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Livio Di Matteo: As the federation turns: Tracking each level of government’s share of expenditure since Confederation

Commentary

The COVID-19 pandemic saw a surge in Canadian federal government spending the likes not seen since World War II.Budget reaction: We can’t have big government without paying for it https://thehub.ca/2022-04-08/budget-reaction-we-cant-have-big-government-without-paying-for-it/ Expenditure changes in a federation affect not only the government in question but also the other levels of government in terms of spending balance. Indeed, expenditure shares by tier of government provide a measure of the extent to which a federation is more centralized or decentralized, and over time that balance can change. 

While Canada’s constitution lays out the expenditure responsibilities and revenue tools of the federal and provincial governments—with the municipalities a creature of the provinces—over time there has been a give and take of spending responsibilities that reflect the policy decisions, politics, and demands of the era. What shapes have those trends taken over the years?

In constructing measures since Confederation, a number of data sources are needed. For the period from 1870 to 1926, annual government expenditure numbers from Mac Urquhart’s GDP estimates only pertain to goods and services spending with no separate transfer estimates. However, federal transfers to the provinces during this period are readily available and averaged about 15 percent of federal spending. They are used to estimate federal spending net of transfers from 1870 to 1926.  Provincial spending for this period, unfortunately, includes transfers to municipalities, but they were not particularly well developed prior to the 1920s, accounting for only about one percent of provincial spending even by the 1930s. 

As well, public education is part of government spending in Urquhart’s numbers as a separate category. The estimates here divide them across local and provincial governments in a 70/30 split based on the evidence available from Historical Statistics of Canada. There is a gap from 1927 to 1932, and then estimates only for the years 1933, 1937, 1939, 1941, and 1943 from Historical Statistics of CanadaHistorical Statistics of Canada https://www150.statcan.gc.ca/n1/pub/11-516-x/11-516-x1983001-eng.htm (SeriesH161- 175; H176-187 and H188-196). For these numbers, federal transfers to other governments are accorded to the provinces and provincial transfers to other governments are accorded to local government spending.  

The period from 1945 to 1969 is again annual data from Historical Statistics of Canada (as per the series listed above) and net of transfers to lower-tier governments. For the period since 1970, the years 1970 to 1990 are from the 1995 Fiscal Reference Tables while 1991 to 2020 are taken from the 2021 Fiscal Reference Tables. Again, federal transfers to other governments are accorded to the provinces and provincial transfers to other governments are accorded to local government spending.

So, what are the results? 

As the accompanying figure shows, until World War I the federal share of total government spending rose gradually with a spike during the CPR railway building period. The federal share averaged 33 percent while the provincial share averaged 26 percent and the municipalities averaged 41 percent. For nearly the first fifty years of Confederation, Canada was actually quite decentralized as the dominant fiscal tier in Canada was actually municipalities. The start of the First World War and the demands of the war effort sparked a shift in fiscal balances that saw the federal share soar to 70 percent while municipalities dropped to about 20 percent and the provinces 10 percent.

Graphic credit: Janice Nelson

The 1920s saw a rebound in provincial and municipal shares with municipalities reaching just under 40 percent and the provinces under 30 percent while the federal government declined to about 35 percent. The new revenue tools that Ottawa acquired during the World War I era—income taxes and the federal sales tax—ultimately resulted in an expansion of its role that was given further impetus by the Great Depression and then World War II.Canadian Sales Tax Reform http://taxexecutive.org/canadian-sales-tax-reform/#:~:text=It%20all%20started%20as%20a,transactions%20other%20than%20retail%20sales.

The period from 1914 to 1945 sees the spikes in the federal shares as a result of the war with a return to the prewar balance during the 1920s and early 1930s. The period since 1945 sees a steady decline in the federal share from a peak of about 90 percent in 1943 to reach 27 percent by 2016. Provincial and local shares in 1943 were at about 5 percent each and grew with the local share, levelling off at about 20 percent and reaching 22 percent by 2016 while the provinces grew steadily with their share in 2016 reaching about 50 percent. 

There are some periods of abrupt shifts —the late 1950s and 1960s—which coincide with transfer regime changes such as the onset of formal federal transfer arrangements like EqualizationWhat is Equalization? https://www.canada.ca/en/department-finance/programs/federal-transfers/equalization.html and Medicare.Canada’s Health Care System https://www.canada.ca/en/health-canada/services/health-care-system/reports-publications/health-care-system/canada.html Then the federal fiscal crisis of the 1990s sees a period of steady decline in the federal spending share until the pandemic year of 2020 when there is a jump to 40 percent.

