Ontario shortchanged by equalization payment rules
TheStar.com – News/Canada – Ontario is deeply in debt, but outdated equalization payment rules see the province sending big money to our fellow Canadians
Apr 06 2013. By: Martin Regg Cohn
Ontario is deeply in debt — roughly $265 billion — and has a massive annual deficit, now about $12 billion. It is slashing government services and freezing public-sector wages.
Oh, and we are still giving away big money — $11 billion at last count — to our fellow Canadians.
That’s the tally released this month by the Mowat Centre, a local think tank bankrolled largely by the Ontario government to get the province’s message out — in hopes of keeping our cash from leaking out.
You can do the math: If we didn’t send so much money to other provinces, we wouldn’t be so deeply in debt. Meanwhile, other provinces are balancing their books on our backs, or use our funds to provide services at a higher level than we can afford to offer here — from low-fee child care to high-end health care.
It’s an argument made persuasively, and perennially, by the Mowat Centre (which, unsurprisingly, is headed by a former senior Ontario civil servant). Queen’s Park dreamed up the Mowat think tank in 2008, when it was at wit’s end about being outwitted by other provinces. But Ontario’s thoughtful research and remonstrations never get much traction — here at home or across the country.
If Ontarians don’t care about their own impoverishment, why should the rest of Canada care? Why are we so willing to continue shortchanging ourselves while enriching neighbouring provinces?
The architecture of fiscal federalism is too opaque and abstract for the average Ontarian to comprehend, or suddenly care about after decades of indifference. In other regions, clamouring for a fair share from Ottawa is a reflex.
Equalization is the Canadian way — the way we’ve always done things. The original idea was to level the fiscal playing field so that all provincial governments had enough cash to deliver the same core services to all Canadians.
But times change. Now, perversely, equalization equals inequity.
It is an economic anachronism. No longer is Ontario the sugar daddy of Confederation, nor are the regions our poor cousins. Newfoundland is oil rich, the prairies are resource resurgent, and Quebec is less grateful than ever about being bought off with billions of dollars.
Last month, the Parti Québécois government confirmed it was getting an “unexpected” $280-million windfall from federal equalization payments, courtesy of improvements in Ontario’s economic performance. Under the arcane equalization formula, Ontario was judged to have an enhanced “fiscal capacity.” Hence Ottawa would hand over more money to Quebec, which boasted about balancing its budget in 2013-14 while Queen’s Park is still stuck with a deficit.
When our economy is improving, we lose. When our economy is deteriorating, we also lose.
Back in 2008, when Ontario technically became a “have-not” province, federal Finance Minister Jim Flaherty rejigged the equalization formula to cap the amount of money flowing to Queen’s Park. In that year, Ontario pocketed a paltry $347 million, roughly the same as P.E.I., while Quebec took in a handsome $8.35 billion.
In the decades since equalization was invented in 1957, Ontario had technically qualified five times for payments, but Ottawa changed the rules each time. Somehow, it’s axiomatic that we get shafted by rule changes, while other provinces profit from outdated rules.
For example, Manitoba and Quebec significantly underprice their hydroelectric resources for domestic users, resulting in lower revenues for their provincial treasuries — and, consequently, a bigger claim for support from equalization payments.
Another inequity: Have-not provinces in the Maritimes benefit from low wages and a lower cost of living, allowing them to provide services more efficiently than high-cost Ontario. Since the core principle of equalization is delivery of services to residents, Ontario once again gets shortchanged by the formula.
Ontario can no longer afford to be bled. Canada’s economic heartland is hurting. Our manufacturing base is being eroded while our customer base (in other provinces) looks elsewhere.
Ottawa also discriminates in the delivery of unemployment insurance and job retraining funds, allocating far less to Ontario per capita and hitting our neediest residents hardest.
Ontarians watch in silence. They are too Canadian to complain.
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