PHOTO ILLUSTRATION: THE GLOBE AND MAIL. SOURCE PHOTO: GETTY IMAGES
The latest report from the Parliamentary Budget Officer on Canada’s fiscal outlook makes for sobering reading. Indeed, it depicts a government that is rapidly losing control of the public purse.
That spending for the current fiscal year is estimated to be nearly $6-billion over budget is more or less par for the course with this government. Experience should have taught us to attach no significance whatever to any of its spending projections, even intra-year, as they are always and inevitably revised upward by tens of billions of dollars.
Yes, tens of billions: The $509-billion the PBO now estimates for fiscal 2024 may be $6-billion more than was projected in Budget 2023, but it is $21-billion more than was projected in the budget before that, and $42-billion more than in the budget before that. And the final figure – we are only seven months into the fiscal year, after all – will likely be billions higher yet.
As I say, that is something we have come to expect. What is new, and alarming, is what is happening on the other lines of the fiscal ledger. Revenues, after years of coming in over expectations – a windfall that was whisked straight into spending – are now less than forecast, economic growth having gone from merely sluggish to non-existent.
Debt service costs, meanwhile, are soaring, the “historically low interest rates” on which the government based its fiscal plans now being more historic than low. Debt charges, the PBO calculates, now consume 12 per cent of total tax revenues – much less than in the 1990s, but much more than in the past decade.
All of which has combined to produce a projected deficit of $47-billion – not the $40-billion we were told six months ago – and a debt-to-GDP ratio that, at nearly 43 per cent, is rising, not falling. The government has blown through every one of the increasingly lax series of anchors, guardrails and targets it has set for itself; it is now clear that it has none.
Bear in mind: this is not just a short-term problem. The long-run economic growth rate is now estimated at 1.5 per cent – barely enough to keep pace with population. Interest rates are not about to decline any time soon. Population aging will continue to put pressure on costs – mostly for the provinces, to be sure, but sooner or later than translates into pressure on the feds.
And hovering over all, a world that grows more dangerous by the day. That solemn commitment we made at the NATO summit in Vilnius – to increase defence spending to at least 2 per cent of GDP? Possibly our partners expect us to deliver on it.
Well now. How would one expect a government in this sort of fiscal pickle to react? Maybe scale back its ambitions just a tad? Put off that latest discretionary purchase? Cancel the Disney+? No, of course not – they’re about to launch another social program, the much delayed, vastly expensive but suddenly unavoidable pharmacare.
The only question is how expensive. Here again, the PBO has helpfully updated its figures. In 2017, the last time the agency estimated the incremental cost of a universal, single-payer national drug insurance plan – that is, the cost of replacing the private insurance plans and patient out-of-pocket spending, in addition to the cost of existing provincial and federal plans – it put the figure at $7-billion in the first year.
That’s the cost to governments in general. If the federal government were to foot the entire bill, relieving the provinces of their responsibility, it would cost $19-billion, rising to $23-billion in five years. However, the PBO projected there would be savings of $4-billion annually from creating a public-sector monopoly, which would supposedly be able to drive a harder bargain with the drug manufacturers.
So while government spending would go up by $7-billion, overall spending on drugs, public and private sector combined, would go down by $4-billion.
And now? The PBO now puts the gross incremental cost to the public sector at $14.8-billion in Year 1, twice what it was six years ago. The savings from monopoly purchasing it now estimates at $1.4-billion – a third as much as the previous estimate.
Throw in revenues from patient co-payments and whatnot, and the PBO comes up with a net incremental cost to the public sector of $11.2-billion annually, to be divided – somehow – between the federal and provincial governments. The PBO declined to offer an estimate this time of an all-federal plan, but it’s implicit in its calculation of “total drug expenditure under pharmacare”: $33-billion in Year 1, rising to $39-billion in Year 4.
Even this federal government, I’m willing to bet, would be wary of taking on this kind of, uh, commitment. And if cost were not sufficient to deter it, the politics would. Leave aside the difficulties of wrangling nine provinces (presumably Quebec would refuse to participate) into aligning their plans with federal wishes. There is also the little matter of easing the private insurance plans out of the business.
Which is to say, of taking people’s existing drug plans away from them – the millions of Canadians who now have their drugs covered by their employers – in favour of a public plan which, by design, would be less generous in its coverage. I am trying to imagine the meal the Conservatives would make of this. Billions more in public spending, for less coverage!
This isn’t to say that there is no problem, or no role for governments to play in addressing it. The PBO estimates about 2 per cent of the population have no drug insurance, while another 10 per cent of the population is considered underinsured, meaning their drug costs exceed what is covered by their plans.
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The working poor, the self-employed, and those in unstable or part-time employment are especially hard done by, having access neither to employer-provided plans nor the plans provided to those on social assistance. The poorest fifth of the population spend more than 1 per cent of their income on drugs, on average; for those with chronic illnesses that can rise to 5 per cent or 10 per cent. So far as this leads them to skimp on needed drugs, the result can be worse health, and added expenses for the public health care plans.
If we were starting from scratch, possibly we’d have done what most other countries have done, and covered drug purchases as part of medicare. But we didn’t, and it’s far from clear we’re in any shape to do so. With the rest of the public health system crumbling before us, is now really the time to tackle new projects? The logistical challenges alone are mind-boggling. Are the governments that brought you the eHealth and Phoenix debacles really up to keeping track of the prescription drug needs of 40 million people?
As for the savings to be reaped from government as monopoly purchaser – where have I heard that one before? Oh yes: medicare. That was how public health insurance was sold in the early days: not just in terms of fairness, but efficiency. It didn’t quite work out that way. Public health spending in Canada has ballooned from a little over $3-billion in 1967 to $250-billion today. The government, as some wit put it, “wrestled the doctors to the ceiling.”
Be skeptical, similarly, of efficiency arguments for a single-payer drug plan. The PBO study doesn’t show that such savings would result. It assumes them. I suggest there is ample room for doubt on this score.
If, on the other hand, it is fairness we want, we don’t have to embrace an all-in government monopoly to achieve it. We can simply expand our existing plans to cover those now excluded, an Obamacare-style kludge combining tighter rules on the private plans and broadening the public plans. Which I suspect is what we will eventually see from the Liberals.
Alas, it is not entirely up to them. A universal, single-payer plan, the NDP has announced, is now the “red line” for its continued participation in the supply-and-confidence agreement that has assured the Liberals of their hold on power for the past two years.
That doesn’t necessarily mean the government would fall: The NDP could pull out of the deal and still find excuses to avoid defeating the government. The Liberals could govern as all previous minority governments in this country have, at least federally: from bill to bill, with the support of whichever party they can persuade to back them each time. But it would certainly increase the odds of an early election.
And, with the Liberals down to 25 per cent or so in the polls, the NDP are looking friskier than they have in a long while. In the best case, they force the Liberals to cave and introduce a single-payer plan. And in the worst? Probably the party is not all that keen on an early election, either. But if they have to go through one, better now, arguably, than later.
Liberal support may well have troughed. They were late to come to grips with the housing and affordability issues, but have now begun to fight back, with all the tools at a government’s disposal. Inflation has come down a long way, and the Bank of Canada has probably raised interest rates as much it is going to. And so on. The longer the NDP waits, the better the chances of a Liberal recovery.
So in the game of chicken to come, you can see a scenario where neither side is willing to give way. The Liberals have everything to lose in accepting a single-payer plan. The NDP have nothing to lose by insisting on it. Hang on to your hats.