Michael M. Rachlis MD MSc FRCPC
Revised November 5, 2002

The cupboard isn't bare: The Federal Government has lots of room to meet the priorities of Canadians

Most Canadians want the federal government to implement the recommendations of the forthcoming Romanow Commission with leadership and cash. Canadians want to maintain our single-tier system for hospitals and doctors and extend coverage for home care and pharmaceuticals. However, daily we are cautioned that such proposals are foolhardy. John Manley, the finance minister, claims the cupboards are bare. But is the federal government really such a profligate spender? Does increased spending on health care and other social policy areas really recklessly endanger the country's finances? Examination of the federal government's spending record over time shows that it is now spending less of our national income than it has for over five decades. Furthermore, there is a large and growing surplus available to finance these initiatives.

According to documents released by the federal department of finance on October 14th, in 2001/2002, the federal government's budget expenditures amounted to 15% of Canada's Gross Domestic Product (GDP). This represents the lowest share of GDP in over 50 years. Since 1961, the federal government's budget expenditures have averaged 19.6% of GDP, which is nearly one-third higher than the present figure. During the bad old Mulroney years, the average was 22.4%.

Of course, the federal government has offloaded some of its social responsibilities to the provinces during the past 10 years. Federal transfers to the provinces decreased from 4.2% of GDP in 1992/93 to 2.4% in 2001/2002. But, the provinces are not suffering unduly either. Total provincial and territorial spending has fallen to 17.6% of GDP from an average of 20.4% during the Mulroney years.

Governments have axed their revenues and that is why governments feel any pressures at all. The federal government estimates that it is foregoing $100 Billion dollars in taxes over 5 years and many provinces have taken a similar large knife to their incomes. Even so, according to Finance Minister John Manley's statement last week, the federal government is planning for a $4 Billion surplus ($3 Billion for 'contingencies') and some private sector forecasters are predicting more. Just one day prior to Manley's statement Canadian autoworkers economist Jim Stanford predicted a $10 Billion surplus.

The higher estimates are more credible. Consider the following facts. The federal government ran a surplus of $8.9 Billion last year. The new expenditures and tax cuts planned are limited and will be partly offset by the collection of tax revenues this year which were deferred last year. The economy is predicted to grow by at least 3.25% this year. This is worth about $8 Billion to the federal treasury. It appears that the federal government will have at least a $10 Billion surplus this year, a $15 Billion surplus next year, and at least a $30 Billion surplus by 2006/07 as long as taxes are not cut further.

Most health analysts think there are opportunities to improve the efficiency of our health care system. For example, hundreds of millions of dollars are spent on prescriptions for unnecessary and potentially dangerous drugs. Improving the quality of prescribing could save thousands of premature deaths and prevent tens of thousands of hospitalizations every year from preventable adverse drug reactions. It is important to improve quality and efficiency in our health care system.

However, as this analysis demonstrates, the federal government has ample room for new spending to reaffirm federal leadership in health care and implement the recommendations of the Romanow Commission. It would cost roughly $6 Billion for first dollar coverage for home care and residential long-term care. It would cost roughly $6 Billion to give Canadians first dollar coverage for prescription drugs. This $12 Billion would increase federal government expenditures by only 1% of GDP and could be easily financed by next year's surplus.

In fact, by 2006/07, we could add a comprehensive national early childhood program, a national housing program, new infrastructure programs for water, sewers, and public transportation, and a 40% increase in the military's budget, and still come in under budget. The federal government could afford these new expenditures without imposing any new taxes. And, the federal government's budget would still be at least 1.5% of GDP less than the average of the past 40 years.

It is patently false to claim that governments are broke and that Canadians must wait indefinitely for the promises the Prime Minister made in the last 3 election campaigns. Canadians waited 47 years after Mackenzie King promised Medicare in the 1919 election before the Pearson Government finally passed the legislation in 1966. They shouldn't have to wait until 2044 for the implementation of the home care and pharmacare promises, which were made in the 1997 campaign.

Canadians overwhelmingly told Mr. Romanow that they strongly value Medicare. They want it expanded not contracted. They want every citizen to have access to the best science and the best caring. Canada is not broke. It is one of the world's richest countries. Let's put that wealth to work on priorities for people.