2013 Ontario Economic Outlook and Fiscal Review

Chapter IV: The Need for a Committed Federal Partner

Highlights

Ontario needs a committed federal partner to support the Province’s plan for jobs and economic growth and to sustain the public services that Ontarians deserve and expect. A federal partner needs to be willing to:

Build the Economy Together
  • Collaborate with provinces and territories on strengthening initiatives for strategic infrastructure investment and skills and training.
  • Ensure dedicated federal funding for public transit and transportation infrastructure.
Strengthen the Retirement Income System
  • Help ensure that today’s workers maintain a comparable standard of living when they retire by supporting an enhancement to the Canada Pension Plan.
Invest in Healthy Ontario Communities
  • Make long-term, predictable investments in social and affordable housing.
Establish a Fair Fiscal Arrangement
  • Work with provinces and territories to make federal–provincial fiscal arrangements more fair, efficient and suitable to address the economic and demographic challenges facing provinces and territories.
Work Together with Provinces and Territories
  • Avoid further unilateral changes to programs affecting provinces and territories, and particularly measures involving cutbacks in financial support, including offloading or downloading responsibilities.
  • Recognize that the Province cannot fill gaps left by the federal government every time the latter decides to make changes without considering the pressures they put on Ontario.

The Case for Committed Partnerships

Building a prosperous and fair society requires collaboration among all orders of government. This is demonstrated each time the Province works with other orders of government to create jobs and make businesses more competitive — from successful joint initiatives with the federal government, such as support for the auto sector and sales tax harmonization, to moving towards a cooperative capital markets regulator with the federal government and British Columbia. The results of creating effective partnerships are making a positive difference to Ontarians.

Meaningful and results-oriented conversations have taken place at the provincial and territorial level under Ontario’s leadership. As host of the 2013 Council of the Federation, Ontario chaired discussions on a range of priorities focused on building a strong economy and ensuring a fair society for all Canadians. At the meeting, hosted in Niagara-on-the-Lake, Premiers discussed ways to create jobs and promote economic growth through collaborative actions on skills and training, strategic infrastructure investment, immigration, international trade and energy.

Unfortunately, in an effort to balance the federal budget, the federal government recently made a series of changes to programs and funding that negatively affect Ontario and other provinces and territories. These federal decisions often involve cutbacks in financial support and changes to federal programs that offload many responsibilities onto provinces and territories, without proper consultation or compensation. A number of federal initiatives currently under consideration could, if implemented, continue the trend of declining federal responsibilities and potentially disrupt Ontario’s finances.

Ontario, much like the rest of Canada, is operating in a post-recession world of a rapidly evolving economy, growing competition for skilled workers, an aging population and communities with increasingly diverse needs. The challenges facing provinces and territories require intergovernmental coordination, not unilateral, top-down decision-making.

Ontario seeks to build on past successes of federal and provincial–territorial coordination to develop partnerships rooted in mutual understanding and consultation that are oriented towards the effective use of public dollars and the right balance of resources and responsibilities in the federation. Ontario expects the federal government to provide the long-term support needed to build a stronger Ontario — for a stronger Canada.

A Committed Federal Partner to Build the Economy Together

Long-Term Investment in Public Infrastructure

Ontario is pleased that the new Building Canada plan, as announced in the 2013 federal budget, will focus investment on projects that promote economic productivity and growth.

Given Ontario’s significance to the national economy, and its strategic infrastructure needs, it is critical that Ontario receive a fair share of the $14 billion in funding available nationally through the Building Canada Fund, a key component of the new Building Canada plan. The Province is committed to delivering a plan in partnership with the federal government that not only promotes Ontario’s strategic infrastructure priorities and meets the unique needs of its communities, but also provides economic returns to Canada.

