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Chapter 3 - Building a Better Canada:
Restoring Fiscal Balance in Canada

Highlights

In Budget 2006, the Government is committing to take immediate action to restore fiscal balance. This government will address concerns over fiscal imbalance through:

• Implementation of the 10-Year Plan to Strengthen Health Care.

• A Patient Wait Times Guarantee for medically necessary services, developed with provincial and territorial governments.

• Certainty for equalization and Territorial Formula Financing payments for 2006–07 through reliance on more current economic and fiscal data, as well as one-time adjustments of $255.4 million to offset declines.

• Additional funding of up to $3.3 billion for provinces and territories to help address immediate pressures in post-secondary education, affordable housing (including Northern and off-reserve Aboriginal housing) and public transit, contingent on sufficient funds being available from the 2005–06 surplus.

• A commitment to work with provinces and territories toward a common securities regulator.

The Government is also committing to further action over the next year, working toward more open, transparent and collaborative fiscal relations in Canada. It proposes:

• A principle-based framework, outlined in the companion document Restoring Fiscal Balance in Canada, which will lead to:

• A new approach for allocating unplanned federal surpluses.
• Renewed, transparent and principle-based Equalization and Territorial Formula Financing programs.
• A new approach to long-term and predictable support for post-secondary education and training.
• A new framework for long-term funding support for infrastructure programs.

The Government is looking forward to a rich dialogue on fiscal relations, engaging Canadians, provincial and territorial governments, academics and experts, concluding with further action to improve fiscal relations in Canada.

Introduction

The Government of Canada is committed to building a stronger, more cooperative federation in which governments work together to help Canadians realize their potential. To this end, the Government believes that a new relationship of open federalism with provinces and territories is required if Canada is to continue to grow in unity, prosperity and security. This will mean a stronger economic and social union, a more efficient federation and greater opportunity for all Canadians.

The Government will work to unite the country by respecting provincial, territorial and cultural differences, while standing up for the broader economic and social interests of the country and all Canadians. The Government will respond to concerns about fiscal imbalance, and is committed to working with provinces and territories to ensure a return to balanced fiscal arrangements in which all governments have access to the resources they need to meet their responsibilities.

Immediate Action to Restore Fiscal Balance

Some key elements in ensuring balanced fiscal arrangements for our federation will take time to implement, as consultations with provinces and territories are required. In the short term, the Government is proposing immediate action in this budget.

Core Priority: Patient Wait Times Guarantee Funded Through the 10-Year Plan to Strengthen Health Care

The Government is committed to working with provinces and territories to develop a Patient Wait Times Guarantee to ensure that all Canadians receive necessary medical treatment within medically acceptable waiting times. Patients should be able to receive treatment in a medically acceptable maximum time for a publicly insured service. If treatment is not available in their own area, patients should be given the option of receiving treatment at another hospital or clinic, even outside of their home province.

The Government is committed to implementing the September 2004 federal-provincial-territorial 10-Year Plan to Strengthen Health Care. In particular, it will work with provinces and territories to ensure that:

• Evidence-based benchmarks for medically acceptable wait times, starting with cancer, heart, diagnostic imaging procedures, joint replacements and sight restoration, are established as soon as possible, as promised in the 10-Year Plan.

• Patient wait time reduction targets for priority procedures identified by provinces are established by the end of 2006.

• Canadians get regular reports on progress towards meeting these wait time targets, as promised in the 10-Year Plan.

• Educational programs for doctors, nurses and other health professionals are expanded and the assessment of the credentials of internationally educated health care professionals accelerated.

Provinces and territories are taking important steps to address wait times. On December 12, 2005, provincial and territorial Health Ministers announced common benchmarks for the provision of medical treatments and screening services. Under these benchmarks, which are based on research and clinical evidence, provinces and territories will strive to provide services within certain time limits (e.g. hip and knee replacements within 26 weeks). Provinces and territories are also improving how they measure, monitor and manage wait times. Comparable indicators of access are being established to enable all governments to measure wait times in the same way. As a next step, each provincial and territorial government is continuing to pursue its own strategy to improve access and establish its own multi-year targets to achieve these benchmarks.

The Government provides predictable support to provinces and territories through the Canada Health Transfer (CHT). Cash transfers are legislated to increase by 6 per cent annually up to 2013–14. This means an additional $1.1 billion in 2006–07 and $1.2 billion more on top of that in 2007–08 in support of provincial-territorial health systems, and growing every year thereafter. In addition to the CHT, $5.5 billion in wait times reduction funding will be provided to provinces and territories from 2004–05 to 2013–14 as part of the 10-Year Plan. This funding will allow provinces and territories to focus on clearing backlogs; training and hiring more health professionals; building capacity for regional centres of excellence; and expanding appropriate ambulatory and community care programs and/or tools to manage wait times.

Guaranteeing that Canadians have access to medically necessary treatment when they need it is a basic principle of Canada's publicly funded health care system. In fact, the 10-Year Plan stated that ensuring "that all Canadians have access to the health care services they need, when they need them" was one of the key principles upon which the action plan was based. Recently, the Government of Quebec, while confirming its commitment to public health care and its respect for the principles of universality and equity, has proposed a health care guarantee for certain health care services. Quebec's proposed approach is innovative and will help ensure that patients receive timely access to these vital services.

Certainty for Equalization and Territorial Formula Financing

Equalization and Territorial Formula Financing (TFF) are extremely important programs to the Canadian federation. The Government is committed to putting in place renewed, transparent, principle-based Equalization and TFF programs providing predictable ongoing support to provinces and territories as a key element in restoring fiscal balance in Canada.

