OTTAWA and QUEBEC — Prime Minister Stephen Harper's first budget has opened a deep rift between Ontario and Quebec.
Quebec Premier Jean Charest yesterday praised Mr. Harper's budget promise to resolve the disparity between the financial fortunes of Ottawa and the provinces, saying it weakens the central Parti Québécois argument for sovereignty.
"It was the awkward choice of the separatists to put all their eggs in the basket of the fiscal imbalance and to translate the separatist option into some accounting option," Mr. Charest said. "Frankly, they are just going to have to give a better answer to Quebeckers as to why they want to separate Quebec from Canada."
But Ontario Premier Dalton McGuinty said he would reject any proposals for adjusting the "fiscal imbalance" that benefit only "have-not" provinces such as Quebec.
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Mr. McGuinty, who meets face-to-face for the first time with Mr. Harper today, has said he wants the imbalance addressed instead through transfer payments to all provinces on a per-capita basis, which would benefit populous Ontario.
Tuesday's federal budget proposed renewed and strengthened equalization financing as one of the solutions to the fiscal imbalance. Working through the equalization program means a larger proportion of the funds would be channelled to Quebec, a province that Mr. Harper must court if he is to win a majority in the next election.
But it would not suit Mr. McGuinty, who is the premier of one of just two provinces -- the other is Alberta -- that did not receive equalization money in the current budget.
"Folks, fair is fair," Mr. McGuinty told reporters yesterday. "We're more than content to maintain our sense of responsibility when it comes to supporting good-quality public services at comparable levels of taxation. But some of those equalization-receiving provinces have lower levels of taxation than we do here in the province of Ontario. Nobody has yet to demonstrate to me that it is time for us to enrich equalization once more."
Ontario is one of just two provinces running deficits -- the other is Prince Edward Island -- and Mr. McGuinty said there are twice as many people living in poverty in greater Toronto than in all of the Maritimes. So Ontario officials are quietly muttering that Ontario residents may become angry with a federal government that rewards Quebec while ignoring Ontario.
Quebec, on the other hand, puts addressing the fiscal imbalance at the top of its list, even if that is accomplished through equalization.
Bloc Québécois Leader Gilles Duceppe has said he will support the budget, effectively keeping the minority Conservative government alive, because of its promise to shift federal money to his province.
"We want results [on the fiscal imbalance] in the next budget. . . . Next year they have to deliver," he said. "If they don't respect their promise, they will have to pay for that."
The federal government has said it will conduct extensive consultations with the provinces before a first ministers meeting it hopes to convene in the fall.
Finance Minister Jim Flaherty is to meet with his provincial and territorial counterparts to assess the appetite for directing unplanned federal surpluses into the Canada Pension Plan and the Quebec Pension Plan; discuss ways of improving the equalization formula; determine the best funding arrangement for postsecondary education; and strengthen the economic union.
Although there are a number of options open to the Prime Minister as he deals with the imbalance, almost all of them are imperfect and there may be difficulty in getting the provinces to agree.
Not only will Ontario oppose the idea that equalization should be enriched, but other provinces, such as Saskatchewan, are also likely to have trouble with the notion. Enriching the program may make Saskatchewan a "have" province and lead to the loss of some of its federal benefits.
Enriching the equalization to Ontario's detriment may make life electorally difficult for key provincial cabinet ministers such as Finance Minister Jim Flaherty, Health Minister Tony Clement and for Treasury Board President John Baird.
The favoured Ontario option would be to transfer the federal surplus on a per-capita basis, giving each province the same amount of money for each resident.
That per-capita idea may not work so well for Mr. Harper, who will not be able to tell Quebeckers that they are receiving a funding boost above that of other provinces.
Another option for Mr. Harper would be to give up some federal taxing authority and allow the provinces to take it over. Such a proposal could, for example, see Ottawa reduce the goods-and-services tax while the provinces raise their sales taxes to fund their programs.
That idea is also fraught with difficulty because wealthy Alberta, which does not have a sales tax, is not likely to enact one. That would increase Alberta's already significant advantage over other provinces in attracting businesses and out-of-province workers.
With a report from Murray Campbell in Toronto
