| Chapter 1: | Examining Provincial Variability |
open-ended nature of the agreement, and the provinces discovered that they were to bear an ever-growing proportion of health care spending and had less flexibility than desired in the use of federal dollars. After several years of negotiation, the compromise took the form of a new funding framework, the Established Programs Formula (EPF) (Banting and Boadway 2004).
When adopted in 1977, the EPF formula was first calculated based on GNP per capita growth—and included transfers for both health and postsecondary education. However, in 1986 the formula was unilaterally reduced by the federal government to GDP per capita minus 2 percent, in a first effort to reduce Ottawa’s growing deficit. In 1990 the federal EPF was frozen altogether. With respect to fiscal federalism, a perception developed that EPF had not worked for two reasons: in Ottawa, government officials and politicians were unhappy with the lack of federal “visibility,” noting that program activity was not commensurate with federal fiscal efforts; and in the provinces, public authorities expressed frustration with the lack of federal financial support for “national” programs like health care and social assistance (Banting, Brown, and Courchene 1994; Maslove 1998). This situation created a good deal of tension in negotiations between Ottawa and the provinces and undermined what was considered at the time a regime of intergovernmental “cooperative federalism” (Banting, Brown, and Courchene 1994, 3).
In 1995 the federal government proposed a replacement of the EPF arrangement along with the existing federal–provincial cost-sharing arrangement for means- and needs-tested social assistance supports (Canadian Assistance Plan) and postsecondary education into a super block grant, the Canadian Health and Social Transfer grant (CHST; Maioni and Maino 2000). Officially, this mechanism represented an attempt to give provinces more flexibility in developing their budgets (Maioni 1998, 174). However, the CHST substantially reduced the cash portion of the federal grants available to the provinces, leading critics to view this arrangement as a fiscal shortfall that threatened Ottawa’s