The Provinces and Federal Health Transfers

 

The federal and provincial health ministers meeting in Vancouver last week ended somewhat abruptly without an outcome regarding an increase in transfers. The provinces have been asking for increases to the Canada Health Transfer that would raise the federal share of provincial health spending from 22 percent to 35 percent.  Given that for 2022-23 the Canada Health Transfer to the provinces is expected to be 45.2 billion dollars, such an increase would amount to an additional cash transfer of well over 25 billion dollars.

 

The provinces maintain that they need the money to deal with an increasingly strained and stressed system beset by labour shortages and the aftermath of the pandemic.  The federal government is leery of simply handing over the money without conditions because of the concern that more money without structural reforms to the health system or some conditions is simply business as usual.  After all, the enhanced transfers of the 2004 Health Accord with its 6 percent annual increase escalator that lasted until 2017 was supposed to buy fundamental reforms and transformative change and yet the same problems persist pandemic notwithstanding.

 

The solutions here are problematic.  The federal government could simply hand over more money given that health is a provincial responsibility and wash their hands of the matter.  However, given their concerns that the provinces may not necessarily spend the money on health given they are almost as busy as the federal government in handing over rebates and assistance to deal with inflation, they are unlikely to do so.  They could proceed unilaterally and create a grant with conditions that provinces could accept if they wished or otherwise deal with the matter on their own – probably by increasing their own source revenues (i.e., raise their own taxes) . Or they could simply do nothing and wait for the provinces to come around.  After all, health is a provincial responsibility and the blame for a lack of family physicians or crowded ERs ultimately lands at the feet of provincial governments.

 

Of course, in dealing with the issue it is perhaps useful to look at some indicators to see what the dimensions of the problem might be.  The accompanying figure plots the average annual growth rates from 2008 to 2022 for an assortment of health spending, fiscal and economic indicators. This period includes both the pandemic as well as the 2008-09 Great Recession - both periods that saw surges in federal spending including transfers.  This period also coincides with the 2004 Health Accord and its immediate aftermath.  The results are intriguing given that they provide some support to both sides in this debate.

 

 

 

The average annual growth rate (all growth rates here are nominal) for total federal transfers was 5.6 percent with the component Canada Health Transfer and Equalization growing at 5.2 and 4.1 percent respectively.  Provincial-Territorial government health spending over the same period grew at an annual average of 5 percent – slightly below the rate of growth of the Health Transfer.  Needless to say, score one for the federal side.  Moreover, total provincial-territorial program spending (including Health) grew at 4.8 percent which means that program spending net of health was also growing slower than health. Score one for the provincial side – the money is not necessarily going to other programs.  P-T health spending is growing faster than either nominal GDP or population (though once inflation and population growth are factored in it means that per capita spending growth has been rather anemic). 

 

Nevertheless, total P-T health spending has grown faster than GDP, but provincial-territorial own source revenues have grown slower than GDP while the value of the much-vaunted federal tax points have grown at nearly the rate of GDP.  Here, the federal government can claim that there is indeed own source revenue capability on the part of the provinces that remains untapped.  On the other hand, the provinces can claim that they are caught in a bind – on the one hand they are trying to bend the cost curve to address sustainability issues (hence the anemic per capita growth rate) while on the other hand the high growth rate of total population plus the aging of the population is adding to total health spending at a rate they are having difficulty coping with.

 

Is there a solution here?  In the absence of a unilateral federal move of transfers with conditions (which is not going to work for everyone) the only solution here is a political one and if the two sides are not talking it is a long way off.

Does Balloting Method Matter?

 

The October 24^th municipal election in Thunder Bay featured an assortment of voting options in an effort to make voting more convenient and thereby encourage greater turnout.  On that front, the results were not favorable in that despite the increased options for the 2022 election, there was a decline in turnout.  Apparently, about 43 percent of the city’s 83,679 eligible voters cast a ballot which was down from nearly 51 percent in 2018.  While Thunder Bay voters were more engaged than the provincial average, the results were a disappointment given the effort expended.

 

What is also of interest is whether or not different voting methods may be associated with the outcomes.  A case in point is the Councillor-At-Large Race which saw 140,095 ballots cast.  Given that there were about 35,980 voters who cast ballots, and each could vote for up to five choices, this means that a total of 179,900 votes were up for grabs.  Given that only 140,095 were cast – 78 percent of those available –a proportion decided to vote for fewer than five candidates.  This suggests that some voters were unhappy with the available choices even given the large number of candidates or may have been voting more strategically by voting for their preferred candidate(s) and not supporting anyone else.

