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Dec 19, 2013

Ontario is getting short-changed, and it’s not ‘just math’

December 19, 2013

Ontarians deserve an explanation for why their transfer payments from Ottawa are going down while every other province’s are going up.

This year, like every year, the federal finance minister meets his provincial counterparts and tells them what they can expect to receive from the $65 billion in equalization and other federal transfers. This year, the allocations were publicly communicated in just four sentences, without any explanation of how the federal government decided how much goes to each province.

Every province except Ontario will see its fiscal transfers from the federal government go up next year. Ontario, on the other hand, will see a $640-million reduction. Federal Finance Minister Jim Flaherty’s office released a statement saying the cut to Ontario is “just math.” The federal government wants us to believe that the equalization formula, like the laws of gravity, is beyond human control. But the federal “math” doesn’t add up. The numbers didn’t just fall out of some equalization calculator in a way that just happens to punish Ontario.

In each of the past five years the federal government has said that provinces would be protected during challenging economic times. In a “temporary” measure extended for each of the past five years, the federal government has stepped in with extra funding so that no province’s total transfer would decline. This guarantee was extended to seven provinces for a total of $2.3 billion in extra funds.

The federal government chose not to do the same this year. Just coincidentally, this would have been the first and only year that Ontario – and only Ontario – would have qualified for extra funds.

The formula itself is rigged. When one puts numbers into a flawed formula, yes, the result that gets spit out is something that could be called “math.” But the formula includes dozens of political decisions, almost all of which consistently discriminate against Ontario. For example, the federal government has implemented a cap on equalization payments in a way that is punitive towards Ontario–clawing back 25 per cent of Ontario’s payment, compared to only 7 per cent from other provinces.

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Next year the gap between Ontario’s share of transfers and its share of the population will be the largest in the country – to the negative. Despite the fact that Ontario’s ability to raise revenues from its tax base remains below the national average, Ontario still contributes more to the federation than it takes out – to the tune of more than $10 billion, based on the most recently available numbers.
You can’t just say “it’s just math.” Any high school student knows you need to show your work. And explanations from the federal government have been absent.

Ontarians deserve an explanation for why their transfers are going down while every other province’s are going up.
Ontarians deserve an explanation for how it is possible that even though the province has below-average fiscal capacity and receives equalization, it still contributes more than it receives.

Ontarians deserve an explanation for why the federal government chose a formula to claw back equalization transfers that hits Ontario harder than all other provinces.

Ontarians deserve an explanation for why, year after year, the federal government has extended transfer payment protection to other provinces but now, the first time that Ontario would qualify for such protection, Ottawa has ended the program.

There are short-term solutions to some of these issues: restore transfer protection – as the federal government has done every year for the past five years for all provinces not named Ontario; remove the GDP growth cap, or at least make it work in a way that doesn’t punish Ontario.
But over the medium term, the federal fiscal architecture must be rebuilt. It is not sustainable or equitable for the federal government to continue to take this much from Ontario to redistribute elsewhere.

The equalization formula is not “just math.” It is highly political. It is time for the federal government to offer clear, principled answers to the questions that many Ontarians are asking. And for Ontario’s federal members of Parliament to speak up.

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Release Date

December 19, 2013


The Toronto Star



Matthew Mendelsohn


Noah Zon

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