Auditor General’s study sheds light on how the federal government transfers funds to provinces and territories
Ottawa, 5 February 2009—Auditor General Sheila Fraser’s Report, tabled today in the House of Commons, contains a study of the three main mechanisms used by the federal government to transfer funds to the provinces and territories. In 2006–07, these transfers amounted to about $50 billion, just under 23 percent of federal spending. They are major sources of funds for services provided to Canadians in areas such as health and post-secondary education.
Because this was a study, not an audit, the chapter does not assess how transferred funds were spent.
“We undertook this study to inform parliamentarians about the main mechanisms used to transfer funds to the provinces and territories. Members of Parliament have told us it is not always clear which transfers have conditions attached, and what the nature and extent of the conditions are,” said Ms. Fraser.
The first and largest mechanism includes four major transfers that recur annually by law and are managed by Finance Canada: the Canada Health Transfer; the Canada Social Transfer, the Equalization Program transfer, and Territorial Formula Financing. They totaled just over $42 billion in 2006–07.
The second mechanism, accounting for $5 billion in 2006–07, involves the transfer of funds by individual federal departments to support specific program areas, such as labour market development.
Finally, the federal government transfers funds to the provinces and territories using trusts. In 2006–07, five trusts were created to transfer $3.3 billion to the provinces and territories. Since 1999, when it first introduced them for this purpose, the government has established 23 trusts to transfer almost $27 billion in areas such as housing, and reduction of wait times for health services.
The study explains that while some transfers involve conditions on the use of the funds, others have none. Where there are no conditions, the provinces and territories have no legal obligation to spend the funds for the purposes intended by the federal government.
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The chapter “A Study of Federal Transfers to the Provinces and Territories” is available on the Office of the Auditor General of Canada Web site. Also see related chapter “Managing Air Emissions,” Chapter 1 in the Report of the Commissioner of the Environment and Sustainable Development.
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