[BRIEF NOTE] Changing Canadian economic balances

[rfmcdonald]

The Canadian economic landscape is shaking. From the Canadian Press.

Newfoundland and Labrador, considered for generations the poor cousin of Confederation, heralded a new era of economic independence Tuesday with a budget that delivers a substantial surplus and promises for the first time to pull it off the list of "have-not" provinces.

The new economic strength of the once hard-up province is fuelled by the soaring price of oil and carries meaning that goes beyond numbers for many Newfoundlanders.

There's pride involved.

"We were always the poor cousin of Confederation," Finance Minister Tom Marshall told a news conference before tabling the budget.

"Many of you, I guess like me, when you travelled the country, you would hear comments about people in this province ... being on welfare and other provinces having to provide us with revenues. Those days are over."

From Canwest.

Ontario is only two years away, and maybe less, from becoming a have-not province, TD Bank warned Tuesday.

And the added cost paying equalization payments to the giant have-not province could be the straw that pushes the federal government back into deficit for the first time in more than a decade, TD economist Derek Burleton, one of the author's of the report said in an interview.

"This would really add to the cost of the program," Burleton said. "There's no doubt that ... it's one more factor that could tip the federal government into deficit down the road."

Ontario is projected to qualify for equalization payments of $400 million in the 2010-11 fiscal year and $1.3 billion in fiscal year 2011-12 10-11, according to TD's economic and revenue projections.

Based on the data to date, Ontario would not qualify for a payment next year but that could easily change, it added.

[. . .]

The increase in commodity prices, which has boosted the revenue-raising ability of other provinces, especially in the West, plus the inclusion of Alberta's fiscal capacity under the newly reformed equalization rules, have combined to lower the bar for qualifying for equalization payments, it explained.

At the same time, commodity-importing Ontario has been hurt by the commodities boom, which has also boosted the value of the Canadian dollar, making its manufactured exports more expensive and less competitive.

"It is not a coincidence that Ontario's recent slippage in terms of relative standard of living has occurred in lockstep with the rise in the loonie, soaring energy prices and heightened competition, all of which have created a perfect storm for manufacturers," the report observed. "However, a closer look reveals that the relative decline is not so much a story of Ontario weakness as it is of booming economic strength in Canada's commodity-based economies."

And it's not that Ontario's living standard, measured as GDP per capita, has fallen but that the three per cent annual increase since 2002 has not kept up with the five to eight per cent gains in the four western provinces, and what has been an even greater double-digit annual gain in Newfoundland and Labrador.

Since 2002 Ontario's GDP per capita, a measure of living standards, has fallen from seven per cent above the national average and second place among the provinces behind Alberta, to what last year was two per cent below national average and fourth place among the provinces.

Out-migration is still continuing from a Newfoundland where oil wealth is distributing unevenly, and Ontario's will still be the largest economy of any province. Even so, this all is an unprecedented power shift in the economy of Canada, for nearly a century after Confederation dominated by the rich and industrialized central Canadian provinces of Ontario and Québec.