Budget 1995 Fact Sheets - 10
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Archived - The Canada Social Transfer

A New Transfer System

Improving the effectiveness of the Canadian federation requires changes to the fiscal relationship between Ottawa and the provinces. The budget announces a significant reform to the system of federal transfers to the provinces and territories - the Canada Social Transfer (CST).

Currently, the federal government transfers funds to the provinces and territories to help them provide social programs to Canadians. Funding for health and post- secondary education is provided under Established Programs Financing (EPF) while funding for social assistance and social services is provided under the Canada Assistance Plan (CAP).

How it Works

Beginning in 1996-97, these transfers will be replaced by a single transfer - CST. Unlike the current system which is based partly on cost-sharing arrangements, CST will be a block fund, like EPF. This means that the amounts transferred will not be determined by provincial spending decisions (as under cost sharing). The new transfer will be provided through cash payments and tax points. The Equalization program, which benefits the lower-income provinces, is untouched and payments will continue to grow, ensuring that all provinces can provide comparable levels of service at comparable rates of taxation. Equalization, together with the CST, will total over $35 billion in 1996-97 (Table 1).

Amount of CST Transfers

The provinces will receive $29.7 billion in transfers under the existing programs for 1995-96, about the same as in 1994-95, to allow for a period of stability before change. Under the CST, funding to provinces will be reduced from what it would otherwise have been in 1996-97 by $2.5 billion to $26.9 billion. It will be further reduced from what it would otherwise have been in 1997-98 by $4.5 billion to $25.1 billion. While these reductions are significant, they are less than cuts to other federal government program spending.

For the first year, 1996-97, CST will be allocated among provinces in the same proportion as the 1995-96 total of EPF and CAP transfers which are being replaced (Table 2). This gives provinces certainty about their allocation for the year so they can do their fiscal planning.

The Minister of Finance will consult with provinces and territories in developing a permanent method of allocating payments among provinces under CST for 1997- 98 onward.

Giving Governments More Flexibility

The new transfer will end the intrusiveness of previous cost-sharing arrangements and will reduce long-time irritants:

• Provinces will no longer be subject to rules stipulating which expenditures are eligible for cost sharing or not.
• Provinces will be free to pursue their own innovative approaches to social security reform.
• The expense of administering cost sharing will be eliminated.
• Federal expenditures will no longer be driven by provincial decisions on how, and to whom, to provide social assistance and social services.

Safeguarding Standards for Canadians

The transfer of federal funds to the provinces will safeguard standards:

• The federal government will continue to enforce the principles of the Canada Health Act.
• Provinces must continue to provide social assistance without minimum residency requirements.

The federal government, under the leadership of the Minister of Human Resources Development, will invite all provincial governments to work together on developing, through mutual consent, a set of shared principles and objectives that could underlie the new transfer. In this way, all governments could reaffirm their commitment to the social well-being of Canadians. The Minister of Health will continue to work with provincial and territorial health ministers to renew Canada's health system.

A New Approach to Federal-Provincial Fiscal Relations

The Canada Social Transfer represents a new approach to federal-provincial fiscal relations marked by greater flexibility and accountability for provincial governments, and more sustainable financing arrangements for the federal government. It continues the evolution towards more mature fiscal relations.

Table 1
Major Transfers to Provinces and Territories
(Estimated entitlements)

	1994-95	1996-97	Change
	(millions of dollars)
Newfoundland	1,484	1,512	+28
Prince Edward Island	316	323	+7
Nova Scotia	1,932	1,949	+17
New Brunswick	1,610	1,632	+22
Quebec	11,446	11,096	-350
Ontario	10,530	9,653	-877
Manitoba	2,039	2,032	-7
Saskatchewan	1,411	1,450	+39
Alberta	2,525	2,313	-212
British Columbia	3,573	3,291	-282
Northwest Territories	74	68	-6
Yukon	34	32	-2
Total	36,974 [1]	35,351 [2]	-1,623
[1] Comprised of Equalization, EPF and CAP. [2] Canada Social Transfer and Equalization.

Table 2
The Canada Social Transfer: CST
(Estimated Entitlements)

	CAP/EPF		CST
	1994-95	1995-96	1996-97
	(millions of dollars)
Newfoundland	608	608	551
Prince Edward Island	137	137	124
Nova Scotia	964	966	875
New Brunswick	763	764	692
Quebec	8,098	8,141	7,376
Ontario	10,530	10,653	9,653
Manitoba	1,141	1,143	1,036
Saskatchewan	982	981	888
Alberta	2,525	2,552	2,313
British Columbia	3,573	3,632	3,291
Northwest Territories	74	75	68
Yukon	34	35	32
Total	29,429	29,686	26,900

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