By Bacchus Barua
and Milagros Palacios
The Fraser Institute
Health care is the single largest budget item for every provincial government in Canada. Increases in spending on healthcare can therefore have a significant impact on resources available for other government programs (such as education and social services), the tax system, and the government’s fiscal balance and debt.
Based on the historical trends observed over the last 15 years or so, in addition to expectations regarding inflation and a growing (and ageing) population, healthcare spending is projected to consume an increasing portion of both program spending and the economy.
A new study by the Fraser Institute estimates that, across Canada, healthcare spending by provincial governments will grow from consuming 40.6 percent of total program spending (in 2015) to 47.6 percent (in 2030). By comparison, healthcare represented 34.4 percent of program spending in 1998.
While every province is expected to see healthcare spending consume a larger portion of their budget in the future, five provinces (P.E.I., Nova Scotia, New Brunswick, Ontario and British Columbia) will see health spending grow close to or exceed 50 percent of total program spending. Only Quebec and Saskatchewan are expected to keep healthcare spending under 40 percent of total program spending.
Notably, healthcare spending by Canada’s provincial governments (in total) is also projected to consume a larger portion of country’s economy – growing from 7.3 percent of GDP in 2015 to 10.7 percent in 2030. In particular, the Atlantic Provinces and Manitoba may see healthcare spending consume more than 15 percent of their provincial economies in the future.
Given the expected increases in the ratio of healthcare spending to both total program spending and GDP, it’s clear we are facing a fiscally unsustainable future. If governments continue along this path, there will have to be either reductions in spending on other programs, or higher taxation, higher deficits and debt, or some combination of these three.
Of course, the examples of other countries with universal healthcare systems prove that increased spending is not a necessary prerequisite for a better healthcare system. In fact, many countries spend similarly (or less) than Canada does (including public and private spending), and yet have more medical resources, shorter wait times, and similar (or better) outcomes. However, unlike Canada, these countries generally incentivize hospitals based on activity, require patients to share the costs of treatment, and involve the private sector (either as a partner, or an alternative) – all while ensuring the promise of universally accessible care.
While Canadians and their elected policymakers will have to ultimately decide which of these policies to experiment with and implement, it’s clear that the current model will become increasingly unsustainable from an economic standpoint. Provincial governments need to either re-examine how their healthcare dollars are spent and implement meaningful healthcare reform or face the consequences of fewer resources for other programs, an increased tax burden, or larger debt.
Bacchus Barua and Milagros Palacios are analysts at the Fraser Institute.