Investment in Public Transit

Ontario encourages the federal government to provide predictable long-term funding to support a transit and transportation strategy instead of one-off funding decisions. Investment in public transit and transportation infrastructure is critical, given the significant economic drag from congestion. Congestion deters skilled employees, wastes labour productivity, slows the movement of goods, and hinders the ability of businesses to operate and grow.

Public transit allows people to connect to the economy and access educational opportunities and services outside their neighbourhoods. Improving public transportation can also help reduce greenhouse gas emissions and improve quality of life. With an aging population, more people may rely on transit in their everyday lives and public transit systems will need to be even more accessible and integrated.

The Province remains concerned about the lack of federal investments in transit and transportation projects in Ontario. It is important going forward that the federal government work together with Ontario in an effort to address shared priorities in a collaborative manner.

Labour Market Training

Ontario needs a strong federal partner to help ensure that Ontarians, including groups struggling in the labour market, receive skills training and employment supports to succeed. This includes continued stable and fair funding as well as flexibility to target clients and design programs that best respond to Ontario’s labour market needs. The Province will not divert substantial funding from programs delivering results for a one-size-fits-all program that may not work for Ontario.

In its 2013 budget, the federal government announced its plan to renegotiate three major federal–provincial labour market funding agreements: the Labour Market Agreement, Labour Market Development Agreement and Labour Market Agreement for Persons with Disabilities. The current proposal for the Labour Market Agreement would redirect 60 per cent of the federal government’s $500 million national funding to the Canada Job Grant by 2017–18. The new Canada Job Grant would also require matching contributions from provinces/territories and employers.

Ontario has significant concerns as the proposed federal offer would limit Ontario’s ability to serve vulnerable people, especially those not eligible for Employment Insurance-funded services, including immigrants, Aboriginals, people with disabilities and social assistance recipients. Many of those who need help to improve their skills and get back to work would be left out as the Canada Job Grant would only support Ontarians with an employer willing to fund their training. Engaging all Ontarians to fully participate in the labour market is crucial for the Province’s and Canada’s long-term economic growth.

In order to maintain current programs and fully implement the Canada Job Grant, Ontario would have to cut roughly $232 million a year in funding from other programs. All provinces and territories share the concern that the Canada Job Grant could jeopardize the success of current training programs, particularly those that help vulnerable people.

Ontario is pleased that its leadership through the Council of the Federation enabled all provinces and territories to present a united front in pressing their concerns about the proposed Canada Job Grant program, resulting in the federal government taking a second look at the terms of this program. Ontario is determined to negotiate new labour market funding agreements that serve the needs of its workers and employers. Ontario will soon be meeting with the federal government and all other provinces and territories to discuss the renewal of current federal funding agreements and the federal proposal for a Canada Job Grant.

Supporting Ontario’s Leading Sectors

Access to Global Markets

Ontario is working with the federal government to pursue new trade agreements that would improve access for exporters to foreign markets and benefit Canadian consumers. Canada is negotiating a Trans-Pacific Partnership with a number of countries as well as free trade agreements with nations such as India, Japan and South Korea.

On October 18, 2013, the federal government announced that an agreement in principle had been reached on the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). The deal would mean expanded access to European markets for Ontario manufacturers and service providers, increased sales of goods and services and, as a result, more job creation.

Many sectors of Ontario’s economy would benefit from CETA, including advanced manufacturing and automotive, financial services, metals and mining, and information and communications technologies. The deal is expected to create as many as 30,000 jobs in Ontario.

The CETA will benefit Ontario’s economy and consumers but the Province has raised concerns with the federal government as the deal moves from being an agreement in principle to a final agreement. The Province has asked the federal government to guarantee that provinces will be fully compensated for any increase in costs as a result of the deal’s intellectual property provisions on pharmaceuticals. Ontario also needs the federal government to support the wine and spirits sector and work with the Province to support the sector’s growth.

Agri-Food Support

The CETA will negatively impact various agricultural sectors including dairy farmers, grape growers, and cheese producers and processors. Ontario expects adequate and real compensation for its hardworking farmers and agri-food workers, and has communicated this to the federal government.

