VANCOUVER—If the federal government pursued reductions in provincial transfers like those made during the mid-1990s, the provinces would face a $19.4 billion funding shortfall in order to maintain current spending levels, according to a new study published by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“When the federal government makes spending commitments in areas of provincial jurisdiction, there is always the risk that when federal priorities change, the provinces will be on the hook to finance those programs and their increasing costs,” said Jake Fuss, director of fiscal studies at the Fraser Institute and co-author of What Happens If Provinces Are Left Holding the Bag? Calculating the Fiscal Burden of Federal Intrusions in Provincial Jurisdiction.

Recent announcements by the federal government to increase defence spending, coupled with deteriorating federal finances may cause the federal government to reduce or even eliminate funding for programs that fall under provincial jurisdiction, as happened in the 1990s.

As an example, the study calculates what would happen if Ottawa cut the Canada Health Transfer and the Canada Social Transfer by 15 per cent and eliminated funding for the new federal dentalcare and childcare programs. If Ottawa had enacted these measures in 2024/25, provinces would be responsible for managing a combined funding shortfall of $19.4 billion.

And if they wanted to maintain the previous level of spending in 2024/25, individual provinces would have needed to raise spending by amounts ranging from $85.2 million in P.E.I. to $7.5 billion in Ontario.

Crucially, had provincial governments chosen to raise taxes to fund this higher spending, individual taxpayers would have needed to pay between $804 (Nova Scotia, on average) and $985 (Saskatchewan, on average) in additional provincial taxes in 2024/25. The average increase across all provinces would have been $875 per taxpayer.

“Provincial policymakers should be aware of the risk to their own fiscal positions and exercise greater caution when entering into funding agreements with the federal government for programs that fall within provincial jurisdiction, because the responsibility is ultimately theirs” said Grady Munro, senior policy analyst and co-author.

Average cost per taxpayer by province to offset funding shortfall, 2024/25

Fraser Institute——Bio and Archives

The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute’s independence, it does not accept grants from governments or contracts for research. Visit fraserinstitute.org.

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