The federal equalization program has outlived its purpose, Ontario Premier Dalton McGuinty said yesterday.
The goal of the system by which the federal government redistributes wealth among the provinces — to put “havenot” provinces on sound financial footing — has been achieved, he said.
“The way the federal government spreads money around this country — all the formulas, the calculations, the transfers — all have one core assumption: Ontario’s rich and the others are not. Well that just isn’t the case anymore. Ontario is strong and others are strong, too,” Mr. McGuinty said. “To speak of ‘have’ and ‘have-not’ provinces in 2008 makes no sense. We’re a nation of haves these days.”
Finance Minister Jim Flaherty’s office, however, said other provinces believe the complex regime of redistribution payments and subsidies still serves its purpose.
“Equalization was established to ensure that all provinces and territories receive the same level of services at roughly the same level of taxation,” said Dan Miles, director of communications to the Minister of Finance.
“Mr. McGuinty might not believe it is, but others do believe it is working and it’s a benefit to all Canadians,” Mr. Miles said.
In a speech to the Ottawa Chamber of Commerce at the Westin Hotel, Mr. McGuinty renewed his criticisms of the equalization formula that, he said, pulls more than $20-billion out of the Ontario economy each year.
The speech comes on the heels of a TD Bank report indicating that Ontario may sink to have-not status by 2010.
It’s time for a new fiscal arrangement, Mr. McGuinty said, and he is promising to soon unveil tactics to get the message through to the federal government.
When pressed for specifics, Mr. McGuinty said: “Albert Einstein said the definition of insanity is to keep doing the same thing over and over again and expect a different result. We’re not going to do the same thing over and over again.”
He called on Ontarians to encourage the federal government to unleash the provincial economy and allow the region to thrive as a centre of innovation and high-tech.
“We could take a lesson from some of our fellow Canadians living in other provinces. If they feel they’re the subject of unfairness, if they feel that their interests are threatened, they quickly close ranks,” Mr. McGuinty said.
The Premier also took a swipe at Mr. Flaherty, who in the follow-up to the last provincial budget in February, said high taxes make Ontario “the last place” in Canada to invest.
“That’s wrong. And that’s a betrayal of a solemn duty to champion all of Canada. We’re a great place to invest and the world knows it. But we could do more and do it faster if the feds would take the brakes off our economy,” Mr. McGuinty said.
Until Ontario is permitted to retain more of the wealth it generates, the government cannot entertain a discussion about drastically lowering corporate taxes, he added.
The Finance Minister’s office said it’s good to hear Mr. McGuinty just discussing corporate taxes.
“It seems that Minister Flaherty’s message is finally getting through to Mr. McGuinty that he has to lower business taxes in Ontario, that business taxes are in fact high. This appears to be an acknowledgment that he has to do something to reduce business taxes,” Mr. Miles said.
He added that Ontario benefits from a great deal of other federal spending such as health and social transfers, money for immigration, training and infrastructure, and tax relief through the reduction of the GST and personal and business tax cuts.
“From our perspective, we are providing substantial financial resources to the province of Ontario,” he said.
But Mr. McGuinty said these are “anxious” times for Ontario’s economy, which is facing a number of ills, including a strong Canadian dollar, sluggish U.S. economy and high oil and gas prices.
As the wealth of oil-rich Alberta increases, the average income separating have from have-not provinces goes up.
And as Ontario is the single biggest contributor to elevating Canadians above the average income, its equalization payments increase, Mr. McGuinty said.