unimaginative2
Senior Member
Ontario will be a have-not province: TD
HEATHER SCOFFIELD
Globe and Mail Update
April 29, 2008 at 11:18 AM EDT
OTTAWA — Ontario will soon be a have-not province, and is poised to start collecting equalization payments in two years, economists at Toronto-Dominion Bank say.
Ontario's economy is struggling to deal with the compounding effects of high energy costs, a strong loonie, and now a U.S. downturn, the economists note in a paper published Tuesday morning. But it's the rising prosperity of the energy-rich provinces, and not Ontario's actions, that have turned Ontario into a have-not, their paper argues.
“The change in Ontario's equalization status is essentially a story of soaring commodity prices,†say Derek Burleton, director of economic studies, and Don Drummond, chief economist. “There is much more at play here than just Ontario's economy.â€
They calculate that Ontario would be eligible to receive $400-million in federal equalization transfers in the 2010-2011 fiscal year, and $1.3-billion in fiscal 2011-2012.
And the central Canadian province could even start getting payments next year, they warn. Data to calculate who should get what is notoriously delayed, and since Ontario is on the edge next year in TD's calculations, its fortunes could go either way.
Ontario makes up about 40 per cent of Canada's economic output and about 38 per cent of the country's population. Its prosperity over the decades has meant that, historically, it has been among the richest Canadian provinces.
The province has complained loudly in recent years, however, that it has been treated unfairly by the federal equalization formula. Premier Dalton McGuinty argues that the formula favours transfers to the Eastern provinces, despite rising resource revenues, while failing to fully account for rising fiscal costs in Ontario.
At the same time, Ontario's prosperity has been declining, when compared with the rest of the country.
Economists have been warning lately that Ontario is destined for have-not status, but the TD report crunches numbers to show exactly how much the province's relative position has deteriorated.
Data released on Monday by Statistics Canada showed that Ontario's nominal gross domestic product per capita — a common measure of standard of living — rose 3.4 per cent in 2007, compared with a national average of 4.8 per cent.
Ontario's standard of living has been below the national average for two years in a row now, and the gap is growing, the Statscan data show.
Under the old equalization formula, Ontario would not receive equalization payments in coming years, because the richest province's fiscal capacity was not included, nor were resource revenues. But under changes brought in last year, half of a province's resource revenues are now included. Alberta's wealth is also included in the formula. The changes make Ontario look much poorer, relative to the more prosperous, energy-rich provinces.
TD's calculations predict that British Columbia, Alberta and Saskatchewan will all be contributors to the equalization formula, or “have†provinces, over the next few years.
But Mr. Drummond is skeptical about whether Ontario would actually ever see any equalization money, even if it does qualify.
He notes that in the 1970s, Ontario was eligible for payments, and actually received some money, as energy prices soared. But support for Ontario was not politically acceptable, and so Ottawa changed the equalization formula, and retroactively clawed back Ontario's payments.
Finn Poschmann, director of research at the C.D. Howe Institute, expects to see similar political manoeuvring this time around, and doubts Ontario would actually ever be on the receiving end of equalization.
“The formula is a product of a political process,†he said. “It's designed to produce a politically acceptable result. So when tensions result, the formula changes.â€
And tensions in the West would definitely be exacerbated by the prospect of Ontario receiving equalization, he added. It would mean a small proportion of the country's population, about 30 per cent, subsidizing the other 70 per cent -- a situation that Alberta would probably find unacceptable.
Ontario would probably also balk at being labelled a have-not, Mr. Poschmann added.
“Ontario does not want to be on the receiving end of equalization,†he said. “It's a place that you don't want to be.â€
Still, Mr. Drummond adds that Ontario taxpayers fund a huge portion of the federal government's revenues, providing $21-billion more to Ottawa than they received in transfers, in 2005. That surplus won't disappear immediately, he said.
“In actuality then, Ontario residents will, in effect, be paying the equalization tab with their wn money,†the paper says.
