Canadian Manufacturing

Onerus $11-billion ‘fiscal gap’ highlights inequitable federal policies

University of Toronto's Mowat Centre says Ontario continues to contribute a disproportionate amount to federal coffers, even though it's no longer wealthier than the average province.

TORONTO—Outdated policies that cause Ontario to turn over roughly $11 billion more to the federal government each year than it receives in return are placing an unfair strain on the province, a public policy think tank said in a report released Monday.

The study by the University of Toronto’s Mowat Centre points to what it calls the province’s “fiscal gap,” which it blames almost entirely on “inequities in federal spending.”

It says Ontario continues to contribute a disproportionate amount to federal coffers, even though it’s no longer wealthier than the average province.

“One might assume that, given Ontario’s below average fiscal capacity, it would now be a net recipient of redistribution in the federation, but that turns out not to be the case,” the document reads.

“Canada’s fiscal arrangements have not evolved to reflect changing circumstances. As a result, Ontarians continue to see their federal taxes redistributed away from Ontario on a net basis at a time when the province can ill afford it,” it adds.

The findings are based on fiscal data from 2009, the latest figures available.

Canada’s wealth-sharing equalization system—and how it affects Ontario, which is battling a deficit of $11.9 billion—often drew the criticism of the province’s former premier Dalton McGuinty.

The program involves redistributing funds to less wealthy provinces to balance out their ability to raise tax revenues. The goal is to allow less prosperous provinces to provide services similar to those offered in other provinces.

It is one of several programs that transfer federal funds to the provinces; other payments support health care and social programs.

McGuinty called for the equalization program to be revamped and complained as far back as 2005 that health and social transfers should be doled out on a per-capita basis.

A 2011 report by the Ontario Chamber of Commerce also suggested Ontario is particularly disadvantaged by the equalization system when it comes to education, health care and child care.

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