No stigma in have-not status – opinions/editorial – No stigma in have-not status
November 3, 2008.

Federal Finance Minister Jim Flaherty and Dwight Duncan, his Ontario counterpart, are having trouble setting aside their differences. Even as he announced yesterday that Ontario would for the first time begin receiving equalization payments, Mr. Flaherty could not resist taking passive-aggressive swipes at the province’s Liberal government, noting that it was “an odd feeling to see Ontario in such difficult straits,” and predicting, “Regrettably, I expect that Ontario will be in the equalization program for some time to come.” Mr. Duncan, meanwhile, again imputed dark motives to Mr. Flaherty, lamenting that he seems set on imposing caps upon equalization payments just as Ontario starts receiving them.

All this posturing is unnecessary. When they are not busy attacking one another, most of what Mr. Duncan and Mr. Flaherty are saying about equalization is reasonable.

Despite the stigma about becoming a “have-not” province, there is no great shame in Ontario receiving equalization. Every other province has at one time or another benefited from assistance to ensure that all Canadians receive comparable governmental services, and Ontario’s cumulative contributions to the program have dwarfed all others. Now, its economy – heavily reliant on manufacturing and closely tied to U.S. economic performance – is struggling while resource-rich provinces have reaped the benefits of high commodity prices. While governments have a hand in their provinces’ economic fates – the accomplishments of Newfoundland and Labrador in becoming a “have” province are not to be overlooked – the current shift has much to do with circumstance. As Mr. Duncan said yesterday, it was to be expected.

At the same time, it was no slight against Ontario when Mr. Flaherty said yesterday that the equalization formula will soon be changed so that payments are limited to the rate of growth for nominal gross domestic product; it was a matter of necessity. Under the current formula, 50 per cent of natural resource revenues are taken into account when determining each province’s entitlements (even though Ottawa does not receive those revenues itself). This was an ill-advised decision when the formula was adopted during Stephen Harper’s first term, and it has proved all the more so as commodity prices have soared. As Mr. Flaherty said yesterday, the ensuing 15 per cent annual growth in equalization payments is “unsustainable” – particularly at a time when Ottawa has seen its own budget surplus evaporate.

There will always be differences of opinion in how governments should deal with tough economic times. Mr. Flaherty thinks Mr. Duncan should have cut taxes; Mr. Duncan wishes Mr. Flaherty had invested more federal dollars in Ontario, particularly in the manufacturing sector. But the path forward on equalization is obvious: Ontario should receive assistance in a manner that does not bankrupt the entire system.

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