The CST is a block transfer to provinces in support of post-secondary education, Social Assistance and social services more generally. The CST came into effect in 2004. Prior to that date it was integrated with the health component of federal transfers in a program entitled the Canada Health and Social Transfer (CHST). The objective of the separation was to increase the transparency and accountability of federal support for health while continuing to provide funding for other objectives. The CHT is the other part of the unbundled CHST: it provides funding to the provinces for their health expenditures.
The CST and CHT funding comes in two parts: a cash transfer and tax transfer. A tax transfer essentially provides the same support as a cash transfer of equal value; it just comes in a different form. In 1977 the federal government agreed with provincial and territorial governments to reduce federal personal and corporate tax rates in order to permit the provincial governments to increase the corresponding provincial rates. The net effect was that the federal government got less tax revenue and the provinces got more. And to this day, the federal and provincial governments keep a record of the implied tax transfers that arise from this thirty-five-year-old agreement. This is the tax transfer component of the CST and the CHT.
The CST support is allocated to provinces and territories on an equal per-capita basis to ensure equal support for all Canadians regardless of their place of residence. The CHT is distributed likewise, and it requires the provinces to abide by the federally-legislated Canada Health Act, which demands that provincial health coverage be comprehensive, universal, portable, accessible and publicly administered.
Approximately $40b is currently transferred under the CHT and $20b under the CST. Health care and health expenditures are a core issue of policy at all levels of government on account of the envisaged growth in these expenditures that will inevitably accompany the aging of the babyboomers.
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