Ontario will officially become a poor cousin of Confederation next year, and it is not at all clear whether Canada's most populous province will ever reclaim its status as the country's economic powerhouse.
Federal Finance Minister Jim Flaherty announced yesterday that Ontario will join the ranks of the "have-not" provinces next year, paving the way for it to receive payments under the national equalization program for the first time.
Ontario's share of the equalization pie will amount to just $27 for every man, woman and child in the province. But it signifies a dramatic reversal of fortune for Canada's manufacturing heartland, which has in the past helped propel the rest of the country to prosperity. After decades of propping up the rest of the country, Ontario will now be on the receiving end of the subsidy program designed for the country's poorer provinces, collecting $347-million in the fiscal year ending March 31, 2010.
Mr. Flaherty told reporters after a meeting at an airport hotel in Toronto with his provincial counterparts that he does not rejoice in the fact that Ontario has fallen on hard times. The province's struggling economy has lost thousands of manufacturing jobs, with no end in sight to the bleeding.
"Regrettably, I expect that Ontario will be in the equalization program for some time to come...," Mr. Flaherty said. "It's sort of an odd feeling to see Ontario in such difficult straits."
Ontario Finance Minister Dwight Duncan did not share his federal counterpart's grim prognosis, even though his own financial forecasts show the province posting a $500-million deficit in fiscal 2009 after four straight years of surpluses.
"We don't agree with him," Mr. Duncan stated. Ontario's "have-not" status will be a "short-term phenomenon."
While it comes as little surprise that Ontario will soon be eligible for equalization, it is happening sooner than anyone predicted. Mr. Flaherty, who has openly criticized the McGuinty government's stewardship of the economy, warned last March that Ontario would be a "have-not" province within two to three years.
The two governments often have been at odds, and those tensions were on display yesterday. Mr. Flaherty called the meeting to discuss the global financial crisis and its impact on the Canadian economy.
"This is not a time for bickering," he said, attempting to strike a conciliatory note. "This is not a time for partisanship."
But Mr. Duncan expressed frustration with the fact that he learned how much equalization money Ontario would receive only shortly before the five-hour meeting ended. He also said he was disappointed that Mr. Flaherty was not more receptive to an aid package for the auto sector similar to what the European Union countries and the United States are proposing for their car makers.
Mr. Duncan also criticized Mr. Flaherty for not addressing issues on which the province feels shortchanged. Ontario has often argued that it is deprived of $2.1-billion every year because its unemployed workers receive fewer benefits than those in other regions.
Yesterday's gathering of Canada's finance ministers set the stage for a meeting next Monday of Prime Minister Stephen Harper and the premiers on the economy. Alberta Premier Ed Stelmach has said he won't be there because of another commitment.
Mr. Duncan went into yesterday's meeting concerned that the federal government would rejig the equalization program to prevent Ontario from becoming a recipient. Instead, Mr. Flaherty changed the program so that payments will not grow as rapidly as they have in the past. Equalization payments soared 56 per cent between 2004 and 2009, a rate that is no longer sustainable, he said.
The program is designed to give money to Canada's poorer provinces so they can provide social services comparable to those of the richer ones. Mr. Flaherty said the federal government will distribute $14.2-billion to every province except British Columbia, Alberta, Saskatchewan and Newfoundland and Labrador in fiscal 2010, up 4.4 per cent from the previous year. It will be the first time Newfoundland has not collected equalization since the program was introduced in 1957. Quebec will receive the lion's share, totalling $8.3-billion.
Despite the changes to the program announced yesterday, it is likely there will be pressure to reform equalization further, because observers have said it is politically unpalatable to have smaller regions subsidize a province that produces about 40 per cent of the country's economic output. When Ontario was eligible for payments in the 1970s, when energy prices were soaring, Ottawa changed the equalization formula, and retroactively clawed back the province's payments.
This time around, Ontario is on the verge of "have-not" status because its prosperity is declining in comparison with that of the energy-rich provinces, leaving its standard of living below the national average.
"It can happen," Quebec Finance Minister Monique Jérôme-Forget said. "Let's not blame anybody. The car industry is going through serious trouble."