McGuinty and Charest: a fine bromance

Equalization, Frontier Centre, Role of Government, Uncategorized, Worth A Look (historic)

NIAGARA-ON-THE-LAKE, ONT. — Dalton McGuinty and Jean Charest are friends. They call each other by their first names and they spend a lot of hours working together on issues. Their cabinets have even sat down together to see what they can do in common.

Their friendship proves, if nothing else, that love conquers all.

If there’s anybody that Premier McGuinty should have mixed feelings about, it is Premier Charest and it’s not just because Quebec has a roomy government jet while Ontario makes do with a cramped turboprop. It goes deeper than that – to the heart of Mr. McGuinty’s long-running campaign about the fairness of Canada’s fiscal arrangements.

The core argument in this campaign, which has been revived for the federal election campaign, is that Ontario is the paymaster for the rest of Canada. Mr. McGuinty admits his province is facing economic challenges but he believes his headaches needn’t be so severe.

“We’re generating all the wealth we need to excel, succeed and flourish,” he said yesterday with Mr. Charest sitting beside him.

“The truth is that Ottawa takes over $20-billion out of Ontario … for distribution in the rest of the country. The truth is that if we could keep a bit more of that money, we could … we could be quicker about reducing corporate taxes, we could be quicker about making investments in the kinds of programs that strengthen our economy.”

Well, here’s another truth: Exhibit A for this line of argument was right beside him.

Quebec is doing as well in the fiscal federalist scheme as Ontario is doing badly. Left on its own, Quebec would have a fiscal capacity of $5,804 per capita but it is getting an $8-billion equalization payment this year, which will raise its fiscal capacity by a thousand dollars to match Ontario’s.

Partly because of this infusion of funds from the equalization scheme, Quebec can afford a corporate income-tax rate of 11.4 per cent, compared with Ontario’s 14 per cent.

The salient point is that more than 40 per cent of the $13.6-billion federal equalization scheme is drawn from Ontario taxpayers.

There are other ways in which Quebec has an edge. For example, it receives about $710 per capita in Canada Health Transfer entitlements, compared with $633 per capita in Ontario. In addition, the vagaries of the employment insurance system mean that 60 per cent of jobless Quebeckers receive regular EI benefits, compared with 30 per cent in Ontario. Ontario calculates it is losing about $3-billion annually through such arrangements.

Despite these numbers, Mr. McGuinty is taking no offence at his neighbour.

“My dispute is with Ottawa,” he told reporters at the end of Ontario Chamber of Commerce “economic summit” to which he had invited Mr. Charest. “Ottawa makes the rules and we have to play by them.”

The Quebec Premier agreed. “Equalization is a federal responsibility,” he said.

There is a surface logic to this argument but it ignores the fact that Ottawa was hoping in 2006 that the provinces could reach a consensus on equalization reform. It never came.

Indeed, Quebec and Ontario were deeply divided about the structure of the scheme – Quebec (and other provinces) wanted it to be enriched and Ontario did not. In the end, Prime Minister Stephen Harper imposed the current program that Mr. McGuinty has had to live with.

The two leaders have decided, however, that they can exert more influence on Ottawa if they bond at the hip.

They have decided to suck up their disagreements and focus on wielding the clout of what is the fourth biggest regional economy in North America. They have decided to be friends.