There are several stories here as the balance of the federation turns. The balance between Ottawa and the provincial-local sector in the early years of Confederation was a 40/60 split. After the mid-twentieth century, the federal share declined from a wartime peak of 90 percent. By 2019 it was a 30/70 split. The larger federal role earlier in the immediate post-World War II era was an aberration brought about by the demands of global war. 

However, the more interesting change is the reversal of provincial and local government expenditure shares over time. While local governments were more important in terms of their spending shares before WWI, their role diminished significantly after WWII. Much of this change was of course the expansion of health, education, and social welfare functions at the provincial levels.  

Essentially, Canada has been simultaneously decentralizing and centralizing since the 1970s—depending on your vantage point. The share of provincial spending rose relative to the federal government—a decentralization—and also relative to municipalities—a centralization. So, Canada became more decentralized at the federal-provincial level and more centralized at the provincial-local level. 

The pandemic appears to have delivered an abrupt change to these trends with the federal share rising and both the provincial and municipal shares dropping.

The more interesting question is what happens next. Do the numbers for 2020 herald a return to the approximate 40/60 split of the pre-World War I era or is it temporary? Given the planned expansion of the federal fiscal footprint through new spending aside from transfers outlined in the most recent federal budget, the post-COVID era could mark a new expansive phase of the federal role. The federal government to date has been resisting calls for increased social and health transfers to the provinces, preferring to go its own way on child care and dental care. 

Canada’s constitution outlines federal and provincial powers; however, spending balances are not anchored on blocks of granite but evolve in response to the dynamic between the tiers. Where the balance of the federation settles in the wake of the pandemic will depend on the health of federal finances, how willing it is to assert the federal spending power with respect to the provinces, and the quality of provincial leadership in pushing back.

Harry Rakowski: How to fix Canada’s broken health care

Commentary

The three determinants of optimal health care are access, quality, and affordability. Prior to the pandemic, our resources in Canada were strained as we struggled to meet the demands of an aging population and lacked the infrastructure and resources to provide an integrated, efficient care model. We now look back to 2019 and for all the challenges health care faced, those were the good times compared to the further strains on health care as a result of the COVID-19 pandemic. 

Post-pandemic wait times for non-emergent care, surgical procedures, and specialist visits are even more excessively long and unreasonable. Emergency rooms remain overcrowded with hallway medicine due to a lack of beds. Health-care workers increasingly feel the effects of burnout, with less work satisfaction and never-ending demands on their time. The bureaucratic and administrative process has never been more of a challenge and a time-wasting frustration. Current plans to resolve these issues are yet again a bandaid applied to a deep wound. 

We need fewer administrative staff 

Canada historically has had an inadequate number of hospital and ICU beds and low numbers of physicians and nurses. While physician numbers may superficially seem reasonable, many physicians work fewer hours than ever because of family obligations or a greater focus on quality of life. Physicians are seen by governments as cost centres driving up health care utilization and cost of care, rather than providing an essential service to patients whose health is something we value greatly. 

The Organization for Economic Co-operation and Development (OECD) ranks health care availability for 38 participating countries. In one of the metrics, Canada ranks 23rd in physicians per capita with only 2.8 practicing physicians per 1,000 people, similar to the U.S. but much lower than most European countries, especially those with universal care.Doctors: Total, Per 1 000 inhabitants, 2020 or latest available https://data.oecd.org/healthres/doctors.htm In another metric, we rank 10th in nurses per capita at 9.98/1,000. The ability to not restrict routine health care during the different waves of the pandemic required adequate ICU bed capacity. It is no surprise that Canada struggled greatly with only 12.9 ICU beds per 100,000 population compared to 25.8 for the U.S. and 33.9 for Germany. 

Aetna Health reviewed the relative increase in U.S. physicians and health-care administrators between 1975 and 2010 and showed that physician numbers increased 150 percent—a rate in keeping with the increase in population.The rise (and rise) of the healthcare administrator https://www.athenahealth.com/knowledge-hub/practice-management/expert-forum-rise-and-rise-healthcare-administrator During the same period, the number of health-care administrators increased by a whopping 3200 percent. While some of the increase was necessary due to the increasing complexity of care and many new regulatory requirements, it represented a huge increase in non-direct patient care costs and added layers of bureaucracy. A similar situation exists in Canada. Susan Martinuk in her book on Canada’s health care crisisPatients at Risk: Exposing Canada’s Health-care Crisis https://www.amazon.ca/Patients-Risk-Exposing-Canadas-Health-care/dp/1777657741 noted that Germany, which has excellent health care, has one-tenth the number of health care administrators, one for every 15,454 citizens versus one for every 1,415 citizens here in Canada. It is hard to see how this large difference is justifiable.

