Un-equalization for Ontario

Ontario taxpayers are getting the short end of the stick.

(This column originally appeared in the Toronto Sun)

By: Candice Malcolm

The $16 billion-a-year Equalization program is up for renegotiation and renewal in 2014. While Quebec and other Equalization-receiving provinces have been arming themselves for a fight to keep their federal transfers, donor provinces have been missing in action.

The silence is deafening.

As the largest province and historic “sugar daddy of Confederation”, Ontario must show leadership to ensure Equalization is equitable and fair to all Canadians. Currently, it is not fair to the citizens of Ontario.

With a slumping economy and rampant overspending at Queen’s Park, Ontario sheepishly slipped into “have-not” status in 2009. For the first time in Canada’s history, Ontario became a drain on the dominion and received $3.2 billion in Equalization transfers.

This is not good for Canada. But this does not paint the whole picture of federal transfers. Despite its “have-not” status, Ontario still contributes more than it receives from the federal government.

That’s right, the formula is so complicated that Ontario taxpayers are both sending and receiving Equalization payments!

The University of Toronto’s Mowat Centre calculated that there is an $11 billion gap between what Ontario sends and what it receives in federal transfers each year to the rest of Canada. Equalization isn’t the only transfer. Ontario taxpayers also send money for infrastructure, housing, job training, energy, regional development slush funds, and the federal EI program.

But Ontario is no longer the economic engine of the country. With a $280-billion provincial debt, Ontario taxpayers simply cannot afford to subsidize public services in other provinces.

Ontario taxpayers are getting the short end of the stick.

Equalization is broken, and donor provinces across Canada need to stand up for taxpayers and negotiate a better deal in 2014.

We need to end the two-tiered system that takes money away from provinces with low tax regimes that enable economic prosperity, and hands it over to spend-o-holic provincial governments with chronic debt.

Equalization should not be a federal welfare program.

Instead, it should be a temporary fiscal recovery program to help provinces transition and diversify their economies. Rather than incentivize wasteful government, Equalization should provide bridge funding to “have-not” provinces on the condition that they bring their fiscal house in order.

The formula should be altered so that a province’s “fiscal capacity” includes natural resources as if they were developed. This would stop the practice, as we see in Quebec, where provinces refuse to risk their Equalization payments by developing natural resources.

Taxpayers outside Quebec are literally paying Quebec not to develop its resources! This is not how our government should work.

Equalization has been entrenched into our Constitution, so we must work within the confines of our system. But there is no excuse for boosting payments into a broken system by 47%, as the Harper government has done to Equalization since taking office.

The program should be reformed to encourage development and wean provinces off the dole, not incentivize a dependency trap and facilitate basket-case economies.

The most incredible example of destructive Equalization incentives are the changes made in 2005 that allowed Nova Scotia and Newfoundland to get a bonus if their debt load was the highest in the country. No wonder Nova Scotia’s former NDP Finance Minister Graham Steel bragged that his province’s high-debt status was paying Equalization dividends.

The Canadian Taxpayers Federation took action this week and urged the premiers of all “have” provinces to stand up for taxpayers and demand a better deal on Equalization.

Premier Wynne needs to speak up.

—Malcolm is the Ontario Director for the Canadian Taxpayers Federation