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Equalization Payments: Ontario Still Paying More Than It Gets Despite 'Have-Not' Status, Study Finds

04/01/2013 11:17 EDT | Updated 04/01/2013 11:20 EDT
Flickr: gorbould

Live in Ontario? You may be getting ripped off by the federal government.

According to a new report from the Mowat Centre, Ontario contributes $11 billion more annually to the federal government than it gets back in services and spending, despite the fact it has become a “have-not” province.

Canada’s system of transfer funding is designed so that provinces above the national average — the “haves” — pay in more than they pay out, while provinces below the average receive more than they pay in.

Ontario fell below average in the middle of the last decade and received $347 million in equalization payments in the 2009-2010 fiscal year, the first time the province was ever on the “have-not” end. (This year, it will receive $3.169 billion.)

Canada's 'have' and 'have-not' provinces (story continues below slideshow)

Canada's 'Have' And 'Have-Not' Provinces

But the Mowat Centre report finds that, if you calculate how the federal government doles out money on programs, Ontario is still sending much more money to Ottawa than it gets back — about $11 billion a year, or 1.9 per cent of the province’s GDP.

Livio Di Matteo at the Worthwhile Canadian Initiative blog points out that $11 billion just happens to be the size of Ontario’s budget deficit. In other words, Ontario’s books could be balanced if Ontarians were receiving as much in federal services as they pay in to the system.

Ontario is facing a significant budget deficit, despite already having the lowest per capita expenditures on public services of Canadian provinces,” the Mowat Centre report states. “It is appropriate to ask whether federal tax and spending decisions are unduly harming any province or region.”

But the report notes the authors reject any notions of “fiscal sheet federalism,” arguing that Ontario, “like all regions, benefits economically and socially from being part of Canada.”

The study found that the percentage of revenue collected in Ontario (39 per cent) is very close to the province’s percentage of population (38.7 per cent), but the province received only 34 per cent of federal spending.

Ontarians see less than their share of spending on infrastructure, affordable housing and labour market training, among other things, the report stated.

One glaring example of this is with Employment Insurance.

“EI rules make it harder for unemployed Ontarians to receive EI than it is elsewhere in the country,” the report says. “Ontario workers and employers continue to pay in at the same rate as all Canadians. ... In 2011, Ontarians paid 40 per cent of EI premiums and received only 33 per cent of income benefits, and only 28 per cent of labour market training funds tied to EI eligibility, despite higher than average unemployment.”

“[T]he burden Ontario is being asked to carry is out of line with the principle of equity and is undermining Ontario’s prosperity and quality of life. Many federal programs need to be reconstructed so that they work better for the Canada of 2013,” the report concludes.

Failing that, “Ontarians are facing a prolonged period where the province remains a net contributor to the federation, despite having below-average fiscal capacity,” the report concludes.

In a column in the Toronto Star, study co-authors Noah Zon and Matthew Mendelsohn argued that “the good news is that some of these problems are easily fixable. There is no grand federal plan to redistribute dollars away from Ontarians. This is simply a legacy of historical decisions made at different times and for different reasons.”

They added: “The federal government can and should deal with that legacy by reforming programs that discriminate against Ontario and Ontarians. That should start with funding for housing, training, economic development and infrastructure. Some simple changes to equalization and EI could also make a dent in the problem — even as we await bigger changes.”