The deceptive allure of ‘Ontario First’
TheStar.com – Opinion/EditorialOpinion
Published On Wed Nov 24 2010. By David Crane, Economics Columnist
Ontario, once the cash cow of the Canadian federation willingly sending its tax dollars to other parts of the country to ensure a nation of shared well-being and national unity, could soon become a new and aggressive Ontario First champion, much more focused on its own “fair share” treatment in the federation.
That was the picture a number of participants drew at a conference last weekend on “the New Ontario and what it means for Canada.” In many ways it is not a pretty one, as Ontario contemplates joining Alberta and Quebec in putting regional interests first. The conference was organized by the Mowat Centre for Policy Innovation, which is funded by the Ontario government and named after Oliver Mowat, Ontario premier from 1872 to 1896 and Canada’s first champion of provincial rights. Its partner was the Institute for Intergovernmental Relationsat Queen’s University.
Today, a number of factors are driving this Ontario First momentum, but two appear to be the most important.
The first is that Ontario no longer feels like a fat cat — instead, it feels poor as it struggles with a big budget deficit and rising provincial debt, high unemployment and the prospect of sluggish economic growth.
In fact, Ontario is officially a have-not province, which means it receives a federal equalization payment designed for poorer provinces to help maintain spending programs.
Moreover, Ontarians are likely to feel poorer over the next few years as they face rising gasoline, electricity and food prices but with little prospect of significant pay increases. This will leave people with less income for everything else.
At the same time, governments will face serious constraints. Health-care costs already consume about 46 per cent of Ontario program spending and this is forecast to rise, putting a growing squeeze on education and other public goods.
Finance Minister Dwight Duncan has forecast a balanced budget by 2017, but assumes annual spending increases overall will be kept to 2 per cent. With health-care costs rising about 6 per cent a year, it is not clear how these spending targets will be achieved.
The bottom line is that Ontario faces a period of fiscal austerity, making it much less amenable to supporting federal programs that in its view treat Ontario unfairly.
The second key factor is that Ontario feels it has been badly treated and taken for granted by the federal government and the rest of the country. Prime Minister Stephen Harper’s failed attempt to deprive Ontario of new seats in the House of Commons was a shock. Ontario also has complaints about cost-sharing on immigrant settlement and worker retraining.
The unwillingness of provinces like Alberta and Quebec to support a national securities commission based in Toronto, which would enhance Ontario’s financial services cluster, is disturbing, as was criticism in other provinces of the auto industry bailout.
The battleground for the New Ontario will be in the arcane but big-dollar world of federal-provincial fiscal arrangements. The federal government provides significant funding to Ontario through the Canada Health Transfer, which is worth about $10.2 billion this year; the Canada Social Transfer (it funds children’s, post-secondary education and social programs), which is worth about $4.3 billion, and equalization payments of $972 million.
All three of these programs expire on March 31, 2014, and so must be renegotiated before then. The most contentious is the health transfer, which has a built-in annual increase of 6 per cent. This has allowed provinces to put off changes to their health-care systems. The next agreement is almost certain to cut that rate of increase, since the federal government is also striving to balance its budget. This would put added pressure on Ontario to review its health-care system.
In his recent economic outlook and fiscal review, Duncan stressed that “Ontario needs a strong federal partner that will provide long-term, predictable support,” adding that “Ontario has been asking for fairness in all transfers.”
The forthcoming struggle over new fiscal arrangements runs the risk of presenting the federal system as a zero-sum game. An overly aggressive Ontario First approach will only reinforce that. The gains Ontario has made are also important — obtaining per-capita grants for the health and social transfers, winning federal support for the auto bailout, and obtaining federal funding for infrastructure roughly in line with Ontario’s share of population demonstrate the system’s flexibility.
As Alex Himmelfarb, former clerk of the Privy Council, told the New Ontario conference, “Canada’s brand of federalism is our curse and our great wisdom,” arguing against a strict constitutional view and praising its flexibility. What Canada needs now, he said, is a new debate on national purpose and a major drive to rebuild trust between Canadians and their governments, which he argued has been lost.
So Ontario, rather than redefining itself simply as Ontario First, could play a much more constructive role if it also presented serious new ideas on how governments at all levels could improve both the economic future of Canada through innovation and strengthen the concept of social citizenship so that Canadians in all parts of Canada have a shared level of well-being.
David Crane is a commentator on business issues and economics.
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