International Journal of Policy Studies Vol.7, No.2, 2016

A Critical Study of Canada Social Transfer as an Instrument of Social Policy

Devi Roy Jawaharlal Nehru University, India

Abstract The expansion of the federal role in social policy led to the development of a Canadian welfare state. The federal government funds the majority of social programmes through the mechanisms of (CHT) and Canada Social Transfer (CST). The CST is the federal transfer payment programme in support of education, social assistance and social services, which includes early childhood development and early learning and childcare. The CST was initially combined with the CHT in a programme called the Canada Health and Social Transfer (CHST) 1995. It was made independent from the Canada Health and Social Transfer programme on April 1, 2004, to allow for greater accountability and transparency in the social sector areas. As CHST was bifurcated into CHT and CST, the CHT is the largest major transfer and it provides funding for healthcare and supports the principles of the Canada Health Act to provinces and territories. The present paper attempts to analyse that CST is the primary federal contribution in Canada to provincial and territorial social programmes and is also an instrument of social policy. The federal transfer is an important instrument for the provinces and the territories for a social change. For the implementation of the policy, fund plays a crucial role. So from this paper tries to analyse the Canada Social Transfer as a key instrument of the social policy of 10 provinces and 3 territories. It has taken data of one decade from 2005 to 2015. Key Words: Canada Health and Social Transfer, Federal Transfer, Social Programmes

INTRODUCTION

The research paper can be broadly classified into four sections. In the first section, an attempt is made to define the social policy. It further highlights the Canada Social Transfer (CST). The subsequent section deals with the evolution of social transfers in Canada. The section focuses on social transfer payments that have evolved from cost sharing programmes to block funding transfers. The next section focuses on the bifurcation of CHST into CST and CHT. The federal cash transfer through CST to all provinces and territories has been analysed and has taken data of one decade from 2005 to 2015.The last section concludes that despite CST as an instrument of social policy, the funding provided through CST of one decade as 36 Devi Roy

compared to CHT is insufficient in the areas of social assistance, social services, childcare and early childhood education, and post-secondary education.

SOCIAL POLICY

Throughout the history of the Canadian state, the federal and provincial governments have designed different social policies according to different intergovernmental rules and processes. In the 1950s and 1960s, the federal government used shared-cost programmes to help the provinces to expand the social programmes (health care, post-secondary education, social assistance and welfare services) that met national objectives (Banting 2008). Shared-cost programmes mean the federal government’s financial support to social programmes operated by provincial governments on specific terms and conditions. Each government makes separate decisions: the federal government decides when, what and how to support provincial programs and each provincial government must decide whether to accept the money and the terms (Banting 2008) or not. According to Hicks (2008), a social policy can be defined broadly to include income support such as seniors' benefits, unemployment insurance and tax credits, employment and labour programming, education, health and social housing, and social services. Marshall Watson (2011) stated that: "Social policy focuses on the systematic evaluation and response to social changes and needs. It refers to the decisions taken by the government concerning goals for society and the means of achieving them."

Canada Social Transfer

The federal government of Canada provides major financial support to provincial and territorial governments to support them in the provision of programmes and services. There are four main transfer programmes: (1) the Canada Health Transfer (CHT)1, (2) the Canada Social Transfer (CST), (3) Equalization2, and (4) Territorial Formula Financing (TFF)3. The Canada Social Transfer (CST) is the primary source of federal funding in Canada that supports provincial and territorial social programmes, specifically, post-secondary education, social assistance and social services, and programmes for children. Federal legislation dictates only one condition that the provinces and territories are required to meet to receive CST funding: to ensure that there is no minimum residency period required before persons are eligible to receive social assistance (Gauthier 2012 ).The Department of Finance (2010)stated that: A Critical Study of Canada Social Transfer as an Instrument of Social Policy 37

