Payments going askew – opinions/editorial – Payments going askew
May 30, 2008

With almost no support from his fellow premiers, Dalton McGuinty of Ontario is waging a lonely war against the excessive generosity of the federal transfer system. Yesterday, Dale Orr, chief economist at Global Insight (Canada), provided some ammunition, with an analysis of how skewed those transfers have become. Ontario, no longer Confederation’s fat cat, could afford only $6,241 a person for programs such as health care and education in 2006-07. Meanwhile, the once struggling Newfoundland and Labrador spent a whopping $9,125 a person, partly because it was flush with federal cash.

As Mr. Orr remarked, “Something is wrong with this picture.”

How did this happen? Ottawa transfers funds to provincial governments for everything from health care to postsecondary education and infrastructure. Some of those transfers, such as those for postsecondary education and social assistance, provide less money per capita to Ontario than to most other provinces. Ottawa also sends equalization payments that allow poorer provinces to offer similar levels of service for similar levels of taxation to those of richer provinces.

But the provinces’ fortunes are changing faster than the federal formulas can adjust. Ontario’s real GDP per capita, a measure of its standard of living, is falling relative to the Canadian average. Mr. Orr estimates that it will slip to 101 per cent of that average in 2013, down from 104 per cent today. Newfoundland’s real GDP per capita will likely climb from 97 per cent of the Canadian average today to 100 per cent in 2013.

As its manufacturing sector weakens, Ontario’s comparative economic health is slipping. The provincial government might be eligible for equalization in 2010-11. Energy-rich Newfoundland is thriving. Its equalization payments are slated to dwindle. But the system is so unbalanced that Ontarians sent $21-billion more to Ottawa in 2005-06 than they received in services.

Mr. Orr happily wades into the intergovernmental transfer thicket, emerging with more calculations. Newfoundland received $3,447 per capita in federal transfers in 2006-07, which was 229 per cent of the Canadian average. Ontario pocketed only $1,105, or 73 per cent. Those numbers are far out of balance, when the two provinces’ standards of living are drawing close to each other.

There are no quick fixes. Over the past few years, both Liberal and Conservative federal governments have placated the provinces with increasingly generous transfers. Now the payments are out of kilter with the realities. No wonder Mr. McGuinty is fed up.

Leave a Reply

Your email address will not be published. Required fields are marked *