One of the Mowat Centre’s recent policy forays on behalf of Ontario is the Federal Economic Agenda Project, which recently released a discussion paper detailing the objectives of what a federal government economic agenda to support Ontario should be. According to the report, the federal agenda for Ontario should focus on: increased labour force participation, increased productivity, improved economic opportunity and reduced poverty for all, increased exports and …an improved federal fiscal framework that supports Ontario. It is this last one I want to focus on in this post.
According to the report: “Long-standing allocation formulae in transfers, along with changes to the Equalization program in recent years, deprive Ontario of funding during a time of relative economic decline.” What I found unusual was the explicit reference to “economic decline” in this report. This suggests that public discourse in Ontario is finally evolving from one where Ontario has been hard hit by the recession and still needs to recover to Ontario is in economic decline – which is a much longer-term view of the problems facing Ontario’s economy.
The report goes into the usual discussion of Ontario being a net contributor to the federation and offers an estimate of fiscal gap ranging from $9-$12 billion, which is an amount very conveniently close to the current provincial deficit. I should also note this gap is much less than estimates being touted by then Premier McGuinty a number of years ago which argued the gap was about $20 billion. On these grounds alone, one might argue that some effort has been made to close the fiscal gap and that the federal government has been supporting Ontario all these years. The Mowat Centre case could be better phrased as the federal government is not supporting Ontario as much as they think it should.
Between 1990/91 and 2013/14, total federal cash transfers to the provinces grew from 25.2 to 68.7 billion dollars. Ontario has actually made some gains on the transfer front, as its federal transfers rose from 5.8 to 22.3 billion dollars. Using data from the most recent edition of the Federal Fiscal Reference Tables, I offer the following figures. Figure 1 shows a comparison of real per capita federal transfers (in $2002 dollars) between 1990/91 and 2013/14 for each province. Indeed, Ontario is still on the low end when it comes to per capita transfers being the lowest in 1990/91 and third lowest – after Alberta and Saskatchewan by 2013/14. Figure 2 however shows the percent growth in real per capita transfers between these two endpoints and they show that real per capita transfers have grown the most in Ontario.
Figures 3 and 4 show the distribution of federal transfers across the provinces in 1990/91 and 2013/14. While Ontario’s per capita transfers are among the lowest in the country, Ontario has supplanted Quebec as the largest recipient of total federal transfer dollars. In 1990/91, Ontario accounted for 23 percent of federal transfers and by 2013/14 its share had grown to 32 percent. Ontario is getting more out of the federal transfer system.
I suppose for the sake of argument we could argue that it would be “fairer” if Ontario got a federal transfer share closer to its population share of 38 percent? Out of the 68.7 billion dollars transferred in 2013/14, it could have provided Ontario with 4.1 billion dollars more – at the expense of some of the other provinces of course.
Yet, this amount still would not close the fiscal gap estimate provided by the Mowat Centre. And of course this amount would also not balance Ontario’s books given a deficit of over 10 billion dollars. Giving Ontario what it would probably like - about another 10 billion dollars in federal funding - without making any of the other provinces worse off in terms of their current transfer funding - would entail a fairly large increase in the current level of federal transfers. Somehow, I do not see this happening.
Given the structural imbalance in Ontario’s finances with its revenue to GDP ratio consistently below its expenditure to GDP ratio, it is going to be difficult to balance the budget by 2017 with Ontario’s poor economic growth rate. Of course if Ontario’s economy was booming, its calls for changes in the level of its federal support would be more muted.
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