Ontarians Get Raw Deal in Wealth-Sharing System, Study Says

Media Appearances, Equalization, Frontier Centre

Canada’s outdated and inefficient fiscal arrangements are cheating Ontario taxpayers and undermining the nation’s productivity, warns a new study.

The Ontario Chamber of Commerce on Tuesday said wealth-sharing programs like equalization have led to Ontarians subsidizing other provinces that have higher levels of public services than here.

“From birth to death, Ontario citizens are the most disadvantaged Canadians when it comes to . . . education, health care and child care,” said the chamber’s president and CEO, Len Crispino.

“This is unacceptable when billions of tax dollars, taken from hard-working Ontario businesses and citizens, are transferred outside this province through an equalization system that punishes productivity and rewards inefficiency.”

In a new 18-page report, entitled Dollars & Sense: A Case for Modernizing Canada’s Transfer Agreements, the chamber notes that Ottawa does a poor job of keeping track of where the money goes and what it buys.

That has resulted in artificially high levels of services in provinces — such as Quebec and Atlantic Canada — that are effectively bankrolled by residents of Ontario, British Columbia, and Alberta.

“This program . . . is ineptitude enveloped in ignorance surrounded by fog. You can’t operate a program that way responsibly,” said David MacKinnon, a former senior bureaucrat in Ontario and Nova Scotia, who authored the study.

“Politics can trump economics and finance for a while, but not forever,” he said, pointing out that such subsidies mean there is no incentive for some provinces to run their public services more efficiently.

MacKinnon said there is a gap of up to $25 billion each year between what Ontarians pay to Ottawa each year and is returned here in transfers and services.

For example, the total equalization pool for 2010-11 is $14.4 billion, about $5.8 billion of which comes from Ontario taxpayers.

Ontario is technically a “have-not” province, but will receive an equalization payment of only $972 million this year from the wealth-sharing program.

For 2011-12, the province is expected to collect about $2.3 billion of a $14.7 billion pool.

Premier Dalton McGuinty acknowledged “there’s more work to be done” in improving Ontario’s lot.

“If we could 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, support all of those things our families are telling us they want,” McGuinty told reporters in Brampton.

Intergovernmental Affairs Minister Monique Smith said Canada’s fiscal architecture needs a total revamp.

“We think it’s absurd that we’re paying ourselves with our own money,” Smith said from her North Bay riding. “The federal system is archaic and we need to revisit that.”