The provincial leaders who gathered in Charlottetown 150 years ago this week to lay the foundation for Confederation were, to a person, nation-builders. A memorable photograph honours their legacy.
By re-enacting that iconic pose at their meeting in the PEI capital last week, Canada’s premiers should have known they were inviting unflattering comparisons.
What’s worse, they came to Charlottetown not to build, but to beg. With two decades of deteriorating demographics ahead of their provinces, the premiers pleaded poverty and asked a newly flush federal government to bail them out. They even invoked the fiscal imbalance, a concept hatched by Quebec a decade ago to pressure Ottawa to secure more federal cash.
The premiers hired the Conference Board of Canada to produce a 20-year fiscal projection to underscore their predicament. Under a status quo spending scenario, the provinces would produce a combined annual budget deficit of $172-billion in 2035. Ottawa’s surplus would top $100-billion that year.
Something would have to give before things ever got that far, of course. But as Stephen Harper’s Conservative government dangles the prospect of further tax cuts to dispose of impending federal surpluses, the provinces argue that their needs should come first. Without a major increase in cash transfers, the Conference Board warns, “provincial and territorial governments will have to juggle the undesirable options of higher taxes, significant cuts in [non-health] program spending, increased wait times or rationing of care.”
The united front on display in Charlottetown cannot hold, however, for the simple reason that the province that traditionally held fiscal federalism together has fallen apart fiscally. Ontario is facing a long-term budget gap so large that it can no longer afford to play nice in the name of unity.
While the provinces (as a whole) reported a deficit of $16-billion in 2013-14, Ontario accounted for 70 per cent of that shortfall, while accounting for 36.8 per cent of the country’s economy. Ontario’s share of the overall provincial deficit will increase this year as its own budget gap widens to $12.5-billion, while most other provinces shrink their deficits.
The Conference Board study does not break out each province’s share of the combined 2035 deficit, but the trend suggests that Ontario would account for most of it. Any reform of fiscal federalism to ease Ontario’s plight would likely come at the expense of other have-not provinces, primarily Quebec.
Desperate times call for desperate measures. Ontario, once the adult partner in Confederation, has embraced a tactic that has long been a staple in other provincial capitals. As it seeks a greater share of federal equalization payments and funding for health-care, infrastructure, job training and immigrant settlement programs, Ontario is accusing Ottawa of throwing it under the bus.
How’s that for gratitude?
Ontario’s fiscal woes would be far greater had the Harper government opted to balance its books on the backs of the provinces. That’s what Jean Chrétien did after the Liberals won 98 of 99 Ontario seats in 1993. Finance minister Paul Martin’s 1995 budget cut cash transfers to the provinces by 21 per cent over two years and froze them at that lower level until 2001. You can argue for or against the necessity of Mr. Martin’s actions – Ottawa was nearing a fiscal wall – but you can’t deny their impact on provincial finances and public services. The 2004 health accord only partially repaired the damage.
Since the Conservatives took over in 2006, cash transfers to the provinces have been growing at an unprecedented clip. They grew 22.5 per cent in 2009-10 alone, as Ottawa ramped up stimulus spending to offset the recession. Health transfers have risen at 6 per cent annually and will continue at that rate until 2017. They will then grow at the same rate as the economy (including inflation), with the floor set at 3 per cent in years when the economy grows more slowly than that.
Ontario can quibble that it has not received its “fair share” in some types of federal spending. But it has benefited as much as any province from the Harper government’s more generous transfers. And it is much better off than it was under the previous Liberal government.
Unfortunately for Liberal Premier Kathleen Wynne, that is small consolation. Her province is a shell of its former glory. While Toronto continues to charge ahead and the Waterloo region remains a promising beacon of technology innovation, they do not make up for the deindustrializing southwest, whose economy once drove the entire country.
Cash-strapped Ontario simply has to play hardball on federal transfers, even if it’s to the detriment of other have-not provinces. It’s why the common front in Charlottetown was just for the cameras.