Canadian Transfer Payments
Encyclopedia
Transfer payments are a collection of fiscal equalization processes used in Canada
. Chief among these are the Canada Social Transfer
, the Canada Health Transfer
and equalization payments
. The last of these can be spent however the receiving provinces see fit, while the first two must be spent on social and health services respectively.
The health transfer is the largest of the three, with a combined cash and tax point value of $36.5 billion in the 2008-2009 budget. The social transfer has a cash and tax point value of $19.1 billion while the general equalization payments distributed $13.6 billion to 6 "have-not" provinces. The Territorial Formula Financing program gives $2.3 billion to the three territories in the same year.
While the territories do not participate in the equalization payment program (the Territorial Formula Financing program taking its place), they do participate in the health and social transfers.
In 2009-10, the Canada Health Transfer (CHT), at $22.6 billion in 2008–09, will continue to grow by 6-per-cent a year, providing an increase of $1.4 billion for a total of $24 billion in 2009–10. The Canada Social Transfer (CST), at $10.6 billion in 2008–09, will grow by 3-per-cent a year for a total of $10.9 billion in 2009–10. Equalization will be $14.2 billion in 2009–10. Territorial Formula Financing (TFF) will be $2.5 billion in 2009–10, an increase of $185 million over 2008–09.
In 2008-09, provinces and territories received about $49.1 billion in major transfers – an increase of $7.7 billion since 2005-06. These transfers were estimated to account for about 17 % of provincial and territorial revenues in 2008-09.
, which can be spent however the receiving provinces sees fit, the funds received as part of the Canada Health Transfer must be used by provinces and territories for the purposes of "maintaining the national criteria" for publicly provided health care in Canada as set out in the Canada Health Act
.
The CHT is made up of a cash transfer and tax transfer. In 2008-09, CHT cash transfer payments from the federal government to the provinces and territories were $22.6 billion and tax point transfers were worth $13.9 billion. Annual cash levels are set in legislation up to the 2013-14 fiscal year as a result of the September 2004 Health Accord between the federal government and the provinces/territories.
While the transfer is allocated on an equal per capita basis, the cash component is not because it takes into account the value of provincial/territorial tax points. The value of a tax point represents the amount of revenue that is generated by one percentage point of a particular tax (in the case of the CHT and the CST, the personal income tax or the corporate income tax). Since provinces do not have identical economies and, therefore, have unequal capacity to raise tax revenues, a tax point is worth more in a wealthy province than in a poorer province.
Currently Alberta and Ontario, the two provinces with the highest revenue raising ability, receive lower per capita CHT cash payments than the other provinces until recently where Ontario received $347 million in equalization payments. Also, Newfoundland, a province which has received payments since the program's creation, is now a so-called "have" province, and is now a net contributor and does not receive Equalization payments.
programme in support of post-secondary education
, social assistance and social services, including early childhood development
and early learning and childcare
. It was made independent from the Canada Health and Social Transfer
programme on April 1, 2004 to allow for greater accountability
and transparency
for federal health funding. In 2008/2009, the programme transferred $10.6 billion in cash to the provinces and a further $8.5 billion in tax points.
, the federal government makes payments to less wealthy Canadian provinces to equalize the provinces' "fiscal capacity" — their ability to generate tax revenues. The program began in 1972 and was enshrined in the constitution in 1982. In 2008-2009, six provinces will receive $13.6 billion in equalization payments from the federal government.
Until the 2009-2010 fiscal year, Ontario
was the only province to have never received equalization payments; in 2009-2010 Ontario will receive 347 million dollars, while Newfoundland, which has received payments since the program's creation, is now a so-called "have" province, and is now a net contributor and does not receive payments.
Canada's territories are not included in the equalization program - the federal government addresses territorial fiscal needs through the Territorial Formula Financing
(TFF) program.
Equalization payments are based on a formula that calculates the difference between the per capita revenue yield that a particular province would obtain using average tax rates and the national average per capita revenue yield at average tax rates. The current formula considers five major revenue sources (see below). The objective of the program is to ensure that all provinces have access to per capita revenues equal to the potential average of all ten provinces. The formula is based solely on revenues and does not consider the cost of providing services or the expenditure need of the provinces.
Equalization payments do not involve wealthy provinces making direct payments to poor provinces as the money comes from the federal treasury. As an example, a wealthy citizen in New Brunswick, a so-called "have not" province, pays more tax into the federal system and funds more equalization than a poorer citizen in Alberta that pays less federal tax, a so-called "have" province. However, because of Alberta's greater population and wealth, the citizens of Alberta as a whole are net contributors to equalization, while the government of New Brunswick, therefore the citizens, are net receivers of equalization payments.
