Ontario Gearing up for Renewed Fight with Ottawa Over Equalization

Commentary, Equalization, Frontier Centre

Ontario is gearing up for a battle with Ottawa over equalization after a new report by a leading business group slammed the national program for failing to level the playing field between Canada’s "have" and "have-not" provinces and territories.

Premier Dalton McGuinty, who is facing an election this fall, suggested Tuesday that revamping the program could be a win-win for both the Ontario and federal governments.

"We are overwhelmingly the single biggest contributor to the equalization program in the country," he said after speaking to a business group in Brampton, Ont.

Ontario, which became a so-called "have-not" province in 2008, will collect less than a billion dollars this year from equalization, yet kick in about $6 billion to be redistributed to other provinces and territories, he said.

"I would argue, if we can hang on to a bit more of our money, we could further strengthen health care and education, support innovation, support economic growth, support a cleaner environment — all those things that our families are telling us they want us to do for them," McGuinty said.

"So that’s something that we’ll continue, obviously, to raise with the federal government." 

The premier’s comments came after the Ontario Chamber of Commerce urged him to renew his fight over equalization, armed with a new report that suggests Ontario is particularly disadvantaged when it comes to education, health care and child care.

An outdated equalization program has had "tragic consequences" for Ontario, where residents have less access to childcare spaces, pay more for an undergraduate education and have fewer nurses to care for the sick than in all other provinces but one, said president and CEO Len Crispino.

That’s unacceptable when billions of Ontario tax dollars are transferred to other provinces, he said.

"But this is not just an Ontario issue or an Ontario problem," Crispino added.

"Regional subsidies are a principal cause of Canada’s poor productivity. This situation cannot be sustained in a market economy as these fiscal arrangements punish productivity and reward inefficiency."

Transfer payments, which include equalization as well as other payments to support health care and social programs, hurt productivity by creating market inefficiencies that hinder economic growth, facilitate the growth of large and inefficient public sectors and dampen economic performance, the report argues.

Few federal politicians even understand the regional subsidy system, it says. Billions of dollars are sunk into the program, yet it’s never debated in the House of Commons.

The biggest problem with equalization is the "total lack of information" that’s needed to support such a massive program, said David MacKinnon, the report’s author.

"This program, in terms of those deficiencies, is ineptitude enveloped in ignorance, surrounded by fog," he said.

"You can’t operate a program that way responsibly, and unfortunately this a huge program."

Crispino said Canada can’t afford to maintain policies that hurt productivity when many of the provincial governments — as well as Ottawa — are facing significant deficits.

With major federal-provincial transfer agreements set to expire over the next three years, it’s time for a national debate on modernizing equalization, he said.

It’s not the first time McGuinty has locked horns with the federal government over benefits for Ontario residents, such as employment insurance.

Federal cabinet minister Peter Van Loan derided McGuinty as the "small man of Confederation" during his 2007 push for more seats in Parliament to reflect population growth in Ontario, Alberta and British Columbia.

The Tories eventually relented and promised last year to give Ontario 18 additional seats.