“The Canada Social Transfer (CST) is the primary federal contribution in Canada to provincial and territorial social programs related to post-secondary education (PSE), social assistance and social services, and programs for children. Under section 24.3 of the Federal-Provincial Fiscal Arrangements Act, to receive their full share of funding, provinces and territories must meet the sole criterion that no person is required to live in a province or territory for a minimum period before becoming eligible to receive social assistance. The Act also states that the CST is to be provided to finance social programs in a manner that gives provinces and territories flexibility, and encourages federal, provincial and territorial governments to coordinate the development of shared principles and objectives for these social programs.The federal government estimates that it will transfer some $11.9 billion in cash support to the provinces and territories through the CST in 2012–2013, with an additional $9 billion provided through a tax point transfer. The value of the CST cash transfer is determined by a legislated funding formula, in which payments to provinces and territories are provided on an equal per capita basis and are set to grow by 3% annually according to an automatic escalator. The tax point transfer consists of the estimated current value of a transfer of federal personal and corporate income tax points to provincial and territorial governments that occurred in 1977.”

So one needs to understand that in the CST the only condition is that provinces must not impose a residency requirement on social assistance. The CST is money allocated from the federal government to the provincial and territorial governments to spend as each province or territory deems necessary to meet the needs of its population in the areas of post-secondary education, social assistance and social services, and programs for children (Department of Finance Canada 2010).

EVOLUTION OF SOCIAL TRANSFERS

In the 1950s and 1960s, the federal government encouraged the development of nationwide hospital and medical care, and social programmes in support of post-secondary education, social assistance and social services (Gauthier 2012).The evolution of social transfers is as follows:

Cost Sharing Program 1960s and the (CAP) 1966

The CAP was introduced in 1966 and was a 50/50 cost-sharing programme covering eligible expenditures that the provincial and territorial governments sustained in providing social services. It has been stated that “to be eligible for federal funding under the CAP, provinces 38 Devi Roy

and territories had to meet specific conditions for social assistance programs, including the use of a “needs” test to determine financial need for individual recipients. CAP criteria also upheld the restriction against provinces or territories imposing a minimum residency requirement for social assistance eligibility (Gauthier 2012)”.

The Established Programmes Financing (EPF) Era, 1977/1978 to 1995/1996

In 1977, the EPF was introduced, replacing cost-sharing programmes for health and post-secondary education. With the Canada Health Act of 1984, the EPF funding was made conditional in respect of the five criteria of the Canada Health Act, which are universality, accessibility, portability, comprehensiveness, and public administration (Health Canada www.hc-sc.gc.ca). In 1995, the federal budget announced that the CAP and EPF would be combined into one block fund – the Canada Health and Social Transfer (CHST). The CHST provided funds to the provincial and territorial governments in support of healthcare, post-secondary education, social assistance and social services (Provincial and Territorial Ministers of Health 2000).The new block fund introduced in 1977/78, the EPF arrangements, had unique characteristics: the federal contribution compromised both a cash payment4 and a notional “tax point value”4 (Provincial and Territorial Ministers of Health2000). Thus, EPF was no longer designed to pay one-half of the cost of provincial social programmes, but rather was to provide equal per capita grants to provinces to grow at the same rate as Canadian GDP. In 1990, the per capita grant was frozen and restraint continued and finally in 1996, the federal government announced the termination of EPF grants and the creation of a new block grant to support health, education, and post-secondary education i.e. the Canadian Health and Social Transfer(CHST)(Harvey 2014).

Canada Health and Social Transfer (CHST) 1996 to 2003

With the introduction of CHST in 1996/97, the federal government unilaterally changes in funding to provinces/territories in support of health, post-secondary education and social services. The federal budget announced that the CAP and the EPFare combined into one block fund-CHST. At the same time, the federal government imposed significant cuts in the level of transfers to the provinces/territories.In 1997/98, the value of the federal transfers had fallen to $12.5 billion. The CHST was $6.2billion less than EPF and CAP had been in 1994/95(Provincial and Territorial Ministers of Health 2000). Like the EPF, the CHST was a combination of the A Critical Study of Canada Social Transfer as an Instrument of Social Policy 39

1977 tax transfer and a cash transfer and the total was allocated on an equal per capita basis (Department of Finance Canada, History of Health and Social Transfers). The CHST was a single block fund to provincial and territorial governments in support of health care, post-secondary education, social assistance and social services. With the introduction of the CHST, Budget 1995 noted that:

• Provinces and territories would no longer be subject to rules stipulating which expenditures were eligible for cost sharing.

