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Fraser Institute

Policymakers in Ottawa and Edmonton maintain broken health-care system

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5 minute read

From the Fraser Institute

By Nadeem Esmail

What’s preventing these reforms? In a word, Ottawa.

To say Albertans, and indeed all Canadians, are getting poor value for their health-care dollars is a gross understatement. In reality, Canada remains among the highest spenders on health care in the developed world, in exchange for one of the least accessible universal health-care systems. And while Canadians are increasingly open to meaningful reform, policymakers largely cling to their stale approach of more money, platitudes and little actual change.

In 2021 (the latest year of available data), among high-income universal health-care countries, Canada spent the highest share of its economy on health care (after adjusting for age differences between countries). For that world-class level of spending, Canada ranked 28th in the availability of physicians, 23rd in hospital beds, 25th in MRI scanners and 26th in CT scanners. And we ranked dead last on wait times for specialist care and non-emergency surgeries.

This abysmal performance has been consistent since at least the early 2000s with Canada regularly posting top-ranked spending alongside bottom-ranked performance in access to health-care.

On a provincial basis, Albertans are no better off. Alberta’s health-care system ranks as one of the most expensive in Canada on a per-person basis (after adjusting for population age and sex) while wait times in Alberta were 21 per cent longer than the national average in 2023.

And what are governments doing about our failing health-care system? Not much it seems, other than yet another multi-billion-dollar federal spending commitment (from the Trudeau government) and some bureaucratic shuffling (by the Smith government) paired with grandiose statements of how this will finally solve the health-care crisis.

But people aren’t buying it anymore. Canadians increasingly understand that more money for an already expensive and failing system is not the answer, and are increasingly open to reforms based on higher-performing universal health-care countries where the public system relies more on private firms and entrepreneurs to deliver publicly-funded services. Indeed, according to one recent poll, more than six in 10 Canadians agree that Canada should emulate other countries that allow private management of public hospitals, and more than half of those polled would like increased access to care provided by entrepreneurs.

What’s preventing these reforms?

In a word, Ottawa. The large and expanding federal cash transfers so often applauded by premiers actually prevent provinces from innovating and experimenting with more successful health-care policies. Why? Because to receive federal transfers, provinces must abide by the terms and conditions of the Canada Health Act (CHA), which prescribes often vaguely defined federal preferences for health policy and explicitly disallows certain reforms such as cost-sharing (where patients pay fees for some services, with protections for low-income people).

That threat of financial penalty discourages the provinces from following the examples of countries that provide more timely universal access to quality care such as Germany, Switzerland, Australia and the Netherlands. These countries follow the same blueprint, which includes patient cost-sharing for physician and hospital services (again, with protections for vulnerable populations including low-income individuals), private competition in the delivery of universally accessible services with money following patients to hospitals and surgical clinics, and allowing private purchases of care. Yet if Alberta adopted this blueprint, which has served patients in these other countries so well, it would risk losing billions in health-care transfers from Ottawa.

Finally, provinces have seemingly forgot the lesson from Saskatchewan’s surgical initiative, which ran between 2010 and 2014. That initiative, which included contracting out publicly financed surgeries to private clinics, reduced wait lists in Saskatchewan from among the highest in the country to among the shortest. And when the initiative ended, wait times began to grow again.

The simple reality of health care in every province including Alberta is that the government system is failing despite a world-class price tag. The solutions to this problem are known and increasingly desired by Canadians. Ottawa just needs to get out of the way and allow the provinces to genuinely reform the way we finance and deliver universal health care.

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Alberta

Alberta’s fiscal update projects budget surplus, but fiscal fortunes could quickly turn

Published on

From the Fraser Institute

By Tegan Hill

According to the recent mid-year update tabled Thursday, the Smith government projects a $4.6 billion surplus in 2024/25, up from the $2.9 billion surplus projected just a few months ago. Despite the good news, Premier Smith must reduce spending to avoid budget deficits.

The fiscal update projects resource revenue of $20.3 billion in 2024/25. Today’s relatively high—but very volatile—resource revenue (including oil and gas royalties) is helping finance today’s spending and maintain a balanced budget. But it will not last forever.

For perspective, in just the last decade the Alberta government’s annual resource revenue has been as low as $2.8 billion (2015/16) and as high as $25.2 billion (2022/23).

And while the resource revenue rollercoaster is currently in Alberta’s favor, Finance Minister Nate Horner acknowledges that “risks are on the rise” as oil prices have dropped considerably and forecasters are projecting downward pressure on prices—all of which impacts resource revenue.

In fact, the government’s own estimates show a $1 change in oil prices results in an estimated $630 million revenue swing. So while the Smith government plans to maintain a surplus in 2024/25, a small change in oil prices could quickly plunge Alberta back into deficit. Premier Smith has warned that her government may fall into a budget deficit this fiscal year.

