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Conservative Logic Behind Healthcare: Revisited

Federal Finance Minister Jim Flaherty, right, speaks to Bank of Canada governor Mark Carney prior to to a provincial, territorial and federal finance ministers meeting in Victoria Monday.In a previous post, I analyzed the main talking points of the Conservatives and found that a basic logic behind their proposed cuts in spending increases for provincial healthcare transfers made sense. However, while the logic behind the plan was sound, the plan itself wasn’t. The lack of leadership and the misguided neglect of the system will lead to bigger problems in the future – at least, this is what the Parliamentary Budget Watchdog says.

The Tory plan leaves the provinces to figure things out on their own. In their stunned independent recollections, we can expect tax hikes or massive cuts to service due to this move. While it would save Ottawa billions annually, the lack of a concrete plan kills its sound logic.

Cuts are tricky; cut the right things and you can improve service, cut the wrong things and you are left with a structural mess that will actually inflate in cost over time.

With this change, Canada's fiscal health would do fine, debt could be repaid, taxes could be reduced and spending increased – on the federal level. But there is a price: the quality of our healthcare and the fiscal health of our provinces and that would mean a counter-balance toward the provinces – don’t expect to gain anything.

Page published his predictions of what would happen between now and 2018 if healthcare transfers are paired with economic growth at 3.9%.

Page’s Predictions

  • Federal government could reduce revenue (cut taxes) or increase program spending or a combination of both.
  • Substantial decrease in federal payments to provinces.
  • Provincial and territorial Debt-to-GDP ratios will rise substantially – a recipe for disaster.
  • Growth in program spending is squarely in hands of provinces with limited resources.
  • Federal and provincial combined debt will grow substantially faster than the economy and thus make Canada’s overall debt to GDP ratio grow substantially – another recipe for disaster (look at Greece).

So what does this all mean? It means that without a plan and only cuts, you will create cost runoffs down the road. Spending increases are not sustainable and they do need to be scaled back, but there needs to be provincial and federal leadership for it to work and neither conditions exist.

If the cuts mean a restructuring and re-innovation of the system to bring savings, cutting down on bureaucratic fat and misdiagnosis with more prudent techniques, or setting guide lines and targets to get there, it makes sense, but the government hasn’t done either and the provinces are clueless.

The economic logic is sound, we need a more efficient healthcare system. However, the implementation and execution are flawed to the point that it could destroy healthcare and put the country needlessly deeper into debt.