Provinces should be cautious about cost-sharing agreements with Ottawa
According to Premier Danielle Smith, Alberta will withdraw from the federal government’s dental care plan by 2026. This is mainly because the plan would duplicate coverage already provided to many Albertans (although she plans to negotiate unconditional funding in lieu of being in the program).
Indeed, all provinces should be wary of entering into such agreements as history has shown that Ottawa can reduce or eliminate funding at any time, leaving the provinces holding the bag.
In the 1990s, for instance, the federal government reduced health and social transfers to the provinces amid a fiscal crisis fuelled by decades of unrestrained spending and persistent deficits (and worsened by high interest rates). Gross federal debt increased from $38.9 billion in 1970/71 to $615.9 billion in 1993/94, at which point debt interest costs consumed roughly $1 in every $3 of federal government revenue.
In response to this debt crisis, the Chrétien Liberal government reduced spending across nearly all federal departments and programs. Over a three-year period to 1996/97, health and social transfers to the provinces were 51 per cent ($41.0 billion) less than what the provinces expected based on previous transfers. In other words, the provinces suddenly got a lot less money from Ottawa than they anticipated.
