What Happens if Provinces Are Left Holding the Bag? Calculating the Fiscal Burden of Federal Intrusions into Provincial Jurisdiction
What Happens if Provinces Are Left Holding the Bag? Calculating the Fiscal Burden of Federal Intrusions into Provincial Jurisdiction
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Fri, 08/14/2026 – 08:49
Published Date
August 18, 2026
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Posted Date
Fri, 08/14/2026 – 08:51
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If Ottawa reduced provincial transfers similar to Chretien-era cuts, provinces would be on the hook for a $19.4 billion funding shortfall
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By: Grady Munro, Jake Fuss and Nathaniel Li
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What Happens if Provinces Are Left Holding the Bag? Calculating the Fiscal Burden of Federal Intrusions into Provincial Jurisdiction
- Canada’s constitution distributes powers and responsibilities between the federal and provincial governments. In recent years, the federal government has prioritized spending programs that intrude into areas of provincial jurisdiction while allowing spending in areas of federal jurisdiction (i.e., defence) to lag and federal finances to deteriorate.
- Should priorities change and the federal government reduce funding in areas of provincial jurisdiction to address these challenges, provinces could be left facing a substantial fiscal burden if they choose to increase their own spending to offset these reductions.
- This study calculates the funding shortfall in 2024/25 that provinces would have faced had the federal government cut funding for the Canada Health Transfer (CHT) and Canada Social Transfer (CST) by 15 percent (as was done in the 1990s) and eliminated funding for national dental care and national child care.
- In 2024/25, total federal spending across these four transfers/programs was $77.9 billion. Had the federal government enacted the aforementioned cuts, this amount would have dropped to $58.4 billion.
- As a result, provinces would have faced funding shortfalls ranging from $0.09 billion in PEI to $7.5 billion in Ontario. These shortfalls would have represented over half (in absolute terms) of the annual budgetary balance in 8/10 provinces that year.
- Had provinces chosen to raise taxes to offset these shortfalls, individual taxpayers would have needed to pay between $804 (Nova Scotia) and $985 (Saskatchewan) in additional provincial taxes in 2024/25, with an average of $875 per taxpayer across all 10 provinces.
- These results demonstrate that provinces should exercise greater caution when allowing federal intrusions into their jurisdiction.
<p><strong><em>What Happens If Provinces Are Left Holding the Bag?</em></strong> Calculating the Fiscal Burden of Federal Intrusions in Provincial Jurisdiction finds that if the federal government pursued reductions in provincial transfers like those made during the mid-1990s—a possibility given Ottawa’s pledge to increase defence spending amid deteriorating finances—the provinces would face a $19.4 billion funding shortfall in order to maintain current spending levels.</p>
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