• Provinces and territories would be free to pursue their own innovative approaches to social security reform.

• Federal expenditures would no longer be driven by provincial and territorial decisions on how, and to whom, social assistance and social services would be provided (Department of Finance Canada. Budget Plan 1995).

During 1999 budget, there was a series of First Ministers meetings primarily on the subject of health care, but not on social programmes like in Post–Secondary Education (PSE) and support for children. The provinces and territories were concerned with the rising costs of providing public health insurance in Canada. At each of the meetings, federal, provincial and territorial governments came to agreements that increased the level of federal cash transfers for health care, and to a lesser extent PSE and support for children, in return for provincial and territorial commitments for renewal and reform of their existing systems (Gauthier 2012).

Health Accords in 2000 and 2003 and Split of Canada Health and Social Transfer (CHST)

In 2000, the federal government announced $23.4 billion in new spending over five years on health care renewal and early childhood development (Department of Finance Canada. Federal Investments in Health Care).At the meeting of the first ministers or premiers of the provinces in February 2003, there was an agreement on renewing the health care. This would result in an increase in federal support for health care and also agreed to restructure the CHST in April 2003by dividing it into two separate transfers: the Canada Health Transfers (CHT) and the Canada Social Transfers (CST). So, in 2004, the federal government again separated the CHST. The CHT retained the conditions of the Canada Health Act (Harvey 2014).In September 2004, First Ministers signed the 10-Year Plan to Strengthen Health Care, which included $41 40 Devi Roy

billion in the federal support for the provincial health systems over the 10-year period from 2004–2005 to 2013–2014. The purpose of a new funding was to strengthen the federal support to provinces and territories through the CHT (Department of Finance Canada. Federal Investments in Health Care).The CHT is the largest major transfer to provinces and territories, funding for healthcare. After the CHT, the CST is the second biggest block transfers as shown in Figure 1.

Figure 1. Health and Social Transfers over Time 1993-94 to 2014-15

Source: Department of Finance Canada. History of Health and Social Transfers.

From the above discussion in the 1950s and 60s, it becomes clear that the federal transfers were ‘conditional’ cost-sharing grants that encouraged the establishment of national programmes (Department of Finance Canada).One needs to understand that over the years of health and social transfers, payments have developed from cost sharing programs to block funding transfers. In due course of time, as these programmes became more established, there was a less necessity for the rigorous and comprehensive reporting and auditing required by the federal government. Thereafter, federal support for national priorities began to shift to ‘block funding’ based on acceptance of broad principles and shared objectives. The ‘block’ funding structure gives provinces and territories greater flexibility in designing and administering programmes. A Critical Study of Canada Social Transfer as an Instrument of Social Policy 41

FEDERAL CASH TRANSFER TO PROVINCES AND TERRITORIES THROUGH CST FROM 2005 TO 2015

This section deals with federal cash transfer in the social sector to ten provinces and three territories of Canada. The ten provinces are: Alberta, British Columbia, Manitoba, New Brunswick, New Foundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan. And the territorial governments are Nunavut, Yukon, and the North West Territories.

ALBERTA

Alberta is a province in the western part of Canada. The capital of the province is Edmonton. It is a main supply and service hub of oil sands.