Health-care spending 

The amount of money spent on health care doesn’t always relate to better outcomes. The Centers for Medicare and Medicaid Services (CMS) estimated that U.S. health-care spending grew 9.7 percent in 2020, over the previous year, reaching $4.1 trillion, about 19.7 percent of GDP and $12,530 USD per person.NHE Fact Sheet https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet The potential availability of excellent care is unevenly distributed. Health care spending for Black and Latino people was much lower than for White people, and this imbalance may partly account for poorer outcomes in lower-income individuals with less access to quality care. Thus despite high levels of spending the U.S. trails greatly in metrics such as infant mortality and life expectancy. 

Canada now spends about 12.5 percent of GDP on health care,Health spending https://www.cihi.ca/en/topics/health-spending an amount similar to Germany and Switzerland. While we need to spend more in the future for greater access to quality care, it is also essential to better allocate how we spend it. 

New paradigms of care

Canadians continue to view universal health care as a highly important and valued right. There are important short and long-term measures needed to fix and preserve universal health care. We need to reduce unnecessary visits, decrease bureaucracy, fix wait times, increase efficiency and increase access. This requires a shift towards a greater focus on supporting those providing direct patient care such as physicians, nurses, and nurse practitioners, and less on bureaucracy and administrative costs. In addition to training more nurses and physicians, we need to allow highly qualified foreign-trained physicians to have an easier path to active practice. 

Canada already has models for private care, such as concierge services, that have not impacted universal care, as well as allowing direct payment for many uninsured services. Some additional private care will not be harmful. The long wait times for essential imaging tests can be reduced by supplemental insurance without depleting universal access to timely care. 

Improving ambulatory care 

As development director of a hospital-based imaging centre, I experienced firsthand the bureaucracy and extra cost associated with mandated hospital-grade ambulatory clinic and imaging space. Most ambulatory care should be provided in high quality, efficiently run, less expensive commercial space, either purpose-built or rented. This will reduce capital costs of construction and operating costs and improve the patient experience. 

Develop dedicated specialty surgical centres

Current long wait times for many surgical procedures are due to a lack of allocated OR time and guaranteed scheduling. Hospital operating room time is limited and highly competitive. As a result, highly trained surgeons with large patient backlogs have confided to me that they sit idly by, unable to book procedures and operate efficiently because of this challenge. One important solution is the creation of dedicated surgical centres of excellence. A model already exists in Toronto for cataract operations.

The Kensington Eye Institute is an excellent example of a highly efficient, stand-alone, not-for-profit ophthalmology centre that provides state-of-the-art day surgery in an out-of-hospital setting. Such models would also work well for orthopedic and other surgeries that can be done as day surgery. 

New care models can improve care & reduce cost

Reducing current hallway medicine is a problem that requires complex, innovative solutions. We can reduce hospital ER visits by greater availability of 24-hour urgent care clinics. Better triage of who needs to visit a hospital can be achieved by broader use of nurse practitioner telehealth calls, as well as the use of artificial intelligence-based decision making about which level of care is required. Such a program has already been developed by an Israeli company, Diagnostic Robotics. 

A number of in-home care models have been developed primarily in the U.S. that can be trialed in Canada. Dispatch Health has a care model that sends emergency care trained teams to patients’ homes armed with mobile blood work labs, IV fluids, nebulizers, and much of the other equipment found in ERs that are used to treat patients. Tufts Medical Center in Boston has partnered with Medically Home to test hospital-level acute care in patients’ homes. The Mayo Clinic has an Advanced Care at Home program that provides 24/7 access to a care team of physicians, nurses, nurse practitioners, and physician assistants as required. At-home equipment includes a telephone connecting directly to your care team, a personal emergency response bracelet, vital sign monitoring devices, internet connectivity and mobile imaging testing, and at-home IV services. 

Such in-home care can potentially reduce admissions to the hospital, as well as allow for earlier discharge, shortening the length of stay and reducing high in-hospital costs. 

Improve access to care for under-serviced areas. 

A hub and spoke modelThe hub-and-spoke organization design: an avenue for serving patients well https://bmchealthservres.biomedcentral.com/articles/10.1186/s12913-017-2341-x can bring integrated care teams to remote areas. This can be achieved by increased virtual care, locally-based nurse practitioners, and increased use of telemedicine via secure smartphone links. Mobile health teams can also visit periodically to provide required in-person specialized care or determine the need to transfer care to an urban area. 


In summary, high-quality universal health care can be preserved with extra funding targeted to those providing direct patient contact and the use of cost-saving innovation. We need to develop integrated care teams that reduce the need for emergency and in-hospital care. We also need to use hybrid in-person and virtual care models that can broaden ambulatory care, making it more efficient for everyone and also more accessible to remote areas. Models for much of this already exist and we can leverage existing experience to meet our needs. We need governments and health care organizations that are finally willing to walk the walk not just talk the talk.