Rising health costs threatening government coffers, IDA says

(June 29, 2004) The provinces should resist the temptation to raise taxes and introduce user fees to deal with the current funding crunch in healthcare, the IDA says in a review of public finances released today.

Ontario introduced a new healthcare premium (scheduled to take effect July 1) and increased existing taxes on tobacco and alcohol in its latest budget, the brokerage industry association notes. Other provinces, such as Nova Scotia, Saskatchewan, Manitoba and Newfoundland have also raised taxes.

“Given the prospects for stringent finances in the foreseeable future, the temptation to increase taxes and user fees will remain,” the IDA report says. “These should be avoided as they will undo the progress made in enhancing provincial tax competitiveness and lowering costs of doing business … key factors in attracting private investment.”

The IDA says alternative methods of raising revenue, such as asset sales, privatization and public-private partnerships should be considered.

Looking back at Canada’s financial picture, the IDA notes that both Ottawa and the provinces managed to reverse a long period of deficits at the beginning of the 2000s, with the provinces posting a combined surplus of $10 billion in 2000-2001. In the same year, Ottawa’s surplus topped $20 billion.

However, that trend was short-lived as provinces failed to rein in program spending, the IDA says, most notably in healthcare. “The combined health spending of the provinces averaged about 6% annually in the past five years and was the major factor behind an average 4% annual increase in total program spending.”

Although many of the provinces have taken remedial action to improve their fiscal positions, the burden of rising healthcare costs continues to pose a threat to future public finances, the IDA warns.

“The relentless climb in health costs is unsustainable over the medium term. Unless checked, it will jeopardize financing available for other program spending and lead to precarious fiscal positions.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com