Ontario’s raw deal on fiscal transfers needs fixing
TheStar.com – Opinion/Editorials – Ontario, Canada’s ormer economic powerhouse, needs to challenge a transfer system that shortchanges it.
Dec 18 2013. Editorial
To have or have not – that is the question when debating Ontario’s demand for fairness from the federal government’s unsexy but vitally important system of transfer and equalization payments.
The answer is to be found in both partisan politics and established (if outdated) equalization rules that disadvantage Ontario more than all other provinces and territories.
Ontario has been complaining about this for years, and now Finance Minister Charles Sousa is embroiled in a new war of words with Ottawa over the inequities of transfers to this province. At a weekend meeting of finance ministers, he discovered that a program protecting provinces from transfer payment losses is being cut next year – coincidentally, the first time Ontario can qualify.
As the Star’s Robert Benzie reports, Sousa’s anger grew after learning that other anticipated increases were also being cancelled. “This is an attack on Ontario,” he declared.
The feds, naturally, argue that there is nothing awry – that the protections were temporary and Ontario’s exclusion reflects an expected economic boost next year. But the bottom line is that this province now faces a $640-million shortfall in payments at a time when it is struggling mightily to tame its $11.7-billion deficit.
The fiscal experts will wrangle over the details of the excruciatingly complicated system of equalization and transfer payments. Still, this new dispute serves as yet another reminder that Ontario has been getting the short end of the stick in its financial relations with the rest of the country – and why it can’t let this situation continue.
In a report last spring, the respected Mowat Centre for Policy Innovation at the University of Toronto put a number on this inequity. It calculated that the system results in a net transfer away from Ontario that adds up to approximately $11 billion a year. That amounts to 2 per cent of the province’s GDP.
Looked at another way, Ontarians contribute 39 per cent of federal revenues but get back just 34 per cent. “This is not sustainable for Ontario,” says Matthew Mendelsohn, director of the Mowat Centre. He’s right.
The reasons for the imbalance are well known. Equalization and federal programs like employment insurance were designed decades ago when Ontario was fat and prosperous. Ontario taxpayers paid out much more than they got back to support chronically poor regions like Quebec and the Atlantic provinces – and most accepted it as our national duty.
That changed in the past decade as Ontario’s manufacturing base stumbled and the resource-rich provinces boomed. Ontario has been poorer than average, per capita, since 2006 and Queen’s Park has had lower-than-average fiscal capacity since the 2009-10 tax year. Yet the province still gets few breaks from Ottawa.
In large part it’s a political decision: the federal government will find a way to massage the rules if Quebec or the Atlantic provinces come out short because politicians there will howl in unison. Ontario grumbles, but its politicians are more likely to attack each other than make common cause in seeking financial equity for the province.
That should stop. If the Progressive Conservatives or New Democrats were in power at Queen’s Park, they would surely be making similar points to Ottawa. In this case, the three parties should stand together.
The system can be changed. One recommendation, again pushed by the Mowat Centre in a report last December, is removal of a penalizing cap on GDP growth that, if and when it does bounce back, hits Ontario three times harder than other provinces, with a loss of $1.1 billion.
For too long, this province has played the role of Canada’s big benevolent money machine, through good times and bad. When other provinces like Quebec, Newfoundland and Nova Scotia got wind of cuts to their fiscal transfers or equalization payments, their protests forced federal decision-makers to back down.
Ontario needs to gather strong voices, bolstered by smart policy recommendations, and learn how to do the same.
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