Figure 2. Canada Social Transfer (C$million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories. 2015

The comparison between the financial year 2005 and 2015 in Canada’s Social Transfer shows the increment of C$865 which is an increase of 146.1%.The figure of Canada Social Transfer in Alberta also shows the vast fluctuations and dispersions in the above mentioned period. 42 Devi Roy

BRITISH COLUMBIA

British Columbia is a province located in the western part of the country. The provincial capital is Victoria. Its abundant resources have allowed it to have substantial incomes from mining and logging.

Figure 3. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories.2015

The above line graph of Canada Social Transfer indicates no significant change in its movement over the period of the past ten years. The improvement in social transfer in 2005-2006 is C$1,188 which reached to C$1,640 only in 2014-15.

MANITOBA

Manitoba is a prairie province. The capital of the province is Winnipeg. It also has significant energy, forestry, mining, manufacturing, tourism and transportation sectors. A Critical Study of Canada Social Transfer as an Instrument of Social Policy 43

Figure 4. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories. 2015

The above line graph of Canada Social Transfer indicates a significant change in its movement over the period of the past ten years. The improvement in social transfer in 2005-2006 is C$334 which reached to C$454 in 2014-15.

NEW BRUNSWICK

New Brunswick is a Maritime Province. The capital of the province is Fredericton. It has significant industries in mining, forestry, fishing and mixed farming.

Figure 5. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories. 2015 44 Devi Roy

The much lower incremental increase is shown by the Canada Social Transfer. The financial year 2005 to 2015 shows increments of around C$55, this cannot be counted as a significant improvement over the period of 10 years.

NEWFOUNDLAND AND LABRADOR

Newfoundland and Labrador is the easternmost province of Canada. It is Located in the Atlantic region and combines a mainland Labrador with the island of Newfoundland. The capital and largest city is St. John’s. It has significant mining, manufacturing and oil production industries.

Figure 6. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories Canada. 2015

The social transfer has not shown much movement in terms of the value of transfers by the government. The comparison between the financial year 2005 and 2015 shows the increment of C$41 which is an increase of 28%.

NOVA SCOTIA

Nova Scotia is a Maritime Province. The provincial capital is Halifax. It has a vibrant defence and aerospace sector, mainly because nearly 40 percent of the military assets of the country are in the province. A Critical Study of Canada Social Transfer as an Instrument of Social Policy 45

FIGURE 7. Canada Social Transfer C$ (million)

Source: Department of Finance. Federal Support to Provinces and Territories Canada. 2015

The much lower incremental increase is shown by the Canada Social Transfer. The comparison over the decade (the financial year 2005 to 2015) shows the increment of around C$68which cannot be counted as a significant improvement over the period of a decade.

ONTARIO

Ontario is a province in the east-central portion of Canada. It is the second largest province in terms of land area and the most populous. The provincial capital is Ottawa, which is also the national capital. It also has the most populous city Toronto. It has abundant natural resources and the presence of rivers makes it rich in hydroelectric power.

Figure 8. Canada Social Transfer C$ (million)

Source: Department of Finance. Federal Support to Provinces and Territories Canada. 2015 46 Devi Roy

The comparison over the decade (the financial year 2005 to 2015) shows the increment of around C$1679 which is an increase of 53%, for a province with a high level of social transfers. An increase of almost 53% is an achievement worth emulating.

PRINCE EDWARD ISLAND

Prince Edward Island is a Maritime Provinces. It only has limited manufacturing and heavy industries.

Figure 9. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories.2015

The line graph of Canada Social Transfer indicates no significant change as such in its movement over the period of the past ten years. The improvement in social transfer 2005-2006 is C$39which reached to C$52only in 2014-15 which is an increase of 30.7%.

QUEBEC

Quebec is located in east-central Canada. A majority of its population speaks French and it is the only province in the entire country that has French as its official language. It is the second most populous province and its capital is Quebec City. It has significant aerospace, biotechnology, information and communication and pharmaceutical industries. A Critical Study of Canada Social Transfer as an Instrument of Social Policy 47

Figure 10. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories.2015

The data of Canada Social Transfer also indicates a significant change in its movement over the period of the past ten years. The improvement in social transfer 2005-2006 is C$2,146 which reached to C$2,908in 2014-15 which is an increase of 35.5%.

