Standing Committee on Public Accounts (PACP) Department of Finance Appearance on the Public Accounts of Canada 2024

Major Federal Transfers to Provinces and Territories in 2023-24

Issue

As reported in the 2023‑24 Public Accounts of Canada, in 2023‑24, the Federal Government provided $94.6 billion in major transfer funding to Provinces and Territories.

Key points

• Major federal transfers to provinces and territories are calculated each year based on legislated formulas and data.
• In 2023‑24, major federal transfers to provinces and territories grew by $7 billion, reflecting:
  • $4.2 billion in legislated growth under the Canada Health Transfer; 
  • $478 million in legislated growth under the Canada Social Transfer; 
  • $2.0 billion in legislated growth under Equalization;  and
  • $282 million in legislated growth under Territorial Formula Financing.

Anticipated Questions and Answers

1. How was the envelope of the 2023-24 Canada Health Transfer (CHT) determined? 
   • CHT is distributed on an equal per capita basis and grows in line with a three-year moving average of nominal gross domestic product (GDP) growth, with funding guaranteed to increase by at least 3 per cent per year. On February 7, 2023 it was announced that, from 2023-24 to 2027-28, CHT is guaranteed to grow by at least 5 per cent per year.
   • The 2023-24 CHT amount is $49.4 billion, based on the 2022-23 CHT program payout multiplied by the three-year average of growth in nominal GDP (9.3 per cent).
   • The 9.3 per cent growth rate is based on the three year average GDP growth in 2021 (13.57 per cent), 2022 (11.77 per cent) and 2023 (2.62 per cent). This is larger than the 5 per cent guaranteed growth.
2. What were the main drivers of the legislated growth in determining the 2023-24 major transfer payments?
   • CHT and Equalization are indexed to grow to the three-year average of nominal GDP growth. In the case of the CHT, there is also a legislated guaranteed rate of 5 per cent per year from 2023-24 to 2027‑28, after which the minimum growth rate reverts to 3 per cent.
   • The Canada Social Transfer is legislated to grow at 3 per cent per year.
   • Territorial Formula Financing increases are mainly due to growth in provincial/local expenditures, which are major components of the formula.

Background

Canada Health Transfer ($49.4 billion): The CHT is the largest federal transfer program, providing long-term, predictable funding for health care.

Canada Social Transfer (CST) ($16.4 billion): The CST is a federal transfer that is provided in support of social assistance and social services, post-secondary education, and programs for children.

Equalization ($24.0 billion): Equalization ensures that less prosperous provinces have sufficient revenue to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

Territorial Formula Financing (TFF) ($4.8 billion): TFF funding enables territorial governments to provide their residents with programs and services comparable to those provided in the rest of Canada.