It was le monde à l’envers – the world upside down – last week as Quebec’s Finance Minister broke with a long tradition of tabling a budget and immediately accusing Ottawa of shortchanging the province. This stunning about-face came during an Ontario election campaign in which the Liberal Premier has been running almost as much against Ottawa’s equalization cuts as against her Tory rival.
As a weaker Ontario sheds its nation-builder role for have-not status, it risks falling into the trap that Quebec fell into five decades ago. It’s developing the knee-jerk reaction of looking to Ottawa to mitigate its fiscal woes, fostering a culture of dependence that will be difficult to break.
The new Quebec government of Liberal Premier Philippe Couillard has signalled a desire to try anyway.
“The federal government ultimately decides how it transfers its revenue to the provinces,” Finance Minister Carlos Leitao, a former bank economist, said after tabling his budget. “How the federal government will choose to use its surpluses is its choice.”
Perhaps he recognizes that the province’s fiscal persecution complex is a form of denial that distracts it from tackling real economic challenges and undermines the collective self-confidence that will be critical to its success.
Indeed, we may be witnessing a fiscal spring – a printemps fiscal – in Quebec. Parties of the centre-right captured almost two-thirds of the popular vote in April’s provincial election. Mr. Leitao’s tough budget slashed business subsidies and imposed a hiring freeze in the public sector.
It’s now even possible to question the “Quebec model” of development without being laughed out of the province. Federal Small Business Minister Maxime Bernier, whose political brand is slowly being rehabilitated, received a virtual hero’s welcome in Quebec for a gutsy speech he delivered last month rejecting the province’s old “never enough” attitude toward Ottawa.
“It’s not the rest of Canada’s fault that we are a poor province,” he said. “It’s because of bad economic policies that make Quebec’s economy less productive.”
Contrast that with the crusade Ontario Premier Kathleen Wynne has been on. She accuses Prime Minister Stephen Harper’s government of “willful indifference” toward Ontario as it reels from the erosion of its manufacturing base, a decline she compares (wait for it) to the early 1990s collapse of the Newfoundland cod fishery.
It’s a sad day when the Premier of the country’s once unstoppable economic engine puts her economically diverse province of 13.5 million in the same boat as a rural outpost of 500,000. Ontario does not have oil, but it has non-natural resources that even newly-rich Newfoundland can only dream of.
Yet Ms. Wynne government’s pre-electoral everything-but-kitchen-sink budget accused the Harper government of taking “more than 110 unilateral actions that have hurt” Ontario. It singled out the elimination of a program guaranteeing that no province would see its overall federal cash transfers fall from one year to the next, just at the moment when Ontario qualified for extra cash.
“On transfers, I will stand up for Ontario,” Ms. Wynne repeats in one of her campaign stump speeches. “I will stand up to Stephen Harper for the good of our province.”
Mr. Harper deserves some of the blame for this turn of events. He first adopted an equalization formula that favoured Quebec in the (unrealized) hope of winning votes there. He then capped the rate of growth in the equalization kitty, creating a zero-sum game that means Quebec’s gains become Ontario’s losses.
Still, Ontario’s new obsession with maximizing federal transfers is the surest sign that a have-not mentality is taking hold.
A low-dollar policy in the 1990s, aimed at offsetting federal budget cuts, made Ontario’s manufacturers complacent. The province’s share of capital investment, which long matched or exceeded its share of the national economy, began falling. An undervalued dollar boosted exports but made imported machinery and computers costlier. This failure to modernize and transition toward higher value-added production left carnage in its wake. Ontario now accounts for just 31 per cent of overall national capital spending – six points below its share of GDP.
As the Fraser Institute recently noted: “This decline in productive investment suggests that in the future there will be growing economic productivity problems.”
It’s no coincidence that the least productive provinces depend more on federal transfers. Will that make Ontario the new Quebec?