Ontario fears wealth-sharing shutout

TheStar.com – Ontario – Ontario fears wealth-sharing shutout: Duncan promises ‘tidal wave of anger’ if equalization changes shortchange province
November 01, 2008. Les Whittington in Ottawa, Rob Ferguson in Toronto

OTTAWA–Finance Minister Jim Flaherty appears to be on another collision course with Ontario – this time over plans to rejig a formula for federal-provincial wealth sharing that could deprive Ontarians of hundreds of millions of dollars in support from Ottawa.

Premier Dalton McGuinty’s government, which has complained for years that Ontario gets shortchanged in federal-provincial revenue sharing, is already expressing outrage.

Ontario will fight “tooth and nail” against any plans by Flaherty to squeeze the province on equalization payments, Finance Minister Dwight Duncan warned yesterday, promising “a tidal wave of anger and opposition.”

“It appears as though what the federal government is going to do is to change the equalization formula to prevent Ontario from qualifying. So at the very time recession and the downturn in the economy in Ontario is happening, the federal government is looking for ways to not assist Ontario. So we will be really fighting this tooth and nail.”

Flaherty says the newly elected Harper government intends to change the so-called equalization program that distributes money from Ottawa to poorer provinces. The change would come just as Ontario might qualify for such support for the first time ever.

The first clash is expected Monday, when Flaherty will begin laying out his plan to reform equalization during a one-day meeting with Duncan and other provincial finance ministers in Toronto.

The 51-year-old federal program distributes revenues – $13.6 billion this year – to so-called “have-not” provinces to even out regional disparity in social services. This year, only British Columbia, Saskatchewan, Alberta and Ontario did not receive payments.

After extensive consultation with the provinces, Flaherty last year rewrote the formula for determining which provinces qualify for equalization payments and how much they get. But the prices for oil and other resources, which had an unexpected upsurge until recently – coupled with a near-recessionary economy in Ontario – have thrown the new formula into disarray. As a result, Ottawa’s payments to “have-not” provinces could skyrocket by billions of dollars.

With the Conservative government already facing a possible budget deficit as early as this fiscal year, a whopping increase in equalization payments is unacceptable, Flaherty says. “If we want to save the program, which we do, we have to make sure that we put a limit on the growth of the equalization program,” he told reporters just after the new Conservative government was sworn in this week.

The federal government is still studying options for altering the way payments are determined.

The main problem Flaherty faces, analysts say, is that Ontario’s severe economic slump at a time when resource-rich provinces are enjoying a rising tide of tax revenues could result in Ontario becoming a “have-not” province eligible for equalization payments. This could add hundreds of millions of dollars a year to Ottawa’s equalization bill.

Also, it would drastically change the overall equalization calculations, adding perhaps another $1 billion to federal payments to have-not provinces.

Equalization has already contributed to what the McGuinty government calls the “fiscal gap” under which Ontarians send $11.8 billion more a year to Ottawa than they get back in services.

As a result of that and other issues, the provincial Liberals have been feuding bitterly with the Harper government over its treatment of Ontario. Flaherty said in February that Ontario is “the last place” a business would invest and senior Harper ministers have called McGuinty the small man of Confederation because of his efforts to enlist more financial support for the province.

But Flaherty said this week his provincial counterparts are aware of the need to limit the growth in payments under equalization.

“Most of the provinces, I think, understand that the sustainability of the program is vital, we have to make sure it’s sustainable,” he said.

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