So Much for Equalization Payments: Ontario no longer ‘have’ province

Commentary, Equalization, Frontier Centre

Admaston-Bromley Mayor Raye-Anne Briscoe says Ontario really has become a have-not province, as far as federal equalization payments are concerned, but there’s precious little media coverage about it.

“The word equalization is an absolute misnomer,” said the mayor during the Sept. 6 meeting of Admaston-Bromley council.

She spent a few minutes talking about the insertion in the council agenda of the Association of Municipalities of Ontario guest columnist Matthew Mendelsohn. He is director of the Mowat Centre and the University of Toronto’s School of Public Policy and Governance.

His column was entitled Fiscal Federalism: Why Municipal Leaders Should Care.

As much as Ontario residents might think their province’s economy might be doing just fine, February 2012’s report to the Ontario government by economist Don Drummond said otherwise.

It was Drummond’s chapter on intergovernmental relations, said Mendelsohn, that “provides devastating, evidence-based confirmation that a good portion of the blame for Ontario’s fiscal woes is on the steps of the federal government.”

For example, Drummond points out that in 2009-10, that Ontario, with 39 per cent of the Canadian population, contributed 39 per cent to federal revenues, but benefitted from only 34 per cent of federal spending. That gap is worth about $12.3 billion, or 2.1 per cent of Ontario’s Gross Domestic Product.

Drummond, a former TD Bank economist, said most Ontario ministries face steep cuts, by as much as 30 per cent, to rectify the situation.

As Premier McGuinty responded, after Drummond’s report was released, “Ontarians understand that these are serious times … We can’t wish ourselves out of this.”

As Drummond said the Ontario Liberal government has to curtail spending with the kind of cuts not seen since the years of Conservative Premier Mike Harris. Without the belt-tightening, the province will face a $30-billion deficit by 2017-18, said Drummond.

Those comments were supported in Mendelsohn’s guest column.

While Ontario has the largest deficit in the country, Mehelsohn said, “This is not because of higher-than-average spending. In fact, Ontario spends less per capita than any other province.

“He noted Ontario spends $9,030, compared to $9,689 in B.C., while the biggest spenders are Newfoundland and Labrador, at $13,466, and Saskatchewan, at $11,848. Ironically, Mendelsohn pointed out that those high spenders continued to be “significant beneficiaries of federal spending” despite “surging resource royalties and above-average fiscal capacity.”

One of the most telling parts of the column, said Briscoe, was that federal government transfers “continue to redistribute money away from Ontario, rather than toward it … Ontario taxpayers continue to spend way more on equalization than they get back.”

Mendelsohn, a former Ontario deputy minister, said Ontario faces a steep climb out of its fiscal hole, but that “municipalities in Ontario will have to carry a larger burden than in other provinces.”

Consequently, concluded Mendelsohn, “Municipal leaders, often the most trusted and credible public officials in their communities, have to put the case to their federal counterparts.

The federal government may be ready to act – but they may need a little prodding at the local level first.”