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The Canada Health and Social Transfer The 1995 budget announced the creation of a new block-funded transfer, the Canada Health and Social Transfer. It came into effect April 1, 1996, giving provinces enhanced flexibility to design and administer social programs and to allocate funds among social programs according to their specific priorities. The CHST replaced the Canada Assistance Plan (CAP), which helped fund provincial social assistance and social services programs, and Established Programs Financing (EPF), which helped fund health care and post-secondary education. Like EPF, the CHST takes the form of a cash transfer and a tax transfer. A cash transfer is a cash payment. A tax transfer occurs when the federal government reduces its tax rates to allow provinces to raise their tax rates by the same amount. In 1977 the federal government transferred 13.5 percentage points of personal income tax and one percentage point of corporate income tax to the provinces and territories. As a result, revenue that would have flowed to the federal government began to flow directly to provincial and territorial governments. Provinces and territories continue to benefit from this tax transfer. The value of these tax transfers has grown from $2.7 billion in 1977 to $13.5 billion in 1998-99. Today, as in 1977, approximately half of the CHST is in the form of cash, while the other half is in the form of tax transfers. Provinces agreed in 1977 that the tax transfer given to them would count as part of the federal government's support of their health and post-secondary education programs. In the federal-provincial discussions leading up to the enactment of EPF arrangements, the provinces presented a joint position paper to the federal government, which stated:
While the mechanism for delivering federal support differs under cash and tax transfers, both have exactly the same impact on federal and provincial finances. They represent foregone revenue to the federal government and increased revenue to provincial and territorial governments. The federal government in the 1996 budget established an $11 billion "cash floor" in the CHST to ensure that growth in the value of the tax transfer would not erode, and eventually eliminate, the cash transfer. In 1998, legislation was passed increasing the CHST cash floor to $12.5 billion. The Equalization program has played an important role in defining the Canadian federation. Not all parts of the country are equally prosperous, so not all provincial governments can generate the same revenues with which to finance public services. Equalization therefore provides less prosperous provinces with payments so that Canadians can receive comparable public services, no matter where they live.
Underscoring the significance of this program to the less prosperous provinces, Equalization was one of the few federal programs exempted from restraint measures over the past five years. Other Federal Transfers to Provinces and Territories While the CHST, Equalization, and Territorial Formula Financing make up the largest of the transfers to provincial and territorial governments, the federal government provides assistance to provinces and territories under many other transfer programs. These other transfers total $1.7 billion in 1998-99 and include official languages in education, grants-in-lieu of taxes to municipalities, disaster financial assistance arrangements, as well as the following programs which are administered by the Department of Finance. Fiscal Stabilization Program The Fiscal Stabilization Program, introduced in 1967, compensates provinces if their revenues fall substantially from one year to the next due to changes in economic circumstances. Declines in revenue due to changes in provincial tax policy or tax rates are not stabilized. A province is eligible for stabilization payments if economic conditions cause its revenues to decline in excess of 5 per cent in one year. The maximum amount payable is $60 per resident. Provincial Personal Income Tax Revenue Guarantee Program The Revenue Guarantee Program protects provinces participating in tax collection agreements from major revenue reductions due to changes in federal personal income tax policy. The program compensates a province to the extent that, during the course of a year, a federal policy change reduces the province's personal income tax revenues by more than one per cent of basic federal tax in the province. Statutory Subsidies Statutory subsidies are the oldest federal transfer payments made to provinces. Under the British North America Act, 1867, the original four provinces to join Confederation-Nova Scotia, New Brunswick, Quebec and Ontario-were to receive certain annual payments from the federal government. Similar arrangements were made with provinces that joined subsequently. Today, these payments total approximately $30 million per year. |