SASKATCHEWAN

Saskatchewan is a prairie province. The capital of the province is Regina. Wheat is the most common crop and the province is also known for supplying most of the country’s grain.

Figure 11. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories.2015 48 Devi Roy

The financial year 2005 to 2015 shows the increment of around 330 which is an increase of 30.4%, which cannot be counted as a significant improvement over the period of 10 years.

NUNAVUT

Nunavut is the largest, northernmost, and least populous territory of Canada. It was separated officially from the Northwest Territories on April 1, 1999. Nunavut comprises a major portion of Northern Canada and most of the Canadian Arctic Archipelago. Thus, Nunavut is both the least populous and the largest in an area of the provinces and territories of Canada.

Figure 12. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories. 2015

The data of Canada Social Transfer indicates slight changes in its movement over the period of the past ten years. The improvement in social transfer 2005-2006 is C$10 which reached to C$13in 2014-15 which is an increase of 30%.

YUKON

Yukon is the westernmost and smallest of Canada's three federal territories. Whitehorse is the territorial capital and Yukon's only city. A Critical Study of Canada Social Transfer as an Instrument of Social Policy 49

Figure 13. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories Canada.2015

The line graph of Canada Social Transfer indicates significant changes in its movement over the period of the past ten decades.

NORTHWEST TERRITORIES

The Northwest Territories are bordered by Canada's two other territories, Nunavut to the east and the Yukon to the west, and by the provinces of British Columbia, Alberta, and Saskatchewan to the south.

Figure 14. Canada Social Transfer C$ (million)

Source: Department of Finance Canada. Federal Support to Provinces and Territories.2015

The line graph of Social Transfer indicates that in 2005 to 2015, the increments were around C$7 which can be counted as a significant improvement over the period of 10 years in Canada. 50 Devi Roy

Thus, the Social Transfer of ten provinces5 and three territories of Canada within the span of a decade, i.e., from 2005 to 2015 find that there are increases and decreases in terms of number and percentage. The above federal cash transfers for provincial and territorial social programmes have undergone significant changes over the ten years after the split from the CHST. The provincial and territorial governments have different financial needs because of the geographical location and the economic factors also affect the social policy. If we look at the below Figure 15, it shows that federal support to social transfer is a lesser contribution than the health transfer from 2005 to 2015.

Figure 15. Canada Health and Social Transfer (C$ in millions)

Source: Department of Finance Canada. Federal Support to Provinces and Territories.2015

The above line graph indicates that in 2005-2006, the Canada Health Transfer (CHT) is C$20,310, and for 2014-2015 is C$32,114. The comparison between the financial year 2005 and 2015 shows that there is the increment of C$11,804 which is an increase of 58.1%. The line graph shows that in 2005-2006, the Canada Social Transfer is C$8,415 which increased to C$12,582 in the year 2014-15. The comparison between the financial year 2005 and 2015 shows that there is the increment of C$4,176 which is an increase of 38.1%. There is a vast difference in incremental increase of the CHT and the CST in the decade wise comparison of two variables. The CHT experienced a much steeper rise in the given period where growth on the CST is flatter compared to the earlier variable. It can be concluded that the bifurcation of Health and Social transfers is a welcome step for the health policy, not only in the social programmes. If we look at the year 2013-14, the cash component of these transfers provided provincial and territorial governments with $30.3 billion and $12.2 billion, respectively ─ a not so insignificant contribution to the social programmes that Canadians have come to expect from their governments. But on the other hand, Budget 2007 also made new A Critical Study of Canada Social Transfer as an Instrument of Social Policy 51

investments in CST cash starting in 2008–2009 by adding $800 million for PSE and$250 million for the development of child care as shown in the below Table 1.