The report of the Expert Panel on Equalization and Territorial Formula Financing will be made public in spring 2006. This report and other contributions to the debate, such as the report of the Council of the Federation's Advisory Panel on Fiscal Imbalance, along with subsequent consultations with provinces and territories, will be critical elements in arriving at renewed, transparent and principle-based Equalization and TFF programs.

Equalization and TFF allocations for 2006–07 were announced by the previous government in November 2005 but were not passed by Parliament. Since then, more recent economic and fiscal data have become available.

Budget 2006 proposes a new approach that gives certainty to provinces and territories and ensures that they all benefit. The most current data will be used to determine the allocations for 2006–07 since it best reflects the fiscal and economic situations of provinces and territories. As a result, six Equalization-receiving provinces and one territory—Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba, Saskatchewan and the Northwest Territories—will receive higher payments than they were advised they would receive in November 2005.

For the other two provinces and two territories, Newfoundland and Labrador, British Columbia, Yukon and Nunavut, using the most recent data would result in lower payments. For those provinces and territories where there is a decline from the amount they had been advised of in November 2005, one-time adjustments to offset the decline will be provided. Budget 2006 provides an extra $255.4 million for provinces and territories for these one-time adjustments.

Table 3.14
2006–07 Equalization and Territorial Formula Financing
Entitlements and One-Time Adjustments

Note: Totals may not add due to rounding.

Allocating Unplanned Federal Surpluses to the Future Benefit of Canadians

In the aim of increasing budget transparency and building a more cooperative federation, the Government is proposing to discuss with provinces and territories the possibility of introducing legislation authorizing the allocation of a portion of unanticipated federal surpluses at fiscal year-end in excess of $3 billion to the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP). This would allow the unplanned surpluses to be used for the future benefit of Canadians. More details can be found in the section entitled "Accountability."

Efficient Capital Markets

To ensure rising living standards and enable Canadians to receive the quality public services they expect of their governments, the Government of Canada is committed to reducing or eliminating impediments to the competitiveness and efficiency of Canada's economic union.

An important foundation for a strong economy is a regulatory regime for the securities market that ensures market integrity and investor protection. Efficient capital markets promote domestic and foreign investment in the economy, stimulating productivity growth and jobs. All jurisdictions recognize that Canada's securities regulatory system must be improved to respond more rapidly and effectively to regulatory and market developments at home and abroad.

The provinces and territories have made progress in improving the current system of securities regulation in Canada by narrowing regulatory differences and streamlining the administration of securities laws. To maximize benefits for investors and issuers and strengthen the federation, intensified efforts are required. The Government believes that Canadians would best be served by a common securities regulator that administers a single code, is responsive to regional needs and has a governance structure that ensures broad provincial participation. A common regulator would foster more responsive policy making, improve market efficiency, eliminate duplication, provide common standards of investor protection, and strengthen Canada's voice in international discussions on regulatory standards. It would also significantly enhance capacity for effective, integrated enforcement in capital markets across Canada.

Recognizing the importance of a common securities regulator to a stronger and more effective Canadian economic union, the Minister of Finance will engage with provinces and territories on this issue on a priority basis.

Funding Support to Provinces
and Territories to Address Immediate Pressures

The Government has made commitments with respect to post-secondary education, public transit and affordable housing. This budget confirms the immediate actions the Government is taking with regard to international assistance and arrangements with provinces and territories to provide one-time additional funding to address short-term pressures, using the existing authority under Bill C-48 (An Act to authorize the Minister of Finance to make certain payments).

Contingent on the federal surplus for 2005–06 being greater than $2 billion, and after providing up to $320 million for international assistance commitments, the Government will provide provinces and territories with up to $3.3 billion for post-secondary education, public transit, affordable housing, Northern housing and off-reserve Aboriginal housing (more details can be found in the sections entitled "Opportunity" and "Families and Communities").

The amounts designated to each of the supported areas will be paid into five third-party trusts for the benefit of provinces and territories once the federal books are closed, likely in September 2006. The Government will account for the amounts in 2005–06. Provinces and territories will have the flexibility to draw down funds as they require up to the end of the lifespan of each individual trust.

Table 3.15
Funding Support to Provinces and
Territories to Address Immediate Pressures

Notes: Population based on Statistics Canada data. Population shares for Aboriginal people living off reserve based on 2001 Census. Funding is contingent on sufficient funds being available from the federal surplus in 2005–06, and after providing up to $320 million for international assistance commitments. Precise amounts designated to each supported area will be deposited in third-party trusts upon confirmation of the 2005–06 final financial outcome for the Government of Canada. Totals may not add due to rounding.

Working to Strengthen the Federation

The Government has set out a principle-based framework to ensure a return to balanced fiscal arrangements. The companion document Restoring Fiscal Balance in Canada provides a more detailed discussion of the issues and trends in Canadian fiscal relations, outlines the Government's approach to restore fiscal balance and sets out a process for moving ahead.

The Government's approach to federal-provincial-territorial fiscal relations is one that builds on five key principles:

• Accountability through clarity in roles and responsibilities of orders of government, including accountability for how governments raise and spend public funds.

• Fiscal responsibility and budget transparency by planning on annual debt reduction of $3 billion, and fiscal planning based on accurate, timely and complete information and analysis.

• Predictable long-term fiscal arrangements that adequately support shared priorities, based on transparent principles and formulas.

• Competitiveness and efficiency of the Canadian economic union to ensure rising living standards and enable governments to deliver the quality of services Canadians expect.

• Effective collaborative management of the federation that results in practical intergovernmental mechanisms to facilitate provincial and territorial involvement in areas of federal jurisdiction and more efficient service delivery.

These elements are the foundation of the Government's approach to address concerns about fiscal imbalance and strengthen the federation. This budget proposes immediate action to restore fiscal balance and makes commitments for further action over the next year.