Premiers split over Flaherty health-funding bombshell

The federal government is offering provinces and territories a six per cent health-funding increase until the end of the 2016 fiscal year, followed by increases linked to nominal GDP.

Federal guarantee of six per cent until end of 2016

Federal Finance Minister Jim Flaherty, right, speaks to Bank of Canada governor Mark Carney prior to to a provincial, territorial and federal finance ministers meeting in Victoria Monday. (Geoff Howe/Canadian Press)

The federal government is guaranteeing six per cent health-care funding increases until the 2016-17 fiscal year, Finance Minister Jim Flaherty said Monday.

After that, the annual increase will be tied to nominal GDP, but is guaranteed to be at least three per cent, he said.

Nominal GDP is the monetary value of all goods and services produced within the country annually, including inflation. If nominal GDP rises four per cent and inflation is two per cent, the economy's real GDP growth is two per cent.

The current agreement, which guarantees six per cent a year increases, expires in 2014, and the provinces wanted that to continue.

Flaherty made the announcement as he wrapped up meetings with the provincial and territorial finance ministers on federal funding for health and pensions Monday afternoon in Victoria.

The Conservative government kept the previous Liberal government's health accord promise, bringing funding from $20 billion in the 2005 fiscal year to nearly $27 billion at the end of the 2011 fiscal year, which closes March 30, 2012.

Flaherty said the new offer to the provinces and territories means health-care investments will rise from $30 billion in the 2013 fiscal year to $38 billion in 2018.

"This means a total investment of $178 billion in our health system over that five-year period," he said.

'Totally unacceptable'

The provincial and territorial ministers were informed of the new federal formula over lunch.

Six of them lined up to speak out against the decision, citing a lack of negotiation with two years left to reach a new agreement.

They also complained that they didn't expect to be handed the new funding arrangement at this round of talks — they thought they were going to touch on how the talks would be set up.

Flaherty said there was one hour set aside to discuss the 2015-24 health transfers.

The provinces will lose out on $21 billion over the life of the deal, which will be reviewed in 2024, Ontario Finance Minister Dwight Duncan said.

"True, it does not take place for a few more years … But it represents a significant move away from the health-care table by the federal government," he said.

"It means less access to quality health care from sea to sea to sea, in French and in English."

Flaherty said the provinces are increasing health spending on average by 3.2 per cent a year, so he thinks a three per cent federal increase to the federal share of those budgets is reasonable.

Every government is doing its best to control costs, Manitoba Finance Minister Stan Struthers said.

"This is not about ministers who are being innovative and ministers who aren't. This is not about ministers who are containing the cost curve and those who are not, because quite frankly it's offensive to think some of us aren't doing that. We all are."

Quebec Finance Minister Raymond Bachand called the process "totally unacceptable."

The health funding will also shift to being doled out on a per capita basis, meaning smaller provinces could lose some of their funding, he said.

Not all the finance ministers were unhappy, however. British Columbia Finance Minister Kevin Falcon pointed to global financial instability and said Canada has to be responsible and maintain its strong reputation.

"We cannot ignore what is taking place around the world," he said.

The meeting wasn't supposed to deal with health funding, but the issue was top of mind with a federal accord expiring in 2014.

Flaherty hinted last week that the federal government may not be able to sustain the escalator after 2016.

On Friday, Prime Minister Stephen Harper would only say the government will keep its promise through the end of the health accord.

Citizenship and Immigration Minister Jason Kenney told CBC's The House on Saturday that the government would continue the escalator until the end of 2016.