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TORONTO, OTTAWA — Ontario is poised to become a have-not province as early as 2010 - a dramatic reversal of fortune that would leave Canada's onetime economic engine on the receiving end of national wealth-sharing subsidies for the first time, say economists at Toronto-Dominion Bank.
After decades of propping up the rest of the country, Ontario will be eligible to receive $400-million in federal equalization transfers in the fiscal year ending March 31, 2011, and $1.3-billion the following year, the economists said in a report released yesterday. At this point, the report adds, Ontario will not qualify for payments in 2010, but that could change.
Ontario's economy is already a major political headache for Premier Dalton McGuinty's government as it grapples with jobs losses in Canada's manufacturing heartland. Just this week, General Motors said it is cutting 900 jobs at its truck assembly plant in Oshawa.
Ontario is on the verge of have-not status largely because its prosperity is declining in comparison with the energy-rich provinces, leaving its standard of living below the national average.
"The change in Ontario's equalization status is essentially a story of soaring commodity prices," TD economist Derek Burleton says in the report. "There is much more at play here than just Ontario's economy."
Just as Ontario is about to join the have-not ranks, Newfoundland is no longer the poor cousin of Confederation. Next year, Newfoundland won't collect equalization for the first time since the program was introduced in 1951.
Ontario's economic decline relative to the rest of the country could well disrupt the fragile fiscal balance between the provinces and the federal government and lead to renewed calls to reform equalization.
Ontario Energy Minister Dwight Duncan said it is absurd that the province contributes about $20-billion more to the federal treasury than it receives from Ottawa through various wealth-sharing programs, including equalization.
"The formula is flawed," he told reporters yesterday. "We will be paying ourselves equalization with our own money."
Federal Finance Minister Jim Flaherty ruled out making any immediate changes to the equalization program.
"What we have to do as governments is to stop blaming ... people that do economic calculations and instead say, 'What can we do as a government to encourage economic growth in our jurisdiction?' " he told reporters.
But Mr. Burleton said it would be politically unpalatable to have smaller regions subsidize Canada's most populous province, which produces about 40 per cent of the country's economic output, even if it does qualify for equalization payments. He notes that in the 1970s, when energy prices were soaring, Ontario was eligible for payments. But Ottawa changed the equalization formula, and retroactively clawed back Ontario's payments.
The Harper government altered the program last year after a divisive debate that pitted many provincial leaders against Mr. McGuinty, who complained the changes were unfair to Ontario. Under the old equalization formula, Ontario would not receive payments in coming years, because the richest province's fiscal capacity was not included, nor were resource revenues. But under the changes, half of a province's resource revenues are now included along with Alberta's wealth. The changes make Ontario look poorer, relative to the more prosperous provinces.
Economists have recently warned that Ontario is destined for have-not status, but the TD report crunches numbers to show exactly how much the province's position has deteriorated.
Liberal Leader Stéphane Dion criticized the Harper government for not doing more to help Ontario's ailing manufacturing sector.
"The [Harper] government has shown it is insensitive to this problem and has no strategy," he told reporters.
Opposition members in the provincial legislature accused Mr. McGuinty of making Ontario a have-not province.
"Instead of providing a hand up, we're going to be there with our hand out," Progressive Conservative MPP Bob Runciman said.
With reports from Kevin Carmichael in Ottawa and Rhéal Séguin in Quebec City
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