Ontario began receiving payments under the federal equalization program in 2009, when the province was struggling through the depths of the recession. That made the country’s largest province, in the vernacular that we use for these things, a “have-not” province for the first time — and for the past decade, the Tories haven’t let the Liberals forget it.
Well, brighter days are (almost) here again. Equalization payments to Ontario, which peaked at $3.2 billion in 2012, will be just under $1 billion this year, and they’re expected to fall to zero in coming years. And, according to a new report from the Parliamentary Budget Officer, it’s likely that Ontario will not be receiving equalization payments for the foreseeable future.
PBO Jean-Denis Fréchette analyzed four different scenarios for the future of equalization payments, and nearly any way he sliced the data, the results were the same for Ontario: the province will stop receiving payments from Ottawa in the near future and won’t receive them until at least 2091.
So, good news, right? Well, sort of. The main takeaway is that while Ontario won’t be leading the pack in economic growth (both our lack of oil and our aging population will hold us back), we’ll be comfortably in the middle of the national economy again — not a lot richer than other provinces, but not a lot poorer either. Median. Average. Mediocre, if you’re cranky.
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But as far as equalization payments are concerned, that’s good enough: the formula is designed to ensure that provinces have the money to bring their public services up to the national average. So if Ontario is around average, the money stops coming.
“The main reason why Ontario started receiving equalization in the first place was because the recession hit harder in Ontario than anywhere else,” says Daniel Fields, of the Conference Board of Canada. At the same time, oil prices were above the $100 per barrel for much of the early 2010s, boosting revenues in provinces such as Alberta, Saskatchewan, and Newfoundland and Labrador.
“We don’t really see oil prices coming back that fast, so we don’t expect a boom in oil revenues like it was before,” says Fields. “As of right now, we don’t see Ontario really going below the national average.” (The Conference Board of Canada doesn’t try to model these things out to 2091 the way the PBO has, however — Fields was speaking “only” in terms of the next 20 years or so.)
The federal government’s primary concern is not who gets equalization payments but how much gets paid out. At the moment (thanks to changes implemented by the Harper government), equalization payments grow only in conjunction with national GDP. But in a report published last fall, the PBO indicated that nearly all provinces, including Ontario, will face substantial long-term financial pressure thanks to growing health-care costs and aging populations. If the current cap on equalization payments is maintained, a number of provinces will have to start cutting services or raising taxes. Of course, Ottawa — which has a bunch of fiscal room to spare — could also abandon the current cap and help out provinces that are struggling because they’ve made poor policy choices (like not focusing on finding a cure for human aging).
For now, there’s no evidence that Ontario’s return to being a “have” province is going to affect provincial politics in an election year even one iota.
“Even when Ontario qualified for equalization, we’ve been the largest net contributor to the federation,” said Finance Minister Charles Sousa on Thursday. “This signifies the tremendous work we’ve done in recent years … but Ontario has always done its part for Confederation.”
(Sousa also took credit for “slaying” the provincial deficit, which is a bit rich given that he’s already said he’ll be returning the province to deficit in this year’s budget.)
The Tories, for their part, aren’t ready to give the government a pat on the back.
“In 2003, we would never have dreamed that we’d have been a have-not province,” said Progressive Conservative finance critic Lisa MacLeod. “They’ve tripled the debt; we’ve lost hundreds of thousands of manufacturing jobs. While we may not technically be a have-not province in the future, the problem is the economy is not running on all cylinders, and we’re less competitive today than we’ve ever been.”
“We’ve got many criticisms of this Liberal government and how they’ve managed the economy and the books of the province, and we’re going to continue to push on those measures.”