A Transfer System That’s Far From Equal

Media Appearances, Equalization, Frontier Centre

On Tuesday, the Ontario Chamber of Commerce attacked fiscal federalism, claiming that Canada’s complex system of transfers and equalization payments robs Ontario taxpayers and diminishes national productivity. Chamber president Len Crispino told reporters it is "unacceptable when billions of tax dollars, taken from hardworking Ontario businesses and citizens, are transferred outside this province through an equalization system that punishes productivity and rewards inefficiency." Even the province’s Intergovernmental Affairs Minister, Monique Smith, chimed in, calling federal funding arrangements "archaic" and insisting they are in need of an overhaul.

Welcome to the party, Ontario. Better late then never.

Alberta has complained for years that Canada’s transfer system punishes the "have" provinces — Ontario, Alberta, British Columbia and, recently, Saskatchewan–which are the economic engines of Confederation, to the benefit of the "have-nots," particularly Quebec. But Alberta’s concerns have fallen largely on deaf ears, dismissed as the greedy complaints of a wealthy, Western jurisdiction. However, with Ontario and its 106 House of Commons seats joining the chorus, perhaps the failed arrangement will get the long overdue revamp it desperately needs.

The Ontario Chamber calculates that there is a $25-billion gap each year between what Ontario businesses and individuals pay to Ottawa and what they receive back in the form of health and education transfers, pensions, income supplements and federal services. The gap has grown in recent decades, too, even as the economies of the have-nots have grown and the income disparity among Canada’s richest and poorest provinces has largely disappeared.

Fifty years ago, when Ottawa made its first, tiny equalization payments, per capita income in the Atlantic provinces, for instance, was only about 70% of the national average, while Ontario’s was 130%. Now that transfer payments run to the tens of billions a year, Ontario’s per capita income is about 103% of the national average, while each Atlantic province is at 85% or better. A 60-percentage-point gap is now down to 18 points or less, and still Ottawa continues to squeeze Ontarians, Albertans, British Columbians and Saskatchewanians on behalf of our "poor" provinces.

David MacKinnon, the former senior Ontario bureaucrat who wrote the chamber’s study, says this has led to gross inefficiencies and waste in the way have-not provinces deliver public services. Because they can count on large annual cheques from the feds, have-not provinces have little incentive to be efficient. Ontario taxpayers could be forgiven, then, for wondering whether they are sacrificing their own education, health care and welfare, just so Quebec and the other have-nots can afford to improve theirs.

Alberta, of course, gets the worst deal from Ottawa on a per capita basis. While Ontarians contribute about $1,800 more each per year to Confederation than they or their province receive back, each man, woman and child in Alberta contributes nearly $3,800 more. According to figures released last month by Alberta’s finance department, in just the past six years, Alberta has contributed a net $102-billion to the federal treasury.

The big difference between Alberta and Ontario on transfers is that Ontarians have long voted for pro-transfer governments, Albertans have not. It was Ontario voters who gave majorities to successive Liberal governments that created, then expanded these fiscal arrangements. Ontario Intergovernmental Affairs Minister Smith may complain about how unreasonable transfers have become, but it was Ontario and Ontarians in their self-proclaimed roles as Confederation’s "honest brokers" who insisted for decades that such a scheme — and Ontario’s contribution to it — was welcome if it led to greater national unity and better interprovincial income redistribution.

Ontarians are short -changed by equalization and transfers. These payments cannot be done away with completely — they’re entrenched in our Constitution. But let’s hope the Ontario Chamber’s study helps more Ontario voters realize how irrational fiscal federalism is and demand they be reduced as much as possible.