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The PBO report estimates that the new health formula – which accounts for economic growth and inflation – will cause transfers to grow at 3.9 per cent annually from 2017-18 to 2024-25. In contrast, the watchdog projects provincial and territorial health spending will grow at 5.1 per cent over the same period.

a spokesman for Mr. Flaherty, disputed the PBO’s claim that provincial and territorial health spending will grow faster than the growth in federal transfers.

The budget officer states provincial-territorial net debt relative to GDP “is projected to increase substantially over the long term.” While the ratio stood at 20 per cent of GDP in 2010-11, the PBO expects that will now climb to over 125 per cent in 2050-51 and to over 480 per cent by 2085-86.

Closing this gap, according to the PBO, would require provinces and territories to take a combination of actions such as higher taxes or lower spending that would amount to $49-billion in 2011-12 - an amount that will grow over time in line with nominal GDP - in order for Canada’s finances to be sustainable.

The PBO report also analyzes the impact of Ottawa’s new transfer arrangement in terms of what it will mean for Ottawa’s contribution toward overall health spending. In 2010-11, the federal share of health spending was 20.4 per cent. The PBO projects the federal share will average 18.6 per cent from 2011-12 to 2035-36, then 13.8 per cent over the following 25 years and 11.9 per cent over the next 25 years.

Historically, federal health transfers averaged about 37 per cent of health spending from 1968-69 to 1995-96. That dropped sharply during the deep budget cuts of the Liberal government in the mid-1990s, hitting 16.3 per cent in 1995-96 and reaching an all-time low of 9.8 per cent in 1998-99.

With an aging population requiring medical care, the PBO report says health-care costs will increase significantly as a share of the GDP and the lower levels of government will be forced to foot an increasing share of the bill. "Provinces are responsible for health-care delivery," Melissa Lantsman, a spokeswoman for Finance Minister Joe Oliver, said in an e-mail. "Nevertheless, our government is increasing health funding at a higher rate than provinces are spending it. Record sustainable funding will reach $40-billion annually by the end of the decade."

That is about the point when the PBO says the provinces and territories will be in the best financial position, after which increasing health-care expenditures will force a long, steep slide toward deficits and, by 2034, their budgets will be chronically in the red. Premiers who met this month in St. John's called on the federal government to provide more money for health. Newfoundland Premier Paul Davis said the provinces and territories want Ottawa to increase the Canada Health Transfer to cover at least 25 per cent of their health-care spending.

British Columbia Health Minister Terry Lake told The Globe and Mail on Tuesday that the current system, in which the federal money is allotted on a per-capita basis, ignores the fact that some provinces have much older populations than others. "When an older province has higher health-care costs because we have older residents, that should be reflected in the Canada Health Transfer as a population-needs based approach," Mr. Lake said. The PBO report said some other recent federal expenditures should have little negative effect on the bottom line in the years to come. The universal child-care benefit, which was increased in this year's budget and resulted in the delivery of $3-billion in cheques to Canadians this week, will have only a minor impact on fiscal room because the cash transfers are not indexed to inflation, the report said. And, while the increase in the amount Canadians can put in a tax-free savings account will reduce government revenues, the PBO says those declines will be offset by increases elsewhere.

The report also says the federal government is on track to eliminate its own net debt over the next 35 years. But, for the provinces, healthcare spending will be a problem. Melissa Newitt, the national co-ordinator of the Canadian Health Coalition, an advocacy group for public health care, said the PBO report is more evidence that a new national health accord is needed. That accord, she said, should provide stable funding, set national standards and include a national drug plan and a national seniors plan.

the country's premiers warned in a recent report that the new federal health accord will gut nearly $36 billion in funding from the provinces over the 10-year deal

British Columbia Health Minister Terry Lake told The Globe and Mail on Tuesday that the current system, in which the federal money is allotted on a per-capita basis, ignores the fact that some provinces have much older populations than others.

That is about the point when the PBO says the provinces and territories will be in the best financial position, after which increasing health-care expenditures will force a long, steep slide toward deficits and, by 2034, their budgets will be chronically in the red.

"Provinces are responsible for health-care delivery," Melissa Lantsman, a spokeswoman for Finance Minister Joe Oliver, said in an e-mail. "Nevertheless, our government is increasing health funding at a higher rate than provinces are spending it.

"When an older province has higher health-care costs because we have older residents, that should be reflected in the Canada Health Transfer as a population-needs based approach," Mr. Lake said.

The universal child-care benefit, which was increased in this year's budget and resulted in the delivery of $3-billion in cheques to Canadians this week, will have only a minor impact on fiscal room because the cash transfers are not indexed to inflation, the report said.

The report also says the federal government is on track to eliminate its own net debt over the next 35 years.

Melissa Newitt, the national co-ordinator of the Canadian Health Coalition, an advocacy group for public health care, said the PBO report is more evidence that a new national health accord is needed. That accord, she said, should provide stable funding, set national standards and include a national drug plan and a national seniors plan.

The PBO estimates that provincial governments need to find savings or revenue increases of 1.4 per cent of GDP to put themselves back on a sustainable footing. Coincidentally, the amount the provinces are short is about the same as the feds have in fiscal room. This was the essence of the fiscal imbalance argument back in 2006, when Prime Minister Stephen Harper argued that a transfer to the provinces was required. He lost his enthusiasm for the project in 2007, when he handed a $700-million cheque to then-Quebec premier Jean Charest, who promptly gave it away as a pre-election tax cut/bribe. Not only have the Conservatives not mentioned the words "fiscal imbalance" since then, they are entirely to blame for its return to the political landscape.

