REGINA — If the federal government pursues reductions in provincial transfers as it did during the 1990s, it could mean huge shortfalls for provinces trying to maintain current spending levels.
That is the conclusion of the latest study from the Fraser Institute, which looked at what might happen if Ottawa pursued reductions like those made during prime minister Jean Chrétien's term in government.
The Fraser Institute found that provinces would face a $19.4-billion funding shortfall if they sought to maintain their current spending levels and make up for the federal transfer money that was lost.
"It's a pretty substantial cost to provincial taxpayers to pick up the funding for those," said Jake Fuss, director of fiscal studies at the Fraser Institute and co-author of the report "What Happens if Provinces Are Left Holding the Bag? Calculating the Fiscal Burden of Federal Intrusions into Provincial Jurisdiction."
The $19.4 billion is what the report calculates would be the fiscal burden if Ottawa were to cut the Canada Health Transfer and the Canada Social Transfer by 15 per cent and eliminate funding for dental and child care as well.
"So this is essentially looking at something that the Chrétien government did back in the 1990s," Fuss said.
"They cut transfers to the provinces by 15 per cent on the Canada Health and Social Transfer program. So if we're modelling that again today, you know, that's going to come at substantial costs to taxpayers in the provinces who are going to have to pick up that funding. And at the same time, you also have some of these other newer federal programs like dental care and child care that were only created within the last decade or so, but that are clearly in provincial jurisdiction and for which there are agreements between the provincial and federal governments over funding."
The impact would vary by province, according to the study, which estimated the biggest hit would be to Saskatchewan.
"For Saskatchewan taxpayers, it's almost $1,000 a person, so it's $985 per taxpayer to offset those … potential federal cuts that would be made on those programs that are in provincial areas of jurisdiction," Fuss said.
Similarly, he said, Manitoba right next door is "just $3 less than Saskatchewan. So the costs are generally going to be felt more in some of the Prairie provinces like Saskatchewan, Manitoba, and Alberta." The average hit across the country is calculated at $875 per taxpayer.
The study finds that if the provinces wanted to maintain their 2024-25 spending levels, they would need to raise their own spending by amounts ranging from $85 million in P.E.I. to $7.5 billion in Ontario.
In Saskatchewan, it would be about $630 million — a tough pill to swallow in a province that this spring projected a deficit of $819 million for 2026-27.
"When we look at the costs for these provinces, every single province is currently in a deficit situation," Fuss said.
"So these are costs that will likely either result in more borrowing for the provinces, reduced spending elsewhere, or higher taxes for provincial taxpayers in all these provinces. And it's not an insignificant amount of money. You know, we're talking, you know, hundreds of millions or billions of dollars for all the provinces across the country."
This year, the federal government again faces pressure from a massive budget deficit — similar to what then-finance minister Paul Martin was up against in the 1990s. A looming question is what the consequences could be for the provinces if the federal government decided to get serious about addressing its deficit and put transfers on the chopping block to do it.
"If the federal government were to withdraw that funding for those programs because it is reining in the federal deficit it has right now, which is growing considerably, that ultimately is going to add significant costs to the provinces that would have to pick up the slack there as well," Fuss said.
He called this a "big risk for provinces because they're allowing the federal government to get into their jurisdiction." As for what the takeaway should be for lawmakers, Fuss said the premiers "should be aware of the risk to their own fiscal positions."
"They ultimately need to exercise much greater caution when they're talking about these funding agreements with Ottawa, especially for programs that fall within provincial jurisdiction, because at the end of the day, the responsibility and the costs are ultimately going to be borne by them if Ottawa decides to reverse course, or there's another government that doesn't want to adopt the same agreements, or even the current government decides we have to get rid of some of these agreements in order to rein in our federal finances right now. So I think there's a huge risk right now for premiers, and I think there needs to be a lot more caution exercised."
