Canada’s looming fiscal squeeze – Part 3
25% of the costs of health care should come from making health care a taxable benefit
Troy Media – by Janice MacKinnon
The current debate in the United States about how to tackle its fiscal problems reinforces a lesson of Canadian deficit reduction in the 1990s: a multi-faceted approach is required since neither spending cuts nor tax increases alone can address challenges like closing the fiscal gap that will emerge as the Canadian baby boomers age.
On the spending side, every four years, preferably right after an election, governments should conduct a comprehensive review of spending, as is now occurring in Ottawa with the goal of phasing out programs that no longer provide tangible benefits and reducing the administrative costs of providing government services.
Tough questions need to be asked
Difficult questions need to be asked about some departments like Aboriginal Affairs. For example, are the best interests of First Nations being served by continuing to invest in infrastructure on reserves that have no viable economic base? Instead, should that funding be redirected to invest in the education and training of First Nations, with the requisite social programs to facilitate the transition, and should such funding be provided directly to individual First Nations people?
Aboriginal people are a significant and younger part of the population, particularly in Western Canada – in Saskatchewan it is projected that aboriginal people will represent 25 percent of the population by 2030. Thus, a critical component of any strategy to address current and future labour shortages should be to work with aboriginal communities to enhance the education and skills of their members.
Other measures to increase the labour force and promote economic growth and productivity should be pursued, even though they alone will not solve the fiscal squeeze. The labour force should be expanded by continuing to give priority to skilled immigrants, improving daycare so as to attract and retain more women in the workforce, and providing incentives for older people to work longer, which would also reduce the costs of programs like the Guaranteed Income Supplement.
Economic growth and productivity increases should be fostered by ending inter-provincial barriers to trade, changing Employment Insurance to promote mobility, eliminating supply management, and ending regional economic development subsidies. We should also re-orient our trade to focus more on Asia by signing free trade agreements with countries in the region and by encouraging private sector plans to enhance our transportation infrastructure, including the Pacific Gateway Pipeline, so that we can maximize the value of our energy resources.
On the revenue side, we need to expand the tax tools that we use and rely more on the user-pay concept. Enhancing productivity will require upgrading Canada’s aging infrastructure, estimated to cost billions of dollars, which is money that Canadian governments do not have. Hence, we need more public private partnerships and “tolls” for roads, bridges and other facilities, so that we can upgrade infrastructure more quickly without burdening public treasuries.
While all of the above will help with the fiscal squeeze, the problem cannot be addressed without fundamentally changing our health care system and its funding. Diverting service delivery away from the traditional hospital model, which is expensive, heavily unionized, and therefore difficult to manage efficiently, would save dollars and provide better patient care. More services should be delivered by private clinics, since they can focus on specialty care and avoid the inefficiencies associated with having to manage various union contracts. Such clinics have reduced both wait times and costs in Saskatchewan and other provinces.
Patients should also be diverted from expensive and crowded emergency rooms and other costly medical facilities to primary health clinics where family doctors – who would have to be moved from a fee for service regime to salaries – would work not as gatekeepers but as part of a team of health care professionals, such as physiotherapists, counsellors, and nutritionists.
Public-private partnerships should be used to build more long-term care facilities so that elderly patients can be moved from hospitals and housed in less expensive facilities more geared to their needs. More generally, governments at all levels should stress healthy living and prevention of illness and develop strategies to deal with major health problems like obesity.
The recent announcement by the federal government that as of 2016-17 health transfers will no longer increase by 6 per cent per year, but will track increases in economic growth and federal revenue (with a floor of 3 per cent) means that spending on health care will not take a bigger and bigger share of the federal spending pie, as has occurred provincially. The provinces have long-term predictable funding commitments, albeit at a lower level and will now have to turn their attention to aligning their health care costs with their revenue growth.
Health care should be a taxable benefit
Interestingly, the Premiers at their recent meeting in Victoria discussed ways that they could work together to reduce health costs. For instance, studies have shown that since 2004, while some of the 6 per cent increase in federal money for health care has gone to reduce waiting lists, a significant amount of it has been spent on increasing the salaries and benefits of doctors, nurses and other health care professionals. Hence, the proposal that provinces could co-operate to limit such salary increases, as opposed to competing with each other, is one of many ways in which inter-provincial co-operation could reduce health care costs.
Provinces should also consider revenue measures to address the gap between health care costs and revenue growth. The decision by the federal government to reduce the GST means that there is “tax room” that the provinces could occupy. However, rather than raising sales taxes, the provinces should implement the recommendation of Tom Kent, Prime Minister Pearson’s policy advisor when medicare was created. Kent recommended that 25 per cent of the costs of health care should come from making health care a taxable benefit. Such a policy would be fair since what one pays would be related directly to income, caps can be established, and provisions can be made for those who have special medical problems.
This proposal would link funding for health care with use of the system, which would mean that more of the future health care costs would be paid by aging baby boomers, as opposed to burdening younger working age Canadians with higher taxes. Also, the taxable benefit model would alleviate the crowding out problem: health care costs have been increasing at a faster rate than the revenue growth of governments. Thus, health care spending has been crowding out funding for priorities like social programing, education, and the environment, all major determinants of the overall health of the population (which helps to explain why our spending on health care is high but our health outcomes are mediocre).
None of the above will be easy, but Canadians know from past experience the importance of addressing fiscal challenges before they become crises.
Janice MacKinnon received her Ph.D. from Queen’s University and is currently a professor in the School of Public Health at the University of Saskatchewan.
Category: Health
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