In 2017, the $32-billion Canada Health Transfer will only grow at the rate of general growth plus inflation - about three to 3.5 per cent. Provinces have been used to six per cent increases since Paul Martin signed his "fix for a generation" with the provinces in 2004. This shift, announced by the Harper government, is a significant contributor to the fiscal gap the provinces are set to experience in the years ahead. The NDP has promised to maintain the six per cent escalator, which according to the PBO numbers, it has the fiscal room to do, without sending debt levels into the stratosphere. But it cannot also balance the federal budget. The federal election campaign is obviously not the crucible in which to debate serious long-term policy issues. But the next government in Ottawa is going to be forced to address the cost implications of a world where the average male lives an additional eight years by 2065. Provinces are reducing costs and have the option of increasing their own taxes. But the data are persuasive - the feds have too much money and the provinces not enough.

Flaherty's spokeswoman, Mary Ann Dewey-Plante, said the PBO report is essentially a discussion paper, but the government supports its calls to strengthen federal finances.

Approximately 30 per cent of the federal government's program expenditures are tied to transfers to the provinces, with those same transfers accounting for about 21 per cent of provincial and territorial revenues.

The federal government's projected shortfall would be eliminated, the study says, if Ottawa trimmed the size of annual increases in provincial health and social transfers to the rate of nominal GDP, rather than the current escalators of six and three per cent, respectively.

"We are Conservative, we know we have to get our federal house in order, but it shouldn't come at the expense of health care," said Alberta Tory Finance Minister Lloyd Snelgrove."We have to look at how we provide the gamut of services. Something has to give. We can't keep growing (in health spending)," added Snelgrove, whose government's annual health tab is roughly $15 billion.

the six-per-cent escalator

there have been no promises such an arrangement will be included in the next health accord.

The Duffy trial is sucking up all the oxygen because there's nothing else happening. The leaders all have significant policy announcements up their sleeves, but they are saving them for next month, when more people are paying attention. One Conservative candidate may be indulging in wishful thinking when he said "absolutely no one cares about Duffy - it's an Ottawa story."

I'm not sure that's true. The Duffy trial testimony has simultaneously undermined Harper's "strong leadership" pitch and bolstered the case for change. But it is clear the caravan will move on after the trial goes on hiatus at the end of next week. We will be celebrating Thanksgiving one week before election day. The odds are when the mornings are as crisp and golden as an apple, Nigel Wright's testimony will be a vague recollection for most folks. As a memory experiment, who remembers the details of Justin Trudeau's "32-point plan to restore democracy in Canada," unveiled exactly two months ago? Other issues will come to the fore and one battleground that Quebec Premier Philippe Couillard is keen to highlight is the way Ottawa funds health-care.

The case for a demographic funding formula received a boost last month in a paper by the Parliamentary Budget Office that suggested the demographics of an aging population are set to defeat all attempts by provinces at containing healthcare costs. The phrase was not used, but the implication was that a genuine fiscal imbalance is emerging.

Health-care is always high on the agenda of concerns when voters are asked by pollsters. Yet, the Harper Conservatives have neutralized the issue in recent elections by closely shadowing the policies of their opponents.

This time will be different. The Conservatives have long promised that in 2017, the CHT will grow at the rate of general growth plus inflation - about three per cent to 3.5 per cent. Provinces have been used to six-per-cent increases since Paul Martin signed his "fix for a generation" in 2004.

The NDP has said it will maintain that six-per-cent escalator, while the Liberal Party says it will be focused on preparing the system for the wave of baby-boomer retirements in a new health accord.

Couillard wrote to the leaders of all federal parties late last week, renewing calls for them to take into account aging populations when calculating the $32-billion Canada Health Transfer. Backed by the Canadian Medical Association, Couillard issued a challenge to the party leaders to top up the CHT to take account of changing demographics.

The report pointed out that the ratio of people aged 15-64, compared with those over 65, will fall from 4.3:1 in 2014 to 2.6:1 by 2034. The PBO suggested that provincial governments need to find savings or revenue increases of 1.4 per cent of gross domestic product, about $28 billion annually, to put themselves on a sustainable footing. At the same time, the federal government will have a similar amount of money to spare, as a result of falling public debt levels.

The wrinkle for both the NDP and Liberals is that they can commit extra billions of dollars to health-care or pledge to balance the budget. It stretches credulity to suggest they could do both, alongside the commitments they have already made. The Conservatives have already made their choice, committing themselves to reducing debt levels and ensuring the budget is balanced.

Contrasting policy positions on one of the subjects that Canadians say they really care about could provide some relief from the inertia afflicting the 42nd general election campaign. When temperatures, and tempers, cool, the leaves will cascade, the seasons will turn and so will the concerns of many voters.

Prime Minister Stephen Harper has been accused of having a secret agenda to dismantle public health care. Prior to the May 2011 federal election, he attempted to put that issue to rest by promising continued financial support for public health care. In the short-term, Harper can argue that he kept that promise. But what are the consequences of the unilateral funding announcement?  

In his new book, The Longer I’m Prime Minister, journalist Paul Wells writes that Harper pursues his conservative goals incrementally.  The health-care announcement may well fit this mould. A frontal attack on Medicare would be politically suicidal for the Conservatives, but a slowing of health transfers to the provinces over a period of many years would lead to increased frustration among people using the service — and a demand for alternatives, including more privately offered services.  This scenario is not lost on groups, such as the Canadian Health Coalition and the Council of Canadians. They’re organizing a national day of action on March 31 in support of public health care.