Social Policy in Ontario

Ontario demands new deal

Posted on May 1, 2008 in Debates, Equality Debates, Governance Debates

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TheStar.com – Ontario – Ontario demands new deal
May 01, 2008. Robert Benzie, Rob Ferguson, Queen’s Park Bureau

Premier Dalton McGuinty demanded a new deal from the federal government yesterday as fresh evidence emerged that the Ontario economy is staggering toward recession.

“It’s one thing for us to send $20 billion to the rest of the country in good times, but in a period of economic challenge this is nonsense. We can’t afford to do that,” McGuinty told reporters as he reignited his crusade to close the “gap” between what Ontarians send to Ottawa in taxes and the amount that is returned here in transfers and services.

“Look, I love being generous, but sometimes you can’t afford to be that generous,” he said, emphasizing Ontario’s economy is “not growing fast enough” relative to places like resource-rich Alberta, Saskatchewan and Newfoundland, and booming British Columbia.

But even the national economy is in trouble, Statistics Canada reported yesterday. Gross domestic product shrank 0.2 per cent in February, a surprise to most analysts and the second contraction in the past three months. (A contraction in two consecutive quarters – six months – would be considered a recession.)

While StatsCan did not break out a GDP figure for Ontario, the national number included a 0.7 per cent contraction in the manufacturing sector, which is a key pillar of the provincial economy.

McGuinty’s salvo came a day after the Toronto-Dominion Bank issued a report predicting Ontario would be eligible for federal equalization payments – typically reserved for poorer provinces – as early as 2010.

The news from Queen’s Park prompted Newfoundland Premier Danny Williams to say, “We’re here to be part of a strong federation and we’re here to help our weaker sisters in their time of need.”

He added: “The big shoulders of Ontario have borne a lot of the weight over many years and, from Newfoundland and Labrador’s perspective, we’d like nothing better (than) to lend a helping hand.”

This comes at a time when Newfoundland – with its vast offshore oil – is weaning itself off equalization payments.

Speaking to the Commons finance committee yesterday, Bank of Canada Governor Mark Carney acknowledged the existence of a two-tiered economy in which Ontario and Quebec are struggling while resource-based economies in other provinces do well.

McGuinty, striking an aggressive stance toward Ottawa and the 12 other provinces and territories, yesterday said the “perverse” national wealth-sharing equalization program is not sustainable.

This year, six provinces – Quebec, Manitoba, and the four Atlantic provinces – shared $13.6 billion under the equalization program. Ontario taxpayers contributed $5.6 billion of that.

Meanwhile, the president and CEO of the Business Council of British Columbia said that, unlike Ontario, the west has been buffered from the U.S. economic decline by keeping up its trade with Asia.

“It’s a strategy we followed that’s starting to bear fruit,” said Virginia Greene.

“Many of our industries have diversified so we’re not so dependent on the U.S., whether it’s in construction or the tech sector,” she added. “We’re seeing a bit of softening but we’ll be able to grow our way through this.”

While McGuinty warned things could get worse in Ontario unless Ottawa intervenes, he declined to make any specific financial demand from Prime Minister Stephen Harper, instead predicting doom and gloom for the province.

“It will make it (the expected economic downturn) more pronounced. The impact will be felt more deeply than it need be in our province,” the premier said.

“This fiscal arrangement that we have with the feds and the rest of the country is acting as a brake on our ability to make progress out of this difficult time right now,” McGuinty added.

Soaring energy prices have fuelled the decline in Ontario’s standing in Confederation in two ways:

Last year’s change in how equalization is calculated shifted from a five-province standard to a 10-province standard. That brought Alberta into the calculation and record oil prices have radically skewed the formula because its revenues are ballooning.

Because Ontario is a commodity-importing province its economy is battered when energy prices rise rapidly, which is a contributing factor to the problems for manufacturers here.

When McGuinty was crusading to close “the $23 billion gap” in 2005 and 2006 – to the chagrin of both Harper and former Liberal prime minister Paul Martin – he pointedly refused to say how much money Ontario should be expected to send away.

Yesterday, the premier indicated he would be sticking to his old playbook.

“How much can we afford – $15 billion? $18 billion?” asked a reporter.

“That’s a long-term conversation that we need to begin to have in a serious and thoughtful way,” the premier said, indicating only that he wants Harper to revamp the program that was tinkered with last year.

“Were we to become a recipient, we would rescue ourselves with our money. That’s how perverse and nonsensical this financial arrangement is,” McGuinty noted.

According to the most recent figures from the Ontario ministry of finance, the province’s real gross domestic product grew by just 0.1 per cent in the fourth quarter of 2007, which dragged down Canada’s economic growth over the same period to 0.2 per cent.

It’s not known if the descent to have-not status will impact Ontario’s favourable credit ratings – which help determine the interest rate the province pays on debt.

Dominion Bond Rating Service is currently conducting its annual review of the province’s finances and Moody’s issued its latest opinion last week.

Analysts at both firms could not be reached for comment yesterday, but Moody’s rating last month put Ontario at Aa1 with a stable outlook, citing “a large, diversified economy that has generated strong revenue growth in the face of significant external challenges in recent years.”

Progressive Conservative Leader John Tory attacked McGuinty for contributing to the province’s declining status in the federation and using the “have-not” controversy as a diversion from job losses, such as the 1,500 layoffs at General Motors in Oshawa and the Campbell’s Soup Co. in Listowel.

“Dalton McGuinty should be standing up and saying … his top priority – not blaming equalization, not blaming the federal government, not blaming the weather or the metric system – is … changing policies such that Ontario becomes a beacon for investment in the whole world,” said Tory.

“He’s got to step up and accept some responsibility on taxes, on regulations, on the message that his government is sending that this is not the place in Canada in which to invest and create jobs,” he said.

NDP Leader Howard Hampton has been urging the Liberal government to introduce lower hydro rates for industries, credits to help the struggling manufacturing and forestry sectors and to institute a buy-Ontario policy.

“Rather than continuing to whine at the federal government or whine at other provinces, I think the McGuinty government should get down to business and start making better policy decisions for Ontario,” said Hampton.

With files from Les Whittington, Petti Fong and The Canadian Press

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