefor therich?Or willwe endup likethe U.S., withcharity for the poor, astonishingly expensive carefor those whocangetinsurance andmassive mind-numbing insecurity for middle income families? One wayoranother, if the federal government allows theCHSTto dwindle or evendiminish enoughthat it losesits moralauthority, it is theend of universal single payermedicare. It will takesome time, maybe decades, so political accountability willonly be to history. Nevertheless.this would be quite a legacyfor the partythat introduced medicare andthe Canada HealthActAll this. however, speaks onlyto health careservices. What.aboutotherservices?For welfare andpersonal socialservices wedon'tevenhave to bother waiting for theCHSTcash to disappear for national conditions to end. BillC-76makes it impossible forthe federal government to impose anyconditions otherthanone- thatno province willrequire a residency test Otherthanthat, thereis no placein thelawfor enforceablenational conditions. Section 13(l)(c) of theAct states thatoneof its purposes is"maintaining national standards where appropriate, in the operation of othersocialprograms," and 13(3) requires theMinister of Human Resources Development to developshared principles and objectives for these othersocialprograms through mutual consentBut that's all it does. There is no legalbasisin BillC-76for theenforcement of anyconditions otherthanresidency. Even in theextraordinarily unlikely eventthatconditionswere, through somemiracle. arrived at by "mutual consent," they cannotbeenforced. The6Act willhaveto be amended to permit enforceable conditions of anykindotherthanresidency [Mendelson, 1995].It is difficult to conclude otherthan thatsection 13is a decoy put into the Act tomislead socialgroups, notwellknown forreading Legislation t90carefully. As an extrabenefit, it also seems to be misleading theMinister of Human Resources, to whom we canonlywishgoodluck- he'llneed itTheresultwillbewhatweare already seeing. Thefederal government havingwithdrawn from anyprotection of those mostwlnerable in Canada, has paved the wayfora merciless attack on all the programs developed overthe last thirty years to provide atleastsomesemblance of a social safety net Themain victims arechildren, butwomen andthose withdisabilities areclose behind. In Ontario alone, overhalfa million children havehad theirfamily's subsistence budget for food, clothing andshelter slashed by theprovincial government Wecan anticipate thatthe fewconditions which existed in theCanada Assistance Planwill soonbe violated in many provinces. Thesocial assistanceappeal systems in some provinces will beeffectively dismantled, andrecipients once morewillbe at the absolute mercy of welfare administrators. So-called workfare will beintroduced. All sortsof categorical programs dividing the 'deserving' good poorfromthe'undeserving' badpoorwillbe developedThe awful truthis that in many respects Canada's lastresortsocial safety nethas nowbecome worse than thatin theUnited States. In the U.S., the federal government stillmaintains some conditionality overwelfare programs and there is stilla food stampprogram. Furthermore, unemployment is lower. U.S. states and theRepublican House areonlynowstruggling to obtain unconditional block funding forwelfare from the federalgovernment Unconditional block funding for welfare is exactly whattheprovinces alreadygot from Ottawathrough theCHST.7This mightnot havemuchto do withuniversal medicare, but it certainly willhaveanimpacton the health of theCanadian people. As studyafterstudyshows,poverty and illhealthare inextricably bound up together. We are rightnowcreating the socialproblemsof the nextgeneration. This, much morethanrepayments on the public debt, will be thereal burden we are passing downto ourchildren. It will be paidin crime, in socialdisintegration, unlivable neighbourhoods, costlyhealth and socialservices and a poorlyskilled workforce.However, theconsequences of the deathof federal socialtransfers are not limitedtothe inability of the federal government to enforce conditions on provincial socialprograms.If the $10.3 billion in federal