HEATHER SCOFFIELD
Globe and Mail Update
April 29, 2008 at 11:18 AM EDT
OTTAWA — Ontario will soon be a have-not province, and is poised to start collecting equalization payments in two years, economists at Toronto-Dominion Bank say.
Ontario's economy is struggling to deal with the compounding effects of high energy costs, a strong loonie, and now a U.S. downturn, the economists note in a paper published Tuesday morning. But it's the rising prosperity of the energy-rich provinces, and not Ontario's actions, that have turned Ontario into a have-not, their paper argues.
“The change in Ontario's equalization status is essentially a story of soaring commodity prices,†say Derek Burleton, director of economic studies, and Don Drummond, chief economist. “There is much more at play here than just Ontario's economy.â€
They calculate that Ontario would be eligible to receive $400-million in federal equalization transfers in the 2010-2011 fiscal year, and $1.3-billion in fiscal 2011-2012.
And the central Canadian province could even start getting payments next year, they warn. Data to calculate who should get what is notoriously delayed, and since Ontario is on the edge next year in TD's calculations, its fortunes could go either way.
Ontario makes up about 40 per cent of Canada's economic output and about 38 per cent of the country's population. Its prosperity over the decades has meant that, historically, it has been among the richest Canadian provinces.
The province has complained loudly in recent years, however, that it has been treated unfairly by the federal equalization formula. Premier Dalton McGuinty argues that the formula favours transfers to the Eastern provinces, despite rising resource revenues, while failing to fully account for rising fiscal costs in Ontario.
At the same time, Ontario's prosperity has been declining, when compared with the rest of the country.
Economists have been warning lately that Ontario is destined for have-not status, but the TD report crunches numbers to show exactly how much the province's relative position has deteriorated.
Data released on Monday by Statistics Canada showed that Ontario's nominal gross domestic product per capita — a common measure of standard of living — rose 3.4 per cent in 2007, compared with a national average of 4.8 per cent.
Ontario's standard of living has been below the national average for two years in a row now, and the gap is growing, the Statscan data show.
Under the old equalization formula, Ontario would not receive equalization payments in coming years, because the richest province's fiscal capacity was not included, nor were resource revenues. But under changes brought in last year, half of a province's resource revenues are now included. Alberta's wealth is also included in the formula. The changes make Ontario look much poorer, relative to the more prosperous, energy-rich provinces.
TD's calculations predict that British Columbia, Alberta and Saskatchewan will all be contributors to the equalization formula, or “have†provinces, over the next few years.
But Mr. Drummond is skeptical about whether Ontario would actually ever see any equalization money, even if it does qualify.
He notes that in the 1970s, Ontario was eligible for payments, and actually received some money, as energy prices soared. But support for Ontario was not politically acceptable, and so Ottawa changed the equalization formula, and retroactively clawed back Ontario's payments.
Finn Poschmann, director of research at the C.D. Howe Institute, expects to see similar political manoeuvring this time around, and doubts Ontario would actually ever be on the receiving end of equalization.
“The formula is a product of a political process,†he said. “It's designed to produce a politically acceptable result. So when tensions result, the formula changes.â€
And tensions in the West would definitely be exacerbated by the prospect of Ontario receiving equalization, he added. It would mean a small proportion of the country's population, about 30 per cent, subsidizing the other 70 per cent -- a situation that Alberta would probably find unacceptable.
Ontario would probably also balk at being labelled a have-not, Mr. Poschmann added.
“Ontario does not want to be on the receiving end of equalization,†he said. “It's a place that you don't want to be.â€
Still, Mr. Drummond adds that Ontario taxpayers fund a huge portion of the federal government's revenues, providing $21-billion more to Ottawa than they received in transfers, in 2005. That surplus won't disappear immediately, he said.
“In actuality then, Ontario residents will, in effect, be paying the equalization tab with their wn money,†the paper says.