Ontario is exploring innovative approaches to managing producer risk, such as the Ontario Corn-Fed Beef Risk Management Fund, which allows producers and processors to take greater leadership and ownership in ensuring price stability. Ontario has provided initial seed funding and encourages the federal government to match it to reduce fiscal pressures for both Ontario and Canada.

Ring of Fire

Ontario’s Ring of Fire area, located about 535 kilometres northeast of Thunder Bay, holds significant deposits of minerals. Recent estimates suggest that the value of mineral resources in the Ring of Fire area could be up to $50 billion, for known chromite and nickel deposits.

The Province is working towards smart, sustainable and collaborative development in the Ring of Fire. Ontario has a leadership role in development, but the federal government, municipalities, First Nations and industry all have a part to play. The Province calls on the federal government to provide adequate support to advance regional infrastructure development in the Ring of Fire.

Successful development of the Ring of Fire requires sound preparation and planning, and full engagement by the federal government. This development will support a more robust northern economy, delivering long-term benefits to Aboriginal communities and strengthening community infrastructure.

The Province is committed to working with First Nations near the Ring of Fire. In the 2013 Budget, the Province committed $5 million to support community readiness and capacity building in the Ring of Fire communities, and has entered into a historic, community-driven, regional negotiation process with the Matawa First Nations, which is being led through the appointed negotiators, the Honourable Justice Frank Iacobucci and the Honourable Bob Rae.

Support for Clean Energy

Ontario is a North American leader in clean energy with its commitment to replace coal-fired electricity generation with cleaner sources, the feed-in tariff program, large renewable procurements and a variety of conservation programs. Since 2009, the Province’s Green Energy Act has attracted billions of dollars in private-sector investments, created 31,000 jobs and attracted more than 30 clean energy companies to the province. In its August 2012 report, “Canada’s Emissions Trends,” the federal government recognized Ontario’s important contributions to meeting Canada-wide greenhouse gas emission reduction targets under the Copenhagen Accord. However, the federal government continues to provide significant support for energy sectors other than renewables, which does not meet the needs of Ontario. Enhanced federal support for clean energy would help Ontario transition to a low-carbon economy.

Ontario is seeking federal support and the appropriate regulatory environment for an east–west transmission grid that would transmit electricity across provincial borders. Greater regional integration of electricity grids would encourage the development of new, larger-scale renewable projects that would benefit the economy, both in Ontario and elsewhere in the country.

To support stronger, healthier northern remote communities, the Province expects to seek federal engagement on proposals for cost sharing of investments to connect certain remote First Nation communities to the Ontario electricity grid. This would reduce these communities’ reliance on diesel generators for electricity supply.

A Committed Federal Partner to Strengthen the Retirement Income System

Long-term savings and investment are critical to ensuring Ontarians prepare financially for their retirement. Many Ontarians today are having difficulty putting aside sufficient savings for retirement and are worried about their future financial security.

The Province is committed to a strong and secure retirement income system to help ensure that Ontarians are able to enjoy their retirement years. The Province will assist working Ontarians in planning for their retirement, whether they rely on retirement income provided through the Canada Pension Plan (CPP), are accumulating retirement savings independently, or have access to a workplace pension plan.

The CPP forms the foundation of the nation’s retirement income system. An enhancement to the CPP is critical to ensuring that Ontarians, particularly middle-income earners, have greater financial security in retirement.

At this summer’s Council of the Federation, Premiers reiterated their commitment to the principle of enhancing Canada’s public and private pension plans, as the economy improves. Premiers directed provincial and territorial finance ministers to consider specific options for enhancing the retirement income system, including the CPP/Quebec Pension Plan and pooled registered pension plans (PRPPs).

