Now it’s a have-not, Ontario can stop moaning - Macleans.ca

Now it’s a have-not, Ontario can stop moaning

McGuintyites shouldn’t be demanding cash, they should be demanding the feds cut taxes

by

Dalton McGuinty

Let’s get one thing straight right from the start: Ontario is in no material sense a “have-not” province. If the province is now on the equalization dole for the first time in Canadian history, it is not because it has grown poor—Ontario’s median family income, at more than $66,000 in 2006, was second only to Alberta’s—but because other provinces have grown rich.

Likewise, if a couple of the former “have-not” provinces now find themselves among the “haves”—Newfoundland and Saskatchewan, joining British Columbia and Alberta—it is not because of any particularly Herculean effort on their part, but because of the sudden and spectacular rise in the price of oil in recent years.

Still, it does rather stand things on their heads, doesn’t it? I don’t mean in the sense that Newfoundland is now paying into a program that Ontario is drawing out of. I mean that both provinces have abruptly been deprived of any basis for their enduring grudges against the feds, the care and feeding of which has been the particular passion of their respective premiers.

Can it have been only last year that the country was covering its ears at the caterwauling out of St. John’s over the alleged iniquities in the new equalization formula—you know, the one that would have kept Newfoundland poor for a hundred years? It would have done nothing of the kind, of course: it would merely have capped the province’s equalization payments once its per capita revenues equalled Ontario’s, and then only if the province opted in to the new formula.

But never mind—it’s all beside the point now. Newfoundland’s revenues have ballooned to such an extent that it has floated free of the equalization program altogether, and all of the premier’s tantrums, it is now clear, were so much wasted breath.

As for Ontario, which had been working itself into its own snit at the iniquities of that same program—not because it was too stingy, but because it was not nearly stingy enough—that, too, is last year’s news. Now that it is in receipt of equalization payments, the province is suddenly much less interested in cutting equalization—or would be, if it could get over its confusion at finding itself in its current predicament, the very possibility of which it had refused to contemplate until about yesterday.

For now, it is all the province can do to muster a grumpy “we’re only paying ourselves, anyway” even as it is complaining at not being paid enough. The argument, intended to suggest a certain Upper Canadian indignance at having to submit to the program’s absurdities, holds no water whatsoever. Yes, the money that Ontario’s government draws out of equalization comes in part from the money that Ontarians (not their government) pay into it. But that’s true of every recipient province.

Indeed, it’s true of every federal transfer. It’s not some quirk of equalization—it’s in the nature of fiscal federalism. The money the feds pay the provinces comes, not from some place called “Ottawa,” as the provinces would like everyone to believe, but from their own taxpayers. The McGuinty government’s rage is only at seeing the con momentarily exposed to public view.

If Ontario’s overall complaint of ill treatment, the so-called “fiscal gap,” had any basis in reality, the McGuintyites should not be demanding more money for health care, or immigration, or employment insurance to make up the difference, since all of that money comes, in part, from Ontarians. They should be demanding the feds cut taxes. But as it doesn’t, they don’t: it’s just another wheeze to extort more cash from the feds.

I suspect we will hear less about the fiscal gap in future, since the actual explanation for it—not federal mistreatment, but the higher-than-average incomes that Ontarians enjoy—may soon cease to apply. That is, what has been a relative decline until now may turn into an absolute decline. That ought to, but probably won’t, occasion a little soul-searching on the part of the McGuinty government.

It’s all very well to talk about high oil prices, or a high dollar, or a slowing U.S. economy for the role they have played in Ontario’s recent woes. But in fact the province’s economy has been performing sluggishly for the better part of a decade: Ontario’s per capita GDP is virtually unchanged, in inflation-adjusted terms, from what it was in 2001.

That’s not why the province now finds itself in deficit: per capita revenues, after inflation, are 15 per cent higher than they were when McGuinty took office. But without a rising economy to finance its extravagant spending habits—a nearly 40 per cent increase in just four years—the province has had to squeeze every available revenue source dry, first raising personal and corporate taxes by billions of dollars and, when even that proved insufficient, demanding that Ottawa fill the gap. Which it has: you’d never know it from the McGuinty government’s rhetoric, but federal transfers to Ontario have more than tripled in the last decade, from $4.8 billion in fiscal 1999 to nearly $17 billion this year.

Surely, at some point, someone in the province will notice that, for all of McGuinty’s tax increases, the province’s own-source revenues are no higher now, at 13.3 per cent of GDP, than they were under the tax-cutting Mike Harris, while growth is markedly slower. Perhaps it will even occur to them to suggest that, if McGuinty’s policies are not the cause of the province’s economic troubles, they haven’t exactly helped.