This should come as no surprise. Alberta’s been on the resource revenue rollercoaster for decades. Successive governments have increased spending during the good times of high resource revenue, but failed to rein in spending when resource revenues fell.

Previous research has shown that, in Alberta, a $1 increase in resource revenue is associated with an estimated 56-cent increase in program spending the following fiscal year (on a per-person, inflation-adjusted basis). However, a decline in resource revenue is not similarly associated with a reduction in program spending. This pattern has led to historically high levels of government spending—and budget deficits—even in more recent years.

Consider this: If this fiscal year the Smith government received an average level of resource revenue (based on levels over the last 10 years), it would receive approximately $13,000 per Albertan. Yet the government plans to spend nearly $15,000 per Albertan this fiscal year (after adjusting for inflation). That’s a huge gap of roughly $2,000—and it means the government is continuing to take big risks with the provincial budget.

Of course, if the government falls back into deficit there are implications for everyday Albertans.

When the government runs a deficit, it accumulates debt, which Albertans must pay to service. In 2024/25, the government’s debt interest payments will cost each Albertan nearly $650. That’s largely because, despite running surpluses over the last few years, Albertans are still paying for debt accumulated during the most recent string of deficits from 2008/09 to 2020/21 (excluding 2014/15), which only ended when the government enjoyed an unexpected windfall in resource revenue in 2021/22.

According to Thursday’s mid-year fiscal update, Alberta’s finances continue to be at risk. To avoid deficits, the Smith government should meaningfully reduce spending so that it’s aligned with more reliable, stable levels of revenue.

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Business

Ottawa’s avalanche of spending hasn’t helped First Nations

Published on

From the Fraser Institute

By Tom Flanagan

When Justin Trudeau came to power in 2015, he memorably said that the welfare of Indigenous Canadians was his highest priority. He certainly has delivered on his promise, at least in terms of shovelling out money.

During his 10 years in office, budgeted Indigenous spending has approximately tripled, from about $11 billion to almost $33 billion. Prime Minister Trudeau’s instruction to the Department of Justice to negotiate rather than litigate class actions has resulted in paying tens of billions of dollars to Indigenous claimants over alleged wrongs in education and other social services. And his government has settled specific claims—alleged violations of treaty terms or of the Indian Act—at four times the previous rate, resulting in the award of at least an additional $10 billion to First Nations government.

But has this avalanche of money really helped First Nations people living on reserves, who are the poorest segment of Canadian society?

One indicator suggests the answer is yes. The gap between reserves and other communities—as measured by the Community Well-Being Index (CWB), a composite of income, employment, housing and education—fell from 19 to 16 points from 2016 to 2021. But closer analysis shows that the reduction in the gap, although real, cannot be due to the additional spending described above.

The gain in First Nations CWB is due mainly to an increase in the income component of the CWB. But almost all of the federal spending on First Nations, class-action settlements and specific claims do not provide taxable income to First Nations people. Rather, the increase in income documented by the CWB comes from the greatly increased payments legislated by the Liberals in the form of the Canada Child Benefit (CCB). First Nations people have a higher birth rate than other Canadians, so they have more children and receive more (on average) from the Canada Child Benefit. Also, they have lower income on average than other Canadians, so the value of the CCB is higher than comparable non-Indigenous families. The result? A gain in income relative to other Canadians, and thus a narrowing of the CWB gap between First Nations and other communities.

There’s an important lesson here. Tens of billions in additional budgetary spending and legal settlements did not move the needle. What did lead to a measurable improvement was legislation creating financial benefits for all eligible Canadian families with children regardless of race. Racially inspired policies are terrible for many reasons, especially because they rarely achieve their goals in practise. If we want to improve life for First Nations people, we should increase opportunities for Canadians of all racial backgrounds and not enact racially targeted policies.

Moreover, racial policies are also fraught with unintended consequences. In this case, the flood of federal money has made First Nations more dependent rather than less dependent on government. In fact, from 2018 to 2022, “Own Source Revenue” (business earnings plus property taxes and fees) among First Nations bands increased—but not as much as transfers from government. The result? Greater dependency on government transfers.

This finding is not just a statistical oddity. Previous research has shown that First Nations who are relatively less dependent on government transfers tend to achieve higher living standards (again, as measured by the CWB index). Thus, the increase in dependency presided over by the Trudeau government does not augur well for the future.

One qualification: this finding is not as robust as I would like because the number of band governments filing reports on their finances has drastically declined. Of 630 First Nation governments, only 260 filed audited statements for fiscal 2022. All First Nations are theoretically obliged by the First Nations Financial Transparency Act, 2013, to publish such statements, but the Trudeau government announced there would be no penalties for non-compliance, leading to a precipitous decline in reporting.

This is a shame, because First Nations, as they often insist, are governments, not private organizations. And like other governments, they should make their affairs visible to the public. Also, most of their income comes from Canadian taxpayers. Both band members and other Canadians have a right to know how much money they receive, how it’s being spent and whether it’s achieving its intended goals.

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