cashpayments is allowed to dwindle to a trickle andeventually cease, this will put tremendous fiscalpressure on provincial treasuries. Due tothe federal withdrawal of $6.6billion and the accumulated legacyof debtresulting formtherecession and the interestratepolicy of the Bankof Canada, mostprovinces willalready be hardpressed over the next decade. For the equalization receiving provinces,therewill alsobe large lossesdue to the planned cuts in Ontario incometax [Mendelson,1995]. As a result, the failure to fullyindextheCHSTwill meanthat all public services ­schools, transportation, culture, parks,healthcare - will be underintensepressure.Therewill be economic implications. In a modem economy investment decisions arenot madeaccording to whohas the lowesttaxes. If they were, Germany wouldnot haveone of the world's strongest economies. Closerto home,BritishColumbia wouldnot beenjoying its currentprosperity. Rather, factors influencing location of new businessesinclude a highly skilled workforce, proximity to universities and othercentresfor newideasandlearning, a decent living environment, andreliable transportation,telecommunications andenergyinfrastructures. This is not to say that business isdisinterested in its tax bill. Obviously it is. But this is not the first or the most importantfactorin the newknowledge economy. Whatis important is a highly skilled workforce,research centres, infrastructure andquality of life.8Unfortunately, it is manyof thesesamequalities which will be worndown andweakened by the demise of federal socialtransfers. Keeping Canada a prosperous firstrank economy requires continued and likely increased socialinvestment It is just thisinvestment which will be undermined by theend of federal social transfers.So, is therelife after the deathof federal transfers? Well,sure thereis. People keepgoingunder the most adverse of circumstances. But will it be as good a life as we couldhave? Will it include universal medicare, a reliable social safety net and increased socialinvestment to produce the nextgeneration readyfor the newknowledge economy? It willnotSo to sum up, if thereis time, I wouldlike to like to recitea slightly paraphrased versionof Antony's famous speechfrom Shakespeare's playJulius Ceaser:Speech Upon the Death of Federal Social Transfers(WithProfuse Apologies to W. Shakespeare)Friends, Canadians, British Columbians, lendme yourears:I come to buryfederalsocial transfers, not to praise them.The adverse consequences of government programs livesafterthem,the good is oft interned with their bones;So let it be with federal transfers. The Finance Minister PaulMartinHath told us federal social transfers weretoo expensive;if it were so, it was a grievous fault;Andgrievously hath federal transfers answer'd for it,here, underleave of PaulMartinand therest of the federal Cabinet, ­for Paul Martinis an Honourable PrivyCouncillor;so are they all, all Honourable PrivyCouncillors, -ComeI to speakin federal transfer payment's funeral.9They weregood transfers, implementing medicare, expanding education and improvingsocialwelfare:But Paul Martinsays theywere tooexpensive;and PaulMartinis an Honourable PrivyCouncillor.federal transfers hath brought manyprovinces to deliver betterprograms;whose benefits did thegeneral well-being improve:did this in federal transfers seemtoo expensive?When that poverty hath increased, federal transfers paidmoreto offsetit:lavish spending should be madeof morewasteful stuff:Yet Paul Martinsays theywere tooexpensive;and PaulMartinis an Honourable PrivyCouncillor.You all did see that in the last ten yearsfederal transfers to provinces as a percentof GDP,had decreased from4.5 to 4 percent was this moreexpensive?Yet Paul Martinsays theywere tooexpensive;And, sure, he is an Honourable PrivyCouncillor.I speaknot to disprove whatPaul Martinspoke,But here I am to speakwhat I do know.You all did supportfederal socialtransfers once,not without cause:Whatcause withholds you then to mourn for them?o judgement! Thou art fled to TV News,andCanadians have lost theirreason.Michael MendelsonSeptember 27, 1995Notes1.Equalization