Through the 1980s and early 1990s, Canada faced a more serious fiscal problem than the one we are dealing with today. Successive federal governments attempted, but ultimately failed, to balance the budget by trying to slow the growth in spending while hoping for higher revenues.

The current Conservative government takes the same approach. It expects revenues to grow at an average rate of 5.6% from 2011-12 to 2015-16 while holding spending increases to an average of 1.8%. Canada's previous experiences show this plan is unlikely to work. Before the financial crisis and the stimulus, the Conservative government increased spending at an average rate of 5.5%.

We recommend a different course in the coming budget, one that would solve the principal short and long-term problems facing the country, namely the deficit and health care. The Conservative government should move deliberately to reduce spending, as per the Chretien-Martin budget of 1995 which planned to reduce program spending by $10.4-billion, or 8.8%, over a two-year period (they actually reduced spending by 9.7%). Meaningful spending cuts coupled with stable revenues produced a balanced budget in just two years (1997-98).

Specifically, we recommend the government ensure that the temporary stimulus money introduced in 2009 is actually temporary. Under the current plan, program spending does not return to pre-stimulus levels but instead simply grows from the new base established by the stimulus.

Reductions in program spending of $15.7-billion, or 6.3%, by 2012/13 are required to bring spending in line with pre-stimulus levels. The Conservatives should prioritize spending to spare important areas deep cuts and burden lower priority areas with more reductions, as occurred during the Program Review of 1995.

In a second major reform, the 1995 budget reduced provincial transfers and simultaneously provided the provinces with greater autonomy and responsibility for social services. This gave the provinces the incentives and ability to design and deliver better social services, leading to an outburst of innovation and experimentation across the provinces: Welfare dependency was reduced, employment rates increased, services were often improved with less money spent, and provincial government trimmed social assistance spending.

These lessons should be applied to health care today.

There is broad agreement that Canada is facing serious financial upheaval if health care is not reformed. Health care spending is already squeezing government budgets. Federal transfers to the provinces in support of health care and other social programs are expected to increase at over four times the rate of federal program spending over the next four years.

Health spending as a share of total program spending has increased from roughly 30% of provincial budgets in 1990-91 to 37% in 2008-09, the most recent year for which comparable data is available. It's not hard to imagine health care spending consuming more than half of provincial budgets within the decade.

Canada's health-care system, as a share of the economy, is one of the largest in the industrialized world. Despite the resources dedicated to health care, Canadians don't enjoy commensurate services. The median waiting time between referral from a general practitioner and delivery of elective treatment by a specialist was 18.2 weeks in 2010. According to the Organization for Economic Co-operation and Development, Canada ranks 20th out of 22 countries for its physician-to-population ratio (2.2 per 1,000 population). We also rank low for access to technologies such as CT scanners (17th of 26 countries) and MRIs (17th of 25 countries).

We recommend the federal government reduce health transfers to the provinces by $3.1-billion per year over the next two years. In exchange for the reduction in transfers, the federal government should amend the Canada Health Act to afford the provinces more flexibility in the delivery of health care with a focus on encouraging experimentation and innovation within a universal, portable framework.

Provinces would have incentives and clearer lines of accountability to the electorate to provide value-for-money for health-care resources. Some provinces might experiment with health savings accounts, mandated insurance schemes, or perhaps expanded government provision.

While the Conservatives are rumoured to be planning to stay the course with their current fiscal plan, they should seriously reconsider. Implementing a budget similar to the Chretien-Martin 1995 budget would balance the budget within two years and begin the process of reforming our ailing health care system. It's a plan that conservatives cheered in the 1990s and it's one the current Conservative government should implement now.