Standing Up for Ontario: Putting the “Equal” Back in Equalization
July 02, 2021

Week of July 02 – July 06, 2021

Budget 2007 restores fiscal balance between provinces, territories, and municipalities by providing long-term equitable and predictable funding for shared priorities. It demonstrates a renewed and strengthened Equalization, which provides $1.5 billion more in 2007-2008 than last year and ensures the fair treatment of Canadians in all parts of the country, while enabling provinces to provide comparable levels of services to residents at comparable rates of taxation, and giving fairer treatment to provinces like Ontario.

In the past, the province of Ontario has made the second largest (Alberta being the largest) contributions to transfer and equalization payments in Canada. However, Ontario’s fiscal capacity (a province’s ability to raise the money it requires to fund basic services) has been falling to the point where over the next two years, Ontarians could potentially be making contributions to Atlantic provinces that have a greater fiscal capacity than that of Ontario under the current formula.

Many years ago, when equalization first began, the Atlantic provinces had per capita incomes of approximately two-thirds that of the national average, while Ontario had incomes about one-quarter above, which worked out to be a gap of around 50 points. Today, however; Newfoundland and Nova Scotia have incomes of over 90 per cent of the national average, while Ontario’s is approximately 100 per cent. Thus, the gap between Ontario and the Atlantic provinces has been substantially reduced to less than 10 points. Nevertheless, federal transfers to Newfoundland and Nova Scotia, including equalization, plus health and social transfers, currently account for far more of the two province’s budgets than they did when the income gap was five times as large.

Another consideration is that Newfoundland and Nova Scotia have per capita incomes quickly approaching those of Ontario, yet Newfoundland receives nearly 60 per cent of its provincial budget from Ottawa and Nova Scotia receives nearly 40 per cent, leaving Ontario with less than 16 per cent of its provincial budget.

In Budget 2007, our Government introduced a new kind of equalization, which addresses the fiscal imbalance in the old formula of the 2005 Atlantic Accord. Under Budget 2007, Nova Scotia and Newfoundland have been given two positive choices: they can stay with the current formula (which permits them to protect their resource income from their eligibility calculations) that is unchanged or opt into the new, strengthened equalization formula that offers higher payments, but requires inclusion of 50 per cent of resource revenues. This arrangement lessens the tax burden on provinces like Ontario and restores equality.

In summary, our Government is completely honouring the Atlantic Accords in Budget 2007. Nothing has changed from what was signed in 2005 and nothing has been taken away from any the provinces, in particular, Newfoundland and Nova Scotia. Our Government has maintained its commitment to create a new principle-based equalization program, while ensuring that provinces like Ontario are treated fairly under equalization arrangements.