 

More to the point is the difference between the number of paper ballots and internet ballots cast.  Of the 140,095 ballots cast, 50,403 (or 35 percent) were paper ballots while 89,692 (65 percent) were internet ballots.  This suggests that there was indeed a marked preference for internet voting in this election.  Figure 1 shows the results for total ballots cast with the five winners in red – Bentz, Ch’ng, Giertuga, Agarwal and Etreni – followed by Judge, Barrett, and Margarit.   

 

 

 

 

If one looks at only the paper ballot results, the winners would be Bentz, Giertuga, Ch’ng, Judge and Agarwal, followed by Etreni, Barrett and Mauro.  If one only uses the internet results, the five winners would be Bentz, Ch’ng, Giertuga, Etreni and Agarwal, with the next three spots taken by Barrett, Judge and Margarit.  While the top three spots were unaffected – and went to incumbents – there were differences in who would occupy the next two spots.  Paper ballots alone would see Judge and Agarwal on council with Etreni in sixth place while internet balloting alone would see Etreni and Agarwal with Barrett in sixth place.

 

 

 

 

 

 

Can one draw any conclusions from these results? Without detailed data that allows you to correlate voter characteristics (eg. age and income) with ballot method preferences and voting outcomes, it is difficult to really know if these results mean anything at all.  However, it is not too much of a stretch to argue that most important conclusion is that candidates need to campaign to attract both types of voters – paper ballot voters and internet voters.  Victory is ensured by coming out on top in both types of voting methods.  Voters who prefer internet voting are probably more likely to be web and social media savvy and will require a more sustained campaign targeted towards them as well as more traditional door to door type campaigning. 

 

In the end, internet voting makes it easier to vote well in advance of election day meaning much of the campaign is over well before the official voting day.  However, if you are an incumbent, name recognition alone seems to guarantee a top place finish. It is only for the new entrants that campaigning vigorously on a variety of platforms seem to matter more.

 

One other thing. Given the differences across voting platforms that can emerge and the rather erratic flow of results on election night, it is imperative that the release of results be better coordinated in future.  One can only imagine the effect on candidates as they watched their rankings seesaw in the blink of an eye on election evening as internet voting tallies flooded in.

Federal Finances and Fiscal Projections

 

The Federal Fall 2022 Economic and Fiscal Update is now economic history and for 2022-23 it projects budgetary revenues of $446 billion, program expenditures of $438 billion, public debt charges of $35 billion, a deficit (including net actuarial losses) of $36 billion and a net federal debt of  $1.283 trillion.  By 2027-28, revenues are expected to rise to $542 billion with total expenses including actuarial losses of $537 billion meaning that a budget surplus is anticipated within five years. 

 

While total spending in 2022-23 is actually down from 2021-22 as a result of the COVID-19 unwind, it remains that compared to spending in 2018-19 of $346 billion just prior to the pandemic, "reduced" federal spending in 2022-23 is expected to be one third higher and projected to rise to $487 billion in 2023-24.  In other words, over a five-year period, the federal fiscal footprint after the COVID-19 unwind expanded at an average annual growth rate of 8 percent.

 

Despite the economic uncertainty currently present with respect to inflation, interest rates and the potential of a recession, the federal forecast is remarkably upbeat with both its  ‘downside’ and ‘upside’ forecasts for growth, unemployment, and the federal finances remarkably close to one another.  This of course means that the deficit forecasts that range from $36 to nearly $50 billion are also in a sense somewhat optimistic and hinge on economic conditions and in particular the impact of any downturn on federal revenues.  When it comes to forecasting the fiscal future, the greatest source of uncertainty is apparently not on the expenditure side – which is more in the hands of the federal government – but the revenue side which is in the hands of the economy.

 

A case in point is illustrated in figure 1 which presents federal estimates for revenue and expenditure for the 2021-22 fiscal year starting with the spring budget pf 2021.  What is remarkable moving forward to the final numbers for 2021-22 as released in the public accounts and also presented in the Fall 2022 update is the remarkable stability of the expenditure estimates and the constant revisions on the revenue side.  Compared to the initial budget forecast in 2021, expenditures went down slightly from $497.6 billion to $493.3 billion by fall 2022 – less than 1 percent variance.  On the other hand, revenues appear to have been significantly underestimated as the economy did better than expected and inflation helped pump up federal revenues from an original estimate of $355 billion to $413 billion – a 16 percent variance.  As a result, the deficit estimate also fell from $143 billion to eventually $90 billion.  This was not the result of fiscal restraint – expenditures stayed pretty much stable.  It was purely from the revenue surge.

 

 

 

Why does this matter?  What goes up can also come down.  Expenditures over the next five years are projected to rise steadily recession or not and one suspects based on past performance that barring a sudden policy shift those estimates will be close to the mark.  Meanwhile, while revenue growth is a function of the economy.  The economy rebounded better than expected and as a result revenues did too. However, while revenue was underestimated over the last couple of years, it could easily be overestimated going forward which means the optimistic deficit reduction scenario with a surplus by 2027 is as uncertain as economic forecasting in general.   

