Less debt helped governments reinvest in health care — CIHI

There is no question that the last decade was a period of reinvestment in health care.

The recent report on health care cost drivers by the Canadian Institute for Health Information (CIHI) suggests governments made a conscious decision to invest in health care when revenues became available from eliminating deficits and paying down debt.

By reducing the amount spent on servicing that debt, governments across Canada were able to increase spending on key areas at a rate that exceeded overall revenue growth.

The share of provincial government spending on servicing debt in Canada was 14 per cent in 1998. By 2008 it had fallen to 8.5 per cent, creating a substantial fiscal dividend.

If you discount general inflation and population growth, public health care spending grew by an average of 3.4 per cent per year from 1998-2008 – the same growth rate of overall government program spending.

CIHI emphasizes health care was not alone in reaping the benefits of reduced debt: “spending in other major sectors, including transportation, communications and education, also exceeded revenue growth,” the report states.

Some of that dividend also went to major tax cuts, which CIHI says explains the relatively weak growth of government revenues during the decade.

Between 1998 and 2008 the average increase in GDP (GDP = measure of overall economic growth) — after inflation is factored out — was 1.9 per cent. The real growth of government revenue was only 1.4 per cent.

“As a result of tax reductions, provincial government revenues have not kept up with general economic growth,” the report states.

With increases in provincial debt, that dividend will likely disappear. We gave away any potential to buffer ourselves by slowing revenues in the form of tax cuts.

Rather than address that issue, it appears the government is more interested in reducing expenditure, risking a further drop in economic growth. That could have a spiral effect that will bounce back on future government revenues.

As we have previously stated, some of this new health care investment over the last decade should reap some of its own dividends, including investments in e-health, a renegotiated deal with the Ontario Medical Association that reflects technologically driven savings, and initiatives to bring down the cost of drugs.

These kinds of initiatives are usually slow to impact budgets, often hidden amid increases in other expenditures.

Will it be enough, or will we be facing significant cuts to health care as the decade progresses? We won’t likely find out until the impact of the spring budget is felt.

Let’s not forget the province is also receiving significant transfers from the Federal government for health care. At least for two more years half of the three per cent will come in the form of transfers, meaning the real cost to Ontario will be about 1.5 per cent.