Short On Cash and Care: How Strong Can Canada Be?
As federal mental health funding is set to expire and with no replacement in sight, Canada risks weakening both its care systems and its economy.
By: Courtney White and Mahnoor Zaman
May 4th marked the beginning of Mental Health Week, a time meant to spotlight the progress and awareness of perhaps one of the most important concerns impacting Canadians today. Behind the scenes, the federal government has decided to pull the plug on the $600 million a year in dedicated mental health and substance use health (MHSUH) funding. Last week’s Spring Economic Update (SEU) confirmed that the decade-long transfers launched in 2017 will expire on schedule this fiscal year, even as mental illness costs Canadians $180 billion annually, with no replacement of equivalent scale on the table.
Before 2017, seven percent of health spending went to mental health, $3.1 billion less than the nine percent recommended in the 2012 Mental Health Strategy for Canada. The 2017 agreements added $5 billion over 10 years, reducing the gap by $600 million per year to $2.5 billion. Since 2023, the inclusion of mental health as one of four priorities for the ten-year $200 billion Working Together Better (WTB) transfers added approximately $300 million annually, bringing total targeted mental health funding to about $900 million per year and reducing the gap to $2.2 billion. However, targeted federal transfers are now projected to fall back to $300 million per year. And that’s only if provinces and territories continue to allocate the same share of WTB transfers to MHSUH. Meanwhile, the SEU is also forecasting that the annual increase in the Canada Health Transfer will fall from five percent to three percent starting in 2028.
Why does Canada keep underfunding mental health?
The first explanation can be attributed to the nature of fiscal federalism. Health care comes under provincial and territorial (PT) jurisdiction. They provide the services, while the federal government covers 22 percent of the costs through transfers that are tied to the principles of the Canada Health Act. MHSUH services are not traditionally covered by the Canada Health Act. This exclusion has resulted in fragmented financing and accountability mechanisms for MHSUH care. Although both the 2017 and 2023 transfers have required reporting on outcomes, in practice, accountability has been weak. Data remains inconsistent, and without reliable information about how funding is used, it is difficult to know what works, where, and why.
The second explanation points to a disconnect between public needs and political priorities. The current focus of the federal government is boosting the economy, and health care has been put on the back burner. This is understandable, as Canada has needed to shift its focus to keeping Canada resilient, given the fragility south of the border. The SEU proved that Canada will continue to emphasize defence and economic development. However, health care remains a top priority for Canadians, and 78 percent of those surveyed believe substance use health is an urgent issue. Across Western health systems, Canada ranks third last due to its poor performance concerning equity and spends the least compared to peer countries, in a context where MHSUH concerns are surging.
Indeed, the annual number of suicides in Canada is 4,500 each year. Indigenous suicide rates are three times higher in First Nations and nine times higher in Inuit populations. Data shows that 20 percent of youth aged 25 and under experience a mental illness, with suicide as the second leading cause of death among people aged 15-34. Yet it is not just young people; 80 to 90 percent of the elderly populations in long-term care live with some form of a mental health disorder.
So, what can Canada do?
There are some identifiable options. The first one is to amend the Canada Health Act and include MHSUH services. This reform would mitigate the equity issues coming from two-tier access and fragmented funding. The Parliamentary Budget Officer estimated that this would cost $25 billion over 5 years. The issue is that legislation is a slow process and would likely end up being caught in negotiations between the federal government and provincial and territorial partners.
A second option is a new cross-departmental strategy, since MHSUH expands beyond health care, intersecting with housing, employment, public safety, and reconciliation. Rising costs of living, for example, are directly linked to worsening mental health outcomes. The case for an intersectional approach across departments is strong. However, general strategies in an era with little political prioritization risk ending up as just more work with no outcomes. The Standards Council of Canada was funded to develop national mental health standards in 2023, but after spending a notable $45 million, the resulting Roadmap ended up only being a pre-contemplation of how those standards could be created.
A high-impact option would be new transfers attached to conditions. PTs would become eligible for additional funding upon meeting performance indicators, such as data reporting, wait times, and access to community care. While this option would not fully address the financing gaps and would likely run into pushback from PTs, it would incentivize more rigorous mental health investments, leave space for larger amounts of funding, and improve issues like data transparency.
Investing in mental health care is investing in a strong Canada. The federal government’s stated priority is growth – but growth depends on people, and people depend on care. An economy carrying $180 billion a year in mental illness costs is not a strong one, and a workforce that cannot get help cannot stay productive.
The evidence on what works is clear: the most impactful interventions happen when wrap-around services offer the full spectrum of support, from MHSUH services to primary care and beyond. People and families cannot choose one health issue over the other, and neither should governments.
The federal government has an opportunity to usher MHSUH policy into a new era of Canadian strength and resilience. There is a clear choice that the government must make, and it is possible to make it while fully aligning with the broader economic agenda. Looking ahead to the fall federal budget, a government that wants a strong economy will need a healthier country to build on it.