 

Despite the public pronouncements that there is now more frugality at the federal level, that is not the case.  The federal government is projecting average annual revenue growth from 2023 to 2027 at an average of 4.7 percent while expenditures (after the drop in 2022-23) will rise at 2.6 percent.  The federal government is banking on the revenue surge of the last couple years to continue and keep revenues growing faster than spending.  A severe recession could upset that optimistic projection.

Tallying the Election Results in Thunder Bay

 

The people have spoken and Thunder Bay – along with all the other municipalities in Ontario – has a new mayor and council.  Congratulations to the incoming Mayor and City Council members as well as to all the candidates who put their names forward and ran.  Running for office and serving as the public in an elected role is a challenging and important task and vital to the functioning of our system of government.  

 

 It was certainly an interesting evening last night not the least because of the exasperating nature of the election results.  Despite our “state of the art” modern election system in Thunder Bay that combines online, phone, in-person, and drive through voting and with over one fifth of eligible ballots cast in advance, it took several hours before any meaningful results were delivered.  One hopes that this process will be thoroughly reviewed because in order for the public to have confidence in their voting system, the smooth running and operation of the system sends an important signal and that was certainly lacking last evening.

 

As for the results, Figure 1 presents the winners as well as their percent share of votes cast.  With about 35,421 votes cast (at my last tally) Ken Boshcoff emerged the winner as Mayor with 38.2 percent of the ballots cast with Gary Mack in second place with 34.3 percent of the ballots cast.  The At-Large winners (with over 140,000 votes given every elector can vote for up to 5) were Mark Bentz (11%), Shelby Ch’ng (9.4%), Trevor Giertuga (8.6%), Rajni Agarwal (7.6%) and Kasey Etreni (7.2%).  In terms of the Ward races, Michael Zussino took Red River with 33.4% of the vote, Albert Aiello retook McIntyre with 63.3% of the vote, Kristen Oliver held Westfort with 45.9% of the vote, Dominic Pasqualino won in Northwood with 41.6% of the vote, Brian Hamilton kept McKellar at 53.5% of the vote, Andrew Foulds kept Current River with 74.9% (a ringing endorsement one might add) and Greg Johnsen won Neebing with 36.1 percent of the vote.  

 

 

 

Was this a change council? Not really.  If you want to see the results of a "change" election you should check out Hamilton's results where three incumbents actually lost their seats and there are ten new faces on their City Council which consists of a Mayor and 15 ward councillors. In Thunder Bay with a council of twelve plus a mayor, seven of the elected councilors are incumbents (Bentz, Ch-ng, Giertuga, Aiello, Oliver, Hamilton and Foulds). If one counts Peng You as an incumbent then there was an incumbent not returned. As for the Mayor, well he has been Mayor before and a familiar face and is effectively an honorary incumbent making for eight incumbents on council.  Are the other five a vote for change?  At best managed change given that they probably only won because a number of incumbents chose not to run thereby making room for a few new faces.  Name recognition is important in politics and in Thunder Bay given its closeted nature even more so, which is why constant calls for people to run because there is a “candidate shortage” was so amusing to observe this summer.  Ward contests with more than three candidates essentially guarantee a win for incumbents and At-Large slates with upwards of 25 to 30 candidates for five positions pretty much do the same for those races.  Sometimes, quality of candidate should be a more important consideration than quantity.

 

Will it be smooth sailing for this council?  There are a lot of issues coming down the pipeline – not least of which will be policing - and one expects the honeymoon period will be short-lived especially with an anticipated major hike in property taxes being rumoured.  The other interesting issue is whether or not we should reform City Council and go to a fully At-Large system of between 8 and 12 councillors plus a mayor.  I would say the answer is a definite no.   If one looks at the results in Figure 1, the five At-Large winners have each won with barely 10 percent of the votes cast in their favour in the At-Large competition. They can claim to “represent” the interests of the entire city, but it remains that they do not have an overwhelming mandate aside from the fact they got the biggest numbers in a ranking.  The mayor’s position did somewhat better at nearly 40 percent.  It is the wards where the strongest mandates have emerged.  In three of the seven wards, the winners actually got a majority of the votes case, while in an additional two they were over 40 percent.  I would say there if you truly wanted democracy, there is probably a better case for an all-ward system than a fully At-Large system.

