Report says Ontario is big loser in broken equalization program
NationalPost.com – FullComment
Dec 21, 2012. Kelly McParland
If Ontario’s Liberal leadership hopefuls were looking for material to spice up their race — calling it a snoozer so far would be an understatement — there’s an issue out there waiting to be seized. And they wouldn’t even have to criticize Dalton McGuinty.
The Mowat Centre for Policy Innovation, which calls itself “Ontario’s Voice on Public Policy”, will release a report Friday describing just how badly Ontario gets hosed by Canada’s equalization program.
Equalization is the federal system of redistribution that ensures “have not” provinces are able to provide the same levels of services as “have” provinces. (The Mowat Centre, by the way, doesn’t like either term and wants to get rid of them, arguing all provinces are well off and the differences are just relative).
Though Ontario began receiving equalization money several years ago, and now gets the second-biggest annual cheque after Quebec, it is in no way a “have not” province, argues Mowat’s Matthew Mendelsohn. In fact, because of the structure of the program, it continues to contribute “disproportionately,” sending money off to support social programs in other provinces even as it runs a record deficit and struggles to keep up its own levels of service.
The situation “is not sustainable for Ontario and is not in keeping with the most basic understanding of equity, “ Mendelsohn writes. Rather than support equality, it “undermines Ontario’s ability to provide comparable levels of public services … and also undermines its ability to make capital investments that will ensure its future prosperity.”
There are several problems with the program, as Mendelsohn sees it. The biggest is that it is no longer matched to the realities of Canada’s economic make-up. Alberta, with its oil wealth, is Canada’s richest. But natural resources are owned by the provinces and not redistributed to other provinces (Ottawa tried once, via the National Energy Program, and Alberta still hasn’t forgiven it). Instead, the money for equalization comes “disproportionately” from Ontario corporate, personal and consumption taxes, says the report. And since Ontario has 40% of the population, it ends up contributing far more to the kitty than it gets back. Although its equalization income this year tops $3.2 billion this year, it gets the lowest payout per capita of the seven recipient provinces. (Prince Edward Island and New Brunswick are the highest).
While resource money isn’t counted for equalization, resource wealth does define which provinces are best off. This gap in “fiscal capacity” (the term Ottawa uses to describe the provinces’ relative prosperity) decides which provinces get equalization. So while oil wealth determines the size of the gap between provinces, it’s not directly included in narrowing it.
“The current system is failing to do what it is supposed to do—and it is failing Ontario in particular,” says Mendelsohn. Canada’s fiscal arrangements “are no longer consistent with Canadian realities. They fail their most basic tests. They do not consistently allocate more federal money to less prosperous provinces than to more prosperous ones, and they don’t come anywhere close to ensuring that all provinces have comparable ability to provide public services.”
He says the system needs to be rebuilt from the ground up, and offers several suggestions (which don’t include trying to siphon off resource income). But while the provinces often squawk, only Ottawa can make the changes. It won’t, of course, unless it feels enough pressure to do so, which suggests Ontario should be making as much noise as possible, especially given its precarious political situation. The province has a minority government led by a tired Liberal party that has been in power for nine years and is about to get a new leader and premier. Seven candidates are seeking the job, but if there’s a serious competition going on, they’re keeping it well hidden. “Debates” so far have been mild-mannered and excessively polite, perhaps because most of the candidates sit in the same cabinet and want to remain friends (and employed) after the winner is announced. No one wants to be rude, or suggest anything more than a little tweaking is needed to get good old Ontario back on its feet. Nor do they want to criticize Dalton McGuinty, since he’s the one who gave them their jobs (and whose policies they’ve been obediently supporting).
Perhaps a fight over equalization is just what they need. The issue is complex and can be hard to explain, which is why simplified terms like “have” and “have not” get used. It might also upset the other provinces, which fear a better deal for Ontario means a worse deal for them. But it’s an anchor on what should be one of the country’s most vibrant economies, and would let candidates complain about the poor state of the economy while accepting none of the blame, and promise big changes without having to repudiate anything they’ve done so far.
Better yet, it would let them campaign against Ottawa, which is run by Conservatives rather than fellow Liberals. So what’s stopping them?
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Tags: budget, economy, standard of living, tax
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