Table 1. Canada Social Transfer Cash Support ($ millions) 2007– 2008– 2009– 2010– 2011– 2012– 2013– 2008 2009 2010 2011 2012 2013 2014 Support for children 850 1,100 1,133 1,167 1,202 1,238 1,275 Post-secondary Education 2,435 3,235 3,332 3,432 3,535 3,641 3,751 Other social Programmes 6,202 6,202 6,388 6,579 6,777 6,980 7,189 Total 9,487 10,537 10,853 11,179 11,514 11,859 12,215 Source: Department of Finance Canada. The Budget Plan.2007.

CONCLUSION

In summation, it can be said that financial realities play an important role in social policy. The evolution of social transfers has contributed transfers to social services and the CST is an effective mechanism for a social policy in Canada. As a result of the evolution of federal cash transfer in the social sector, provinces and territories improve their social sector by launching new programmes in the education sector as well as early childhood development. The provinces and territories wise analysis show that the federal cash transfers increasing through the mechanism of CST so that provinces use this fund for the welfare of the citizens.The federal government invests huge money in the health sector as compared to education and childcare. But in the 2007 budget, the additional social cash transfer was also introduced in the social programmes, so that the provinces can use this money and implement welfare policies for the citizens. So this paper has tried to examine that the provinces have security in the form of CST, through this mechanism the provinces and territories implement new policies in the social sector i.e. education and child care.

NOTE

[1] The CHT is the largest major transfer to provinces and territories. It provides long-term predictable funding for healthcare and supports the principles of the Canada Health Act, which are universality, comprehensiveness, portability, accessibility and public administration. 52 Devi Roy

[2] Equalization transfers are made unconditionally to the low-income provinces based on their tax capacities. [3] TTF is for territories meant to compensate them for the higher per capita cost of providing services which arise due to the small size of their population, large area and weather conditions. [4] The cash payment constituted an actual payment or transfer to provinces/territories and the tax transfer reflected the notional value -for a year -of the one-time transfer of federal tax room to the provinces [5] See, Rand Dyck, Provincial Politics in Canada (Ontario: Prentice-Hall Canada Inc,1991).

REFERENCES

Banting, Keith G. 2008. “The Three Federalisms: Social Policy and Intergovernmental Decision- Making”, in Herman Bakvis and Grace Skogstad (eds.) Canadian Federalism: Performance, Effectiveness and Legitimacy. Canada: Oxford University Press. Department of Finance Canada. 2011. History of Health and Social Transfers. Department of Finance Canada. 2015. Federal Support to Provinces and Territories. Department of Finance Canada. Federal Investments in Health Care. Department of Finance Canada. The Budget Plan. 1995. Department of Finance Canada. The Budget Plan. 2007. Department of Finance Canada. 2010. Department of Finance Canada. Federal Support to Provinces an Territories. 2015. Gauthier, J. 2012. The Canada Social Transfer: Past, Present and Future Considerations. Library of Parliament. Ottawa. Canada. Harvey S, R. 2014. Public Finance in Canada. Mc Graw-Hill Education. USA. Health Canada.http://www.hc-sc.gc.ca/index-eng.php Hicks, Peter. 2008.Social Policy in Canada – Looking Back, Looking Ahead. Working Paper 46.School of Policy Studies. Queen’s University. Provincial and Territorial Ministers of Health. 2000. Understanding Canada's Health Care Costs-Final Report. Watson, Marshall. 2011. Social Policy Frameworks in Canada: Examples and Opportunities A discussion paper prepared for the Federation of Community Social Services Strategic Planning Session. A Critical Study of Canada Social Transfer as an Instrument of Social Policy 53

Devi Roy is a Ph.D. student in Canadian Studies at the Centre for Canadian, US and Latin American Studies in the Jawaharlal Nehru University of New Delhi in India. Her research interests are Federalism, Fiscal Transfer, Healthcare ([email protected]).

Received: October 21, 2016 Accepted with one revision: December 8, 2016