Money still flows out of ‘have-not’ Ontario
TheStar.com – opinion/commentary – Big national programs like equalization and employment insurance drain money from the province.
Mar 30 2013. By: Noah Zon and Matthew Mendelsohn
Over the coming weeks, Canadians will turn their attention to a familiar rite of spring — filing their taxes. Meanwhile, federal and provincial governments are undertaking their own annual ritual — presenting budgets that outline how those tax dollars will be spent.
In Canada, it can be dizzying to track the relationship between the taxes sent from one province’s residents to the federal government and what is ultimately returned in federal spending in the province. Our own analysis shows that this exercise results in a net transfer away from Ontario amounting to approximately $11 billion per year, based on the latest available figures.
This is at odds with Ontario’s recent label as a “have-not” province. Indeed, Ontario is no longer wealthier than the average province, due in large part to a resource boom in other provinces and the downturn of manufacturing in central Canada.
Yet despite the fact that Ontario now receives payments under the equalization program, federal spending and transfers continue to redistribute funds away from Ontario. This net contribution by Ontario households and businesses to other parts of Canada amounts to about 2 per cent of the province’s GDP.
This gap is not primarily due to unfair taxation practice. It is almost entirely a result of federal spending and program decisions that leave Ontarians receiving less than their per-capita share of spending and transfers. Simply put, many federal programs operate according to conditions that redirect funds to provinces other than Ontario.
None of this has been changed in the recent federal budget. Despite a focus in the budget on some Ontario priorities, like manufacturing, there is no evidence that the federal government has moved forward to correct any of the long-standing inequities that hurt Ontarians.
Take, for example, employment insurance. What Ontario employers and employees paid into the program and Ontario’s share of Canada’s unemployed were both above the national average. Under any normal circumstances, one would expect that Ontarians would receive at least 39 per cent of employment insurance benefits — our share of the population. But that conclusion would be wrong. In 2011, Ontarians received only 33 per cent of EI income benefits.
In just one program — the employment insurance system — Ontarians saw a $20-billion redistribution away from the province in the period between 2000-2010. And it hasn’t stopped yet.
Federal investments in infrastructure, housing, energy and regional economic development are not much better. While not all programs treat Ontarians unequally, the net effect is clear: a flow of funds away from Ontario, at a time when the province can ill-afford it.
Even the equalization program makes Ontario worse off rather than better off compared to other provinces, by about $2.7 billion in 2012-13.
To be clear, Canada has enormous value to residents of all provinces. The value of Canada to Ontario cannot be measured simply by looking at the balance sheet. But all Canadians should be concerned when policies are not working for the benefit of all Canadians.
The good news is that some of these problems are easily fixable. There is no grand federal plan to redistribute dollars away from Ontarians. This is simply a legacy of historical decisions made at different times and for different reasons.
The federal government can and should deal with that legacy by reforming programs that discriminate against Ontario and Ontarians. That should start with funding for housing, training, economic development and infrastructure. Some simple changes to equalization and EI could also make a dent in the problem — even as we await bigger changes.
Many of our big national programs were designed decades ago for very different times. Many have not aged well. Most Canadians know this. The fact that Ontarians fare poorly under many programs is but one bit of evidence that programs need redesign. Let’s reconstruct our fiscal and social architecture in a way that works for all Canadians — and responds to the challenges of the next half century.
Noah Zon, right, and Matthew Mendelsohn work at the Mowat Centre at the School of Public Policy and Governance at the University of Toronto, which will release the study Filling the Gap: Measuring Ontario’s Balance with the Federation next week. It will be available at www.mowatcentre.ca
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