[BRIEF NOTE] On Canada's biggest have-not province

[rfmcdonald]

The National Post is one of many Ontario-based media outlets to carry the news that the province of Ontario is now eligible, as a have-not province, to receive equalization payments from the federal government.

Jim Flaherty, the Finance Minister, is set to announce another revamp of the equalization program that helps ensure Canadians across the country are able to access similar levels of public services like health and education. He claims that volatility in resource prices and the current economic crisis have made the program “unsustainable”. Future growth in equalization payments will be linked to the growth of the economy - more specifically a three year moving average of GDP growth.

There were fears on the part of Dalton McGuinty’s government that the new ceiling on equalization payments to be announced by Mr. Flaherty today would see Ontario being squeezed out. In fact, the province is likely to receive payments of between $200-300-million, which is better than a kick in the pants. But if the system had not been reformed again, Ontario would have received closer to $1-billion, so it will be interesting to see if Mr. McGuinty is a glass half full kind of guy. Given that provincial premiers have the alimentary canal and big appetite for federal dollars of a hungry baby, the answer is probably no.

There is absolutely no doubt about the reaction that will come from Quebec, the biggest recipient of equalization payments, which is likely to get $700-million less than it would have done. The federal government claims that it has restored fiscal balance to the federation through increased equalization payments and social transfers to all the provinces. This is unlikely to pass muster with Mr. Charest, who is about to launch an election, with high hopes for majority government. We can expect a “blame Ottawa” campaign, even if this is unlikely to faze Prime Minister Stephen Harper, who probably holds the Quebec premier culpable for the loss of his own majority.

The new program being unveiled by Mr. Flaherty today scraps the 10-province standard he introduced in his 2007 Budget. He now claims that the program is growing at an unsustainable rate and that a ceiling must be imposed on the rate of increase. For next year, the new ceiling will mean that the provinces will receive $2-billion less than they would otherwise have done - the total cost of equalization will rise to $14.1-billion from $13.6-billion, instead of the near $16-billion planned under the old system. The bulk of that hit will be felt by Ontario and Quebec, although Prince Edward Island and New Brunswick will also see a small reduction from forecast payments. Alberta, British Columbia, Saskatchewan and Newfoundland and Labrador were not entitled to equalization under either the old system or the new, mainly because of their windfall natural resource revenues.

It's rather shocking that Ontario, once the prosperous economic engine of Canada, now has a GDP per capita below the Canadian average. It's even more shocking to note that, with the two central Canadian provinces of Ontario and Québec, Manitoba, and the three Maritime provinces of New Brunswick, Nova Scotia and Prince Edward Island all receiving transfer payments, more than two-thirds of the Canadian population lives in provinces with below-average economic output.