‘Fiscal illusion’ disguising true costs of health care in Canada

In a report published today by The School of Public Policy, author Ron Kneebone evaluates how Canadian governments are funding health care and whether the source of funds affects how much gets spent.

Kneebone finds that governments employ several financing methods as alternatives to simply taxing voters. But doing so has repercussions.

“Financing spending with intergovernmental grants, borrowing and access to investment income creates in the minds of voters a fiscal illusion that additional health-care spending by their provincial government is less costly than is actually the case,” he writes.

Since voters find it impossible to clearly identify increases in their taxes with increases in government spending, their perceptions of the true costs of health care are skewed. The fiscal illusion means that provincial government spending on health care grows two to five times faster when it is financed by these alternative methods, Kneebone argues.

“Over the period 2001-2008, provincial governments spent $6.75 billion more on health care than they would have had taxpayers been aware of the true cost of health-care spending promises,” Kneebone writes.

The author concedes that this $6.75 billion only equates to one percent of provincial health-care spending, but argues that this money could be used for substantial improvements in the overall health outcomes of the population.

“In Alberta in fiscal year 2010/2011, one percent of the annual health-care budget ($150 million), if redirected to other programs, would have been sufficient to increase spending on all of Homeless Support, Early Intervention Services for Children and Youth, Prevention of Family Violence, and Family Support for Children with Disabilities by over forty percent,” Kneebone writes.

Overall, Kneebone advocates for a financing system with more reliance on provincial taxation and less on intergovernmental transfers and borrowing. Doing so would reveal the true costs of health care to voters, who could then determine the level of health-care spending they wish to pay for when casting their ballots come election time.

The report can be found online here.