Ontario: Cash Cow For the Rest of Canada

Commentary, Equalization, David MacKinnon

For 40 years, Ontario’s legislators have seen themselves as the honest brokers of Confederation.

They have encouraged the implementation and growth of large regional subsidy systems that support Canadians in other regions. They have tried to sell Canada on constitutional change and they have supported a role for the federal government that goes far beyond the division of powers written in the Constitution.

With the wisdom of hindsight, the consequences have been disastrous. The people of Ontario have become cash cows for other regions.

While the significance of failed constitutional reform is debatable, the consequences of enabling regional subsidies and a large federal footprint are not.

Reports by the Ontario Chamber of Commerce and the Frontier Centre for Public Policy in Winnipeg indicate that Ontarians have the least accessible provincial programming in Canada.

Ontario taxpayers carry a burden equivalent to the burden of defence for the people of the United States to support Canadians in other regions.

The province’s growth rate has been declining since equalization was put in place 50 years ago.

Ontario has a provincial deficit that is, by some measures, comparable to California’s, even though Ontario has only a third of California’s population.

Finally, there is evidence of chronic underinvestment in Ontario’s colleges, universities and mass transit systems, all of which are vital underpinnings of economic health.

There is no doubt that provincial policies have contributed to these problems. There is little doubt, also, that the huge difference between what the federal government puts into Ontario and what it takes out (about $25 billion in a typical year) is a key contributor to all of them.

Policy-making by both governments has been uninformed. There is no system to measure program comparability across Canada, a deficiency that makes equalization unprincipled. The federal government has never studied the impact of regional subsidies on Canada, recipient jurisdictions or contributors, remarkable because we have spent an appreciable fraction of $1 trillion on them.

We have proven that politics can only trump finance and economics for so long. Ontario must move in new directions.

Many of the changes needed relate to attitude, especially by Ontario’s provincial legislators. Continuing the path of unthinking and uninformed support for federal subsidy arrangements or other policies is dangerous.

Federations work best when all governments express their interests factually and forcefully and negotiate to determine the national interest.

Playing political pygmy in a system in which it is a giant, as Ontario has done, hurts all Canadians because it impedes this process.

The second attitude change needed is for all parties in the Legislature to recognize that they need to act together to advance Ontario’s interests in discussions with the public and other governments on fiscal arrangements. In the past, opposition parties have accused governments of all three parties of failing to cooperate with the federal government when Ontario’s interests were forcefully argued by the province. This emboldened other provinces to demand more.

The Ontario Chamber of Commerce, the Frontier Centre and several individuals have made specific suggestions for a new path for Ontario. They include:

 Ontario should propose a system to calculate equalization that reflects demographics, immigration settlement, urbanization, labour markets, crime and population dispersion. None of these are part of current calculations. This seriously shortchanges Ontario.

 Ontario should recommend a shift of GST revenues from the federal government to provinces in return for an end to transfer arrangements. This would also ensure that the politicians who spend money have the responsibility of raising it.

 The provincial and federal governments should view the next three years, when all principal transfer arrangements come up for renewal or discussion, as an opportunity to modernize the system. Effective participation in this process should be the highest priority for Ontario.

 Ontario should ask a consortium of academic and policy organizations to analyze the impact of current regional subsidies on Ontario. The results should be laid before a legislative committee, which could embark on hearings across the province to increase public understanding.

 Ontario should give Ottawa a fixed deadline to remove all the features of the EI program that discriminate against Ontarians or face the possibility that the province would legislate new arrangements, including replacing the current EI program with a provincial one.

There are other ways of ending the disastrous impact current regional subsidies have on Ontario and all Canadians.

None can work without a willingness by Ontario’s provincial and federal legislators to inform themselves on the problems, to be more forceful advocates for the province and to enlist and educate the public.