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TORONTO — Fears that Ottawa could block Ontario from receiving funding under a national wealth-sharing program have sparked a fresh round of tensions between the Harper and McGuinty governments on the eve of a finance ministers' meeting Monday on the economy.
The latest battle began last Thursday when federal Finance Minister Jim Flaherty said he plans to constrain the growth of the equalization program. His comments come just as Ontario is poised to join the ranks of the “have-not” provinces, making it eligible for the national subsidy for the first time.
Ontario Finance Minister Dwight Duncan told The Globe and Mail Sunday night that he interprets Mr. Flaherty's musings to mean only one thing: The federal government will rejig the program so that the province will not collect payments even if it does qualify for equalization. Mr. Duncan said he takes absolutely no comfort from Mr. Flaherty's comments over the weekend that it is not his intention to block Ontario from collecting equalization payments.
Any curtailment in growth of the $13.6-billion program could make it more difficult for poorer provinces to provide residents with health care and other social programs.
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The tensions over equalization are part of a much broader concern in Ontario that the Harper government is tone-deaf when it comes to the economic challenges facing Canada's most populous province. Mr. Duncan said he plans to press Mr. Flaherty at Monday's meeting to come up with an aid package for the province's struggling auto sector, similar to what the United States and Europe are proposing for their car manufacturers.
“We have always talked about our desire to work in partnership with the federal government, but partnership means more than simply paying lip service to Ontario's concerns,” Mr. Duncan said. He accused the federal government of being “conspicuously absent” on the auto sector, which has been the single biggest contributor to Ontario's economy, but which has fallen on hard times because of the global financial crisis.
Premier Dalton McGuinty has waged a three-year battle with Ottawa for a fairer deal under Confederation and has repeatedly called for reform of the equalization program to take into account Ontario's waning prosperity relative to the growing wealth of resource-rich provinces.
The problem, Mr. Duncan said, is that the federal government cannot look at just changing equalization without addressing other areas where Ontario gets shortchanged, including the Employment Insurance program.
“We will look at everything they say very carefully to ensure that Ontario is not prejudiced in any form by this change in policy,” Mr. Duncan said.
Mr. Flaherty was not available for comment on Sunday. He plans to outline his proposal for changing the equalization program at Monday's meeting in Toronto with his provincial counterparts. “In fact, the news for Ontario is good,” he told The Canadian Press. “Ontario, in fact, will benefit substantially.”
But Ontario officials have good reason to worry. In the 1970s, when energy prices were soaring, Ontario was eligible for equalization payments. But Ottawa changed the formula, and retroactively clawed back the province's payments.
Since the program began 51 years ago, Ontario has paid out more than $100-billion in equalization to other provinces; residents fund 40 per cent of the program through their income tax payments to Ottawa. Mr. McGuinty has said he fears that the federal government will ensure that the province is never a recipient of the program.
“One of the worst-kept secrets in Ottawa is that Ontario must never be allowed to collect equalization,” he said in a speech to the Economic Club of Canada in September.
Derek Burleton, an economist at Toronto-Dominion Bank, has also said it would be politically unpalatable to have smaller regions subsidize a province that produces about 40 per cent of the country's economic output, even if does end up qualifying for equalization.
The equalization program is designed to give money to Canada's poorer provinces so they can provide social services comparable to the richer ones. This year, the federal government is distributing the payments to six provinces. Ontario, British Columbia, Alberta and Saskatchewan do not collect equalization.
Ontario's entry into the program would be a double-whammy on the federal treasury. Ottawa would pay hundreds of millions of dollars to Ontario as well as higher payments to the other “have-not” provinces. Equalization payments are currently capped so that the fiscal capacity of the recipient provinces – which consists of its revenues from natural resources and personal, property and business taxes – is not greater than that of the poorest non-recipient, which is now Ontario.
But if Ontario joins the ranks of the have-nots, the cap would rise to the next poorest province, British Columbia, and its fiscal capacity is much higher than Ontario's.
With a report from Kevin Carmichael in Ottawa
