Don’t blame Ottawa for Ontario’s financial mess

Mark Milke is a senior fellow at the Fraser Institute, author of five reports on corporate welfare and the author of Equalization, Ontario and the Politics of Division.

Ontario Finance Minister Charles Sousa complained recently that the federal government underfunds Ontario. It’s part of a political effort by some politicians and others to distract Ontarians from the real issue: provincial policy that’s killing investment and jobs while creating massive deficits.

Sousa argues Ontario’s federal transfers will fall by $1.2 billion this year. Actually, that’s the decrease in equalization payments. Overall, total federal transfers will indeed drop, but by $650 million.

That’s less of a problem then claimed, especially after accounting for population. On a per person basis, Ontario will receive $1,403 this year. That is marginally less than last year ($1,464 per person), though it’s a lot less than Quebec ($2,387) New Brunswick ($3,464), Manitoba ($2,625) Nova Scotia ($3,202) and PEI ($3,735).

On the other hand, that $1,403 is up from $870 per person in 2005/06; the increase results from Ontario’s six-year have-not equalization status. It is higher than BC, Alberta and Saskatchewan where the per person transfer to each of them is $1,258.

The Ontario government complains its transfers are down. But Newfoundland and Labrador, which will receive $1,282 per person this year, once received $2,992 per person (in 2005/06), back when it collected equalization and offshore accord payments from Ottawa.
Using a wider measurement, Ontario’s finance minister is correct that Ontario taxpayers send much more money to the federal government than Ottawa spends in the province. (Ontario is a have-not province for the purpose of equalization but is still a net contributor to Confederation overall.)

But according to Statistics Canada, Ontarians are hardly the only ones in that position.
Between 2000 and 2009 (the last year data was available) net federal spending patterns meant, on a per person basis, a family of four in BC was “out” $2,664 compared to $6,192 in Ontario.

On a per person basis, Albertans lose the most. Ottawa collects much more tax than it later spends (including transfers to the provincial government). Annually, Albertans suffer an average net loss of $15,408 for a family of four.

Such imbalances are inevitable in a system where the federal government by design (equalization, employment insurance, and multiple other programs) subsidize poorer provinces at the expense of taxpayers in richer ones.

On transfer payments, it makes more sense, as Prime Minister Wilfrid Laurier argued in 1905, “that those who have the duty of expending revenue . . . should also be saddled with the responsibility of levying it and providing it.” Direct taxing and spending – in other words fewer or no federal transfers – promotes smarter and more accountable government spending.

But for redistributionists who favour such transfers, it’s strange to complain that Ontario’s taxpayers are especially wronged. The entire point of transfers is to redistribute money to poorer provinces from Ontarians, British Columbians and Albertans.

Ontario’s finance minister implies that the federal government’s decreased Ontario equalization payment is the source of the province’s poor public finances. But let’s suppose the federal government gave Ontario another $1.2 billion.

Ontario’s deficit is forecast to be $12.5 billion this year, $8.9 billion in 2015/16, and $5.3 billion in 2016/17 (if you believe budget forecasts). So even if Ottawa sent an extra $3.6 billion over three years, the provincial government’s deficit spending would still add another $23 billion to the debt.

Massive red ink budgets are not the fault of Ottawa. Blame the Ontario government and its anti-business, anti-wealth creation orientation, including green policies that jack-up power rates, heavy-handed labour regulation and uncompetitive personal income tax rates.

Ontario’s policy problems will not be solved by another billion dollars from Ottawa.

Click here for more information about the Fraser Institute. This column is distributed by Troy Media.