Ontario will continue to lead the way to advance an enhancement to the CPP and work to secure agreement among provinces and the federal government. In the event that federal–provincial–territorial discussions on a CPP enhancement are unsuccessful, the Province will move forward with a “made in Ontario” solution.

See Chapter V: Retirement Income Security for more details.

A Committed Federal Partner to Invest in Healthy Ontario Communities

Investment in Social and Affordable Housing

Ontario is working to develop an agreement with the federal government to extend the jointly funded federal–provincial Investment in Affordable Housing program. While the extended Investment in Affordable Housing program would help increase access to new affordable housing units and repair units built since the mid-1990s, it would not help repair the existing stock of older social housing units, some of which are over 50 years old.

The Province calls on the federal government to make long-term, predictable investments in social housing. The lack of affordable and appropriate shelter is a barrier to health, education and employment.

Immigration and Refugees

The Province understands the important role immigration plays in the Ontario economy. That is why the Province developed the first-ever Ontario Immigration Strategy.

The federal government is announcing Ontario’s allocation for the Provincial Nominee Program (PNP) for 2014. An increase would be a positive step forward that would recognize the important role that Ontario plays in immigration in Canada. Ontario’s Immigration Strategy calls on the federal government to increase its PNP allocation to 5,000 by 2014. This Province should have the same flexibility and capacity as the other provinces to meet changing labour market needs and to help the economy grow.

Caring for refugee claimants is a federal responsibility. However, changes made to the Interim Federal Health Program, which provides health care coverage to refugees, have left many refugee claimant groups without basic primary care. This unilateral federal action may increase provincial health spending. Ensuring refugee claimants are receiving health care coverage that is similar to the coverage offered through OHIP could cost as much as $20 million per year. The Province urges the federal government to reverse its changes to the Interim Federal Health Program and reinstate health care coverage for all refugee claimants.

First Nation Communities

The federal government has chronically underfunded on‐reserve First Nations. While Ontario welcomes investments announced in the 2013 federal budget to support postsecondary educational attainment for First Nations and Inuit students, these investments do not address the current state of on-reserve schools for kindergarten through Grade 12. The Province believes that all children, whether they live on‐reserve or not, should have the same opportunities and that the federal government has an obligation to make those opportunities available and accessible.

The federal government should provide adequate funding for First Nation education that at least reaches parity with per‐student provincial funding for elementary and secondary education. Working with Aboriginal communities to improve educational and economic outcomes has the potential to create benefits across the province.

“The Commission believes that there is an urgent need to significantly improve the provision of on-reserve First Nations education in the province… There is a substantial and growing gap in education attainment between First Nations peoples living on-reserve and the rest of the Canadian population.”

Commission on the Reform of Ontario’s Public Services, “Public Services for Ontarians: A Path to Sustainability and Excellence,” 2012, p. 209.

Investing in Healthy Ontarians

The unilateral federal decision to limit the growth of the Canada Health Transfer will have a significant impact on Ontario’s delivery of quality public services. Instead of maintaining the Canada Health Transfer growth rate at six per cent, the transfer is now expected to increase at the rate of nominal economic growth, starting in 2017–18.

This federal action will remove $8.2 billion from health care in Ontario by 2023–24, when the transfer will be up for renewal. This cumulative impact would be equivalent to reducing federal funding of health care by an estimated $550 for every Ontarian by 2023. The federal funding that is being reduced could instead be used to help support Ontario’s ongoing efforts to decrease wait times for surgical and diagnostic services, accelerate hiring of doctors and nurses who provide Ontarians with access to primary care, and improve investments in the province’s home care initiatives that help older Ontarians live healthier, more independent lives.

An aging population brings more vulnerable and complex care patients into the health care system, making federal funding for health care more important. This, and other challenges facing provinces and territories, clearly shows that the current suite of federal transfers and fiscal arrangements needs to be improved and modernized.