 

One other point.  Take a look at figures 2 and 3.  These are the “projected” winners based on the TBNewswatch online polls that took place the weeks of August 20 to 27 and October 7 to 17.  They are a mix of highly accurate projections and wildly off the mark results.  In the case of the mayor’s race, the McIntyre, and Current River Wards they were consistent with the actual election results though the percentages vary quite a bit.  For the At-Large race, they consistently showed Bentz as a winner but there was quite a bit of variation in the others over time.  Pretty similar conclusion from the remaining ward competitions which saw quite a few flip-flops though in the case of some wards like Westfort they probably reflect the closer nature of the race.  In the case of McKellar or Neebing it was either a really volatile race or well…something else perhaps given the nature of online polling.

 

So, to repeat, congratulations to the new mayor and council.  And of course, once again the drama begins.

 

 

 

 

 

 

 

The House-Condo Price Differential: Northern Ontario Exceptionalism Strikes Again!

 

Population growth in northern Ontario has been weak over the last few decades as a result of youth out-migration as well as little immigration into the region – even though immigration has accounted for over three quarters of Ontario’s population growth in recent years.  The result has been an aging population and while Ontario  had a population share aged 65 and over of 18 percent in 2021, the province’s North was closer to 22 percent.  A more elderly population is usually seen as a source of rising demand for services like health and a cost driver for government.  At the municipal level, seniors are also a source of local income stabilization given that they still inject some purchasing power into the local economy and of course continue to pay property taxes. 

 

Yet, in the case of northern Ontario, the earlier waves of youth out-migration may eventually spawn a new wave of out-migration rooted in seniors following their children.  People in the 50 to 65 age range may be looking ahead and thinking about where and when they will retire and facing a choice between remaining in the north in retirement or relocating closer to children.  Weighing in on decisions to stay or go are the need to downsize accommodation and as the years advance staying in the north is certainly made easier by selling your house and moving into a condo or apartment.  What is intriguing in the case of condos in northern Ontario is how much higher priced they are relative to single-detached houses.

 

Figure 1 plots the median price of a single detached one in 2022 against the median price of an apartment style condo in twelve Ontario urban areas including Thunder Bay and Greater Sudbury.  The median single-detached housing price data for all twelve cities is from Canadian Real Estate Association web site while the median condo prices are from the same place with the exception of Thunder Bay and Sudbury which required creating a separate estimate based on what is currently available on Mitula or Realtor.ca.  Needless to say, that is not the ideal approach, but it will have to suffice given data limitations.  Figure 1 plots the urban areas from highest to lowest single detached median housing price and those prices range from a high of $1.425 million for Oakville to a low of $315,000 for Thunder Bay.  What is more interesting is the accompanying median condo prices which show a lot less variation than those for houses.

 

 

 

The range in median prices for single detached houses in these twelve cities is $1.11 million but for condos it ranges from a high of $648,500 in Greater Toronto to a low of $329,900 in Thunder Bay – a still consequential but much smaller range of $318,600.  Why is this important?  Well take a look at Figure 2.  In Oakville, if you decide to sell your $1.425 million-dollar median valued home and buy a median valued condo at $640,000 you generate a nice cash surplus $785,000 dollars that you can use to finance your retirement or assist your children in buying their home.  If you are in Thunder Bay, doing the same thing will require you to come up with nearly another $15,000 to complete the purchase of the condo. This is of course based on the median prices and in my observations over the last year taking a look at condos in Thunder Bay, very often the difference was more effectively in the $50,000 to $100,000 range depending on the unit.  At nearly $135,000, the gap is even more pronounced in Sudbury though the caution is that this is more likely a function of the much smaller sample size in terms of the Sudbury data currently available.  One would expect the gap to be more similar to that for Thunder Bay.

 

 

 

So here is the thing.  The population in northern Ontario is aging and, in many cases, there will be some consideration of relocating to where children and grandchildren have gone.  Selling your house in Thunder Bay or Sudbury and buying another house in southern Ontario is prohibitive given the vast difference in housing prices.  However, the spread for condos is a lot smaller and the fact is you are going to have to cough up quite a bit of extra money to stay put in a condo in Thunder Bay or Sudbury anyway making a move easier to swallow.  Given the higher cost of a condo relative to a single detached home in Thunder Bay or Sudbury, one cannot help but wonder if the strategy in condo building to date in these communities is simply designed to part widows and widowers from their money when they sell their houses?  Condos in other cities generally have a broader mix of residents based on demographics whereas when one tours a condo in Thunder Bay for example it is not hard to feel that you are visiting a long-term care home rather than a condo.  Even more interesting is the high proportion of condos in Thunder Bay that have little indoor or underground parking - not the best incentive if you are trying to minimize the impact of harsh winters in your Golden Years.

 

While the young are often the focus of policy initiative and consumer marketing, it remains that wealth and income rise with age and the loss of purchasing power of relatively young seniors – those in the 50 to 65 age range – will not help local economies in the north.  Northern Ontario will need to up its game in both the design and pricing of future condo developments if it wants to forestall the next potential wave of out-migration.