Equalization payments are one example of what are often collectively referred to in Canada
as "transfer payments", a term used in other jurisdictions to refer to cash payments to individuals. Unlike conditional transfer payments such as the Canada Health Transfer
or the Canada Social Transfer
, the money the provinces receive through equalization can be spent in any way the provincial government desires. The payments are meant to guarantee "reasonably comparable levels" of health care
, education
, and welfare in all the provinces. The definition of "reasonably comparable levels", however, has been the subject of considerable debate.
In 2008-2009, the total amount of the program was roughly 13.6 billion Canadian dollar
s.
Traditionally, the payments have been seen as a way of promoting national unity. Approximately 70% of the 10 million Canadians residing in "have not" provinces are in Quebec. However, recent negotiations surrounding the renewal of the program have created considerable tension among provinces. Due to the zero-sum nature of the formula, increases in entitlements for some provinces necessarily lead to decreases for others.
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
. Chief among these are the Canada Social Transfer
Canada Social Transfer
The Canada Social Transfer is the Canadian government's transfer payment program in support of post-secondary education, social assistance and social services, including early childhood development and early learning and childcare...
, the Canada Health Transfer
Canada Health Transfer
The Canada Health Transfer is the Canadian government's transfer payment program in support of the health systems of the provinces and territories of Canada...
and equalization payments
Equalization payments
Equalization payments are cash payments made in some federal systems of government from the federal government to subnational governments with the objective of offsetting differences in available revenue or in the cost of providing services....
. The last of these can be spent however the receiving provinces see fit, while the first two must be spent on social and health services respectively.
The health transfer is the largest of the three, with a combined cash and tax point value of $36.5 billion in the 2008-2009 budget. The social transfer has a cash and tax point value of $19.1 billion while the general equalization payments distributed $13.6 billion to 6 "have-not" provinces. The Territorial Formula Financing program gives $2.3 billion to the three territories in the same year.
While the territories do not participate in the equalization payment program (the Territorial Formula Financing program taking its place), they do participate in the health and social transfers.
Total federal transfers
The Canadian federal government budgeted in 2009-10 nearly $60 billion to transfer to the provinces and territories through major transfers (Canada Health Transfer, Canada Social Transfer, Equalization and Territorial Formula Financing), direct targeted support and trust funds – an increase of $6.7 billion from the previous year.In 2009-10, the Canada Health Transfer (CHT), at $22.6 billion in 2008–09, will continue to grow by 6-per-cent a year, providing an increase of $1.4 billion for a total of $24 billion in 2009–10. The Canada Social Transfer (CST), at $10.6 billion in 2008–09, will grow by 3-per-cent a year for a total of $10.9 billion in 2009–10. Equalization will be $14.2 billion in 2009–10. Territorial Formula Financing (TFF) will be $2.5 billion in 2009–10, an increase of $185 million over 2008–09.
In 2008-09, provinces and territories received about $49.1 billion in major transfers – an increase of $7.7 billion since 2005-06. These transfers were estimated to account for about 17 % of provincial and territorial revenues in 2008-09.
Canada Health Transfer
Unlike Equalization paymentsEqualization payments
Equalization payments are cash payments made in some federal systems of government from the federal government to subnational governments with the objective of offsetting differences in available revenue or in the cost of providing services....
, which can be spent however the receiving provinces sees fit, the funds received as part of the Canada Health Transfer must be used by provinces and territories for the purposes of "maintaining the national criteria" for publicly provided health care in Canada as set out in the Canada Health Act
Canada Health Act
The Canada Health Act is a piece of Canadian federal legislation, adopted in 1984, which specifies the conditions and criteria with which the provincial and territorial health insurance programs must conform in order to receive federal transfer payments under the Canada Health Transfer...
.
The CHT is made up of a cash transfer and tax transfer. In 2008-09, CHT cash transfer payments from the federal government to the provinces and territories were $22.6 billion and tax point transfers were worth $13.9 billion. Annual cash levels are set in legislation up to the 2013-14 fiscal year as a result of the September 2004 Health Accord between the federal government and the provinces/territories.
While the transfer is allocated on an equal per capita basis, the cash component is not because it takes into account the value of provincial/territorial tax points. The value of a tax point represents the amount of revenue that is generated by one percentage point of a particular tax (in the case of the CHT and the CST, the personal income tax or the corporate income tax). Since provinces do not have identical economies and, therefore, have unequal capacity to raise tax revenues, a tax point is worth more in a wealthy province than in a poorer province.
Currently Alberta and Ontario, the two provinces with the highest revenue raising ability, receive lower per capita CHT cash payments than the other provinces until recently where Ontario received $347 million in equalization payments. Also, Newfoundland, a province which has received payments since the program's creation, is now a so-called "have" province, and is now a net contributor and does not receive Equalization payments.
