What are federal-provincial fiscal arrangements?

Federal-provincial fiscal arrangements are the system of federal transfers from the federal Government of Canada to provincial and territorial governments. The system is governed by the Federal-Provincial Fiscal Arrangements Act and delivered through three principal transfer programmes: the Canada Health Transfer (CHT), the Canada Social Transfer (CST), and Equalization. Federal transfers totalled about $97 billion in fiscal 2024 to 2025, covering about 18 per cent of provincial revenue.

The Canada Health Transfer is the largest transfer, providing about $49.4 billion in 2024 to 2025 to support provincial healthcare under the Canada Health Act. The CHT was negotiated to grow at 5.0 per cent per year through 2027-2028 under the February 7, 2023 federal-provincial agreement. The Canada Social Transfer provides about $16.4 billion in 2024 to 2025 for provincial post-secondary education, social assistance, and early childhood development. CST growth is tied to the formula in the Federal-Provincial Fiscal Arrangements Act.

Equalization is the constitutional commitment (section 36(2) of the Constitution Act, 1982) to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation. Equalization payments are calculated based on a formula comparing provincial fiscal capacity to the national average, with payments going to less-prosperous provinces. In 2024 to 2025, Equalization totalled about $25 billion, with payments going to Quebec (about $13.3 billion), Manitoba ($3.8 billion), Nova Scotia ($3.2 billion), New Brunswick ($2.6 billion), and Prince Edward Island ($600 million). Ontario, Alberta, BC, Saskatchewan, and Newfoundland and Labrador were not Equalization recipients in 2024 to 2025.

The territories receive Territorial Formula Financing (TFF) rather than Equalization. TFF totalled about $4.8 billion in 2024 to 2025, covering about 75 per cent of territorial operating revenue. The federal government also operates dozens of smaller transfer programmes for specific purposes including the Canada Workers Benefit, the Canadian Dental Care Plan (launched 2023), the Canadian Pharmacare Plan (launched 2024), housing transfers, infrastructure programmes, climate-related transfers, and Indigenous transfers. Federal transfers have been a continuing source of federal-provincial dispute, with provinces regularly asking for higher transfers and the federal government attaching conditions and reporting requirements.