receiving provinces willstillget equalization cashpayments on the taxpoint transfers; however, theseare not relatedto the socialtransfer per se.102. Nurses and organized health care workers haveso far beenresolute supporters of thesingle payer universal medicare system. Doctors also turned backa call for user fees attheirmostrecentnational meeting. This is contrary to theireconomic interests, butnot totheirprofessional interests.ReferencesBattle, Ken. (1995). Constitutional Reform byStealth. Ottawa: Caledon Institute of SocialPolicy.Canada. (1995a). Budget Plan. Tabled in the House of Commons by the Hon.PaulMartin. Ottawa: Department of Finance Canada.Mendelson, Michael. (1995). Lookingfor Mr. Good-Transfer: A Guide to the eHSTNegotiations. Ottawa: Caledon Institute of Social Policy.HPRU9S:9DHPRU95:8RHPRU9S:7DHPRU95:6RHPRU9S:6DHPRU95:SDHPRU95:4DHPRU9S:3DEnvironmentand H98Ith Inthe Phflllppines. December 1995 (Clyde Hertzman, Elma B. Torres, Ronald D. SubldaandMarla Barroetavena) No ChargeEvans, R.G., Barer, M.L., stoddart, G.Lh. (199S) 'Ussr F99S for H98Ith Care: why aBad Idea K99PS ComingBack (Or, Whafs Health Got toDo with It?)' Canadian Joumal on Aging, Vol. 14 no. 2 1995, 360-390. Nocharge.Physician ExpendItuT9 Contra/In Canada: RfH1Ilnd our Ps and Os. September, 1995 (Morris L Barer,Claudia C. Sanmartin andJonathan Lomas). Cost $7.00.Barer, Morris L, Marmor, Theodore R., Morrison, EDen M. (1995) "Health Care Reform In the Unfted states: Onthe Road to Nowhere (Agaln)'r Soc. SCI. Mad. Vol 41, No.4, pp 453-460. No charge.H98Ith Care Reform In the United states: On the Road to Nowhere (Again)?May, 1995 (Morris LBarer, Theodore R. Marmor and Ellen M. Morrison). Cost $5.00.Mark Pauly on Welfare Economics: Normative Rabbits from PosItive Hats. March, 1995 (Anthony J.CUlyer,Robert G. Evans). Cost $5.00.The Effects ofBritish Columbia's Physician Payment Initiatives: Making Sense ofthe Dollars. March, 1995(Robert G. Evans, MarIna V. PascaJl andMorris L Barer). Cost $8.00.Research In Human Genetics: Promise, Pitfalls and PoRcy Challenges. February, 1995 (Patricia Baird, M.D.).Cost $5.00.o=Discussion Paper R= ReprintHPRU95:2DHPRU 95:1DHPRU94:10RHPRUQ4:9RHPRUQ4:8DHPRUQ4:7DHPRUQ4:6RHPRUQ4:5DHPRUQ4:4DHPRUQ4:3DHPRUQ4:2RHPRU Q4:1RMarketing thB Marke~ Regulating Regulators: Who Gains? Who Losss? What Hopes? What Scope? January,19Q5. (Robert G.Evans). Cost $8.00.So Nsar, AndYet So Far: "A CanadIan perspective on U.S. Health Reform". January, 19Q5 (Morris LBarer) Cost $5.00.Hogg, R.G., Slrathdee, SA, Craib, KJ.P., O'Shaughnessy, M.V. and Montanar, J.S.G., SChechter, M.T."Lower socloeconomIc slalus and shorter survival following HIV Infection", The Lanc8~ Vol 334, P1120-1124.Nodlarge.Evans, R.G. (FalI1QQ4) "Health and Wealth", Daedalus, Journal ofAmerican Academy ofArts and SCIences123 (4): 21-42. No dlarge.AnEmpIrical Evaluation ofComputerized Databases for Emerg9llCY care. October, 19Q4 (George E. Pugh,Joseph K Tan). Cost $8.00.Health, Hierarchy andHomlnlcls: Biological COffelates of the Socia-Economic Gradient InHealth. Augus~ 1QQ4(R.G. Evans). Cost $8.00.EIlenewelg, A.Y.and PagUccIa N. (1QQ4), "Utillzallon Patterns ofCohorts ofElderly Clients: AStructuralEquation Model", Health S8rvIces Research 2Q(2): 225-245. No charge.ItAin't N9C8SSBI1/y So: The Cost Implications ofHealth Care Reform Inthe United States. April, 1QQ4(M.L Barer, R.G. Evans, Matthew Hol~ J.I.Morrison). Cost $8.00.Diagnostic and ScreenIng Programs forFetal Anomalies and G9IIetic Disease: How should we evaluatethem? AprIl, 19Q4 (P. BaIrd). Cost $8.00.Avalanche or Glacier. Health care and the Demographic Rhetorfc. March, 19Q4 (M.L Barer, R.G. Evans, C.Hertzman). Cost $8.00.Evans, R.G. "Less Is More: Contrasting styles In Health Carri' Canada and the United Slates,Differences that Coun~ 21 -41. No dlarge.Barer, M.l.,Morrison, E., Morrison, I. (1QQ4) "Canadian Physicians may hear footsteps ofchange as UStiptoes toward health care reform", Canadian MedicalAssociation Journal, Vol. 150 (6), P980-987.This Isa19v1sedandshortened version of94:1D. No dlarge.2


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