Canada Social Transfer
The Canada Social Transfer is the Canadian government's transfer paymentTransfer payment
In economics, a transfer payment is a redistribution of income in the market system. These payments are considered to be exhaustive because they do not directly absorb resources or create output...
programme in support of post-secondary education
Education in Canada
Education in Canada is for the most part provided publicly, funded and overseen by federal, provincial, and local governments. Education is within provincial jurisdiction and the curriculum is overseen by the province. Education in Canada is generally divided into primary education, followed by...
, social assistance and social services, including early childhood development
Child development
Child development stages describe theoretical milestones of child development. Many stage models of development have been proposed, used as working concepts and in some cases asserted as nativist theories....
and early learning and childcare
Childcare
Child care means caring for and supervising child/children usually from 0–13 years of age. In the United States child care is increasingly referred to as early childhood education due to the understanding of the impact of early experiences of the developing child...
. It was made independent from the Canada Health and Social Transfer
Canada Health and Social Transfer
The Canada Health and Social Transfer was a system of block transfer payments from the Canadian government to provincial governments to pay for health care, post-secondary education and welfare, in place from the 1996-97 fiscal year until the 2004-05 fiscal year...
programme on April 1, 2004 to allow for greater accountability
Accountability
Accountability is a concept in ethics and governance with several meanings. It is often used synonymously with such concepts as responsibility, answerability, blameworthiness, liability, and other terms associated with the expectation of account-giving...
and transparency
Transparency (humanities)
Transparency, as used in science, engineering, business, the humanities and in a social context more generally, implies openness, communication, and accountability. Transparency is operating in such a way that it is easy for others to see what actions are performed...
for federal health funding. In 2008/2009, the programme transferred $10.6 billion in cash to the provinces and a further $8.5 billion in tax points.
Equalization payments
In CanadaCanada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, the federal government makes payments to less wealthy Canadian provinces to equalize the provinces' "fiscal capacity" — their ability to generate tax revenues. The program began in 1972 and was enshrined in the constitution in 1982. In 2008-2009, six provinces will receive $13.6 billion in equalization payments from the federal government.
Until the 2009-2010 fiscal year, Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
was the only province to have never received equalization payments; in 2009-2010 Ontario will receive 347 million dollars, while Newfoundland, which has received payments since the program's creation, is now a so-called "have" province, and is now a net contributor and does not receive payments.
Canada's territories are not included in the equalization program - the federal government addresses territorial fiscal needs through the Territorial Formula Financing
Territorial Formula Financing
Territorial Formula Financing is an annual unconditional transfer payment from Canada's federal government to the three territorial governments of Yukon, the Northwest Territories, and Nunavut to support the provision of public services....
(TFF) program.
Equalization payments are based on a formula that calculates the difference between the per capita revenue yield that a particular province would obtain using average tax rates and the national average per capita revenue yield at average tax rates. The current formula considers five major revenue sources (see below). The objective of the program is to ensure that all provinces have access to per capita revenues equal to the potential average of all ten provinces. The formula is based solely on revenues and does not consider the cost of providing services or the expenditure need of the provinces.
Equalization payments do not involve wealthy provinces making direct payments to poor provinces as the money comes from the federal treasury. As an example, a wealthy citizen in New Brunswick, a so-called "have not" province, pays more tax into the federal system and funds more equalization than a poorer citizen in Alberta that pays less federal tax, a so-called "have" province. However, because of Alberta's greater population and wealth, the citizens of Alberta as a whole are net contributors to equalization, while the government of New Brunswick, therefore the citizens, are net receivers of equalization payments.
Equalization payments are one example of what are often collectively referred to in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
as "transfer payments", a term used in other jurisdictions to refer to cash payments to individuals. Unlike conditional transfer payments such as the Canada Health Transfer
Canada Health Transfer
The Canada Health Transfer is the Canadian government's transfer payment program in support of the health systems of the provinces and territories of Canada...
or the Canada Social Transfer
Canada Social Transfer
The Canada Social Transfer is the Canadian government's transfer payment program in support of post-secondary education, social assistance and social services, including early childhood development and early learning and childcare...
, the money the provinces receive through equalization can be spent in any way the provincial government desires. The payments are meant to guarantee "reasonably comparable levels" of health care
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...
, education
Education
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
, and welfare in all the provinces. The definition of "reasonably comparable levels", however, has been the subject of considerable debate.
In 2008-2009, the total amount of the program was roughly 13.6 billion Canadian dollar
Canadian dollar
The Canadian dollar is the currency of Canada. As of 2007, the Canadian dollar is the 7th most traded currency in the world. It is abbreviated with the dollar sign $, or C$ to distinguish it from other dollar-denominated currencies...
s.
Traditionally, the payments have been seen as a way of promoting national unity. Approximately 70% of the 10 million Canadians residing in "have not" provinces are in Quebec. However, recent negotiations surrounding the renewal of the program have created considerable tension among provinces. Due to the zero-sum nature of the formula, increases in entitlements for some provinces necessarily lead to decreases for others.