Strategy

Ontario: From have to have not

Even though Ontario now receives transfer payments, a new report says the province still gets a raw deal out of equalization.

Ontario has always fancied itself the economic engine room of Confederation, but in 2009 it became a have-not province. As the Canadian dollar rose, the manufacturing sector slumped, the world spiralled into recession, and Canada’s most populous province received an equalization transfer payment of $347 million, or about $29 per person, from the federal government.

The equalization program is supposed to ensure roughly comparable provincial services across the country, yet the 2009 payout was a thoroughly inadequate drop in the bucket for the province. According to a report released in February by the Ontario Chamber of Commerce, compared to other provinces, Ontario has some of the highest post-secondary tuition rates, fewer registered nurses per capita and diminished access to residential care beds for seniors. In the report, Dollars and Sense: A Case for Modernizing Canada’s Transfer Agreements, the bottom line is clear: Ontario is suffering under an ineffective system of wealth redistribution that threatens the economic well-being of the entire country.

Report author David MacKinnon, who is an economist and chair of the Ontario Institute for Public Policy, is pessimistic about what the current transfer agreements system could mean for the province. “I think Ontario’s future, with the fiscal architecture in Canada as it is, is quite dark,” says MacKinnon. “It really can’t sustain the burden that federal governments have carelessly imposed on it.”

One of the biggest problems, in MacKinnon’s eyes, is that the current system acts as a tax on productivity. Canada’s productivity already lags behind other industrialized nations and, as economies become more globalized, governments should be doing all they can to encourage and reward it. “We’re entering an entirely different competitive world, and punishing our more productive economies is going to ensure that we never compete in it,” says MacKinnon.

Another problem is that the transfer program leads to labour immobility, encouraging people to remain where the jobs aren’t. Labour-force mobility will become a major issue for businesses as Canada continues to move out of the recession, says Brian Lee Crowley, managing director of the MacDonald-Laurier Institute, an Ottawa public-policy think-tank. Some provinces, like Alberta, are set to experience severe labour shortages in the near future, while unemployment remains high in other provinces. “It’s totally mysterious to me why we should want to continue to pay people to stay put in places with limited economic opportunities when, elsewhere in the country, there are opportunities going vacant,” Crowley says.

The time is right for change, says the report. In 2015, the federal government is due to discuss and renegotiate its principal fiscal arrangements, which includes transfer payments. Ideally, the Ontario Chamber of Commerce would like to see a national public debate on transfer payments, a proposal that Crowley also agrees with.

But even chamber president and CEO Len Crispino sees the difficulty in engaging Canadians in a debate on the topic. “When people start talking about equalization and transfer payments and taxation, etc., there is a tendency for people’s eyes to glaze over,” he says. Crispino hopes that by drawing attention to inequities in education, health care and infrastructure, this report will help Ontarians, and Canadians, see how important the issue is. “This is just not some academic exercise around fiscal transfers. This actually does have a impact on my family, my children, my neighbours down the road and the quality of care that we get.”