A Committed Federal Partner to Establish a Fair Fiscal Arrangement

Ontario insists the federal government work with the provinces and territories to modernize federal–provincial fiscal arrangements — that is, to make Canada’s fiscal architecture more fair, efficient and suitable to address the economic and demographic challenges facing provinces and territories.

It is increasingly apparent that federal fiscal arrangements are neither fair nor sufficient to address the needs of Ontarians. Among provinces, Ontario is fifth in ability to raise revenues from its residents. However, Ontario falls to last after federal transfers — including the Canada Health Transfer, Canada Social Transfer and Equalization — are taken into account because the outdated system of fiscal arrangements is out of line with current economic realities (see Chart 4.1).

Chart 4.1 In 2013–14, Ontario’s Fiscal Capacity Is Fifth but Federal Transfers Bring Ontario to Last

The evidence increasingly suggests that the current system of federal–provincial fiscal arrangements is working against, not for, the people of Ontario. The Mowat Centre’s report, “Filling the Gap,” estimates that the shortfall between what the people of Ontario pay in federal taxes versus what they receive in federal transfers and services was $11.1 billion, or 1.9 per cent of Ontario’s economy, in 2009–10.1

“[P]rograms that discriminate against Ontarians include federal investments in economic development, infrastructure funding, affordable and social housing, support for the energy sector, and funding for labour market training. By treating Canadians inconsistently, these programs each contribute to the broader structural imbalance that Ontario faces in the federation, and put pressures on Ontario and its municipal governments, as well as community organizations and individuals to pick up the slack.”

Noah Zon, Mowat Centre, “Filling the Gap: Measuring Ontario’s Balance with the Federation,” 2013, p. 8.

A good example of an arrangement that works against Ontario and needs to be modernized is the Equalization program. Ontario remains the largest net contributor to the program despite fast‐growing, resource‐based economies in Western Canada. The difference between what the people of Ontario pay into the Equalization program through federal taxes and what the Province receives back from the program is $3.1 billion, or about $226 per person, in 2013–14 (see Chart 4.2). Over the past 10 years, Ontario has contributed approximately $50 billion to the Equalization program.

Ontario is committed to the principles of the Equalization program. However, the Province does not support a system of transfers that puts Ontario’s public services at risk and provides inequitable levels of support to different parts of Canada. Ontario is entitled to its fair share in the Equalization program.

Chart 4.2 Net Contribution to Equalization by Province, 2013–14

“Even though Ontario receives Equalization, Ontarians continue to contribute more to the program than they receive in return. This highlights a problem with the arrangements in the federation — federal transfers disproportionately benefit other provinces, at a cost to Ontarians.”

Commission on the Reform of Ontario’s Public Services, “Public Services for Ontarians: A Path to Sustainability and Excellence,” 2012, p. 454.

Impacts of Unilateral Federal Actions

The federal government has made a number of decisions that offload many responsibilities onto Ontario without proper compensation or advanced dialogue. Numerous examples of unilateral federal actions are already explained throughout this chapter — from changes proposed to the Labour Market Agreement and introducing the Canada Job Grant, to limiting the growth rate of the Canada Health Transfer and reducing the Interim Federal Health Program. Broadly, federal actions typically include:

  • Changes to program-specific financial support or federal transfers to provinces that reduce federal contributions below levels previously committed;
  • Changes to eligibility criteria of federal programs or federal transfers to persons — e.g., elderly benefits — that impact how Ontarians benefit from these services and benefits, and affect the demand for provincial services;
  • Changes to shared common tax bases that lead to reductions in provincial taxation revenues and have an impact on provincial tax policies; and
  • Changes to legislation or regulations, especially in areas of integrated federal–provincial services such as the criminal justice system, that create undue pressures on provincial programs and services to meet federal rules.

These unilateral federal actions have direct impacts on Ontario communities, the Province’s finances and its delivery of core public services.

Federal Actions with Impacts on Ontario Communities

Federal government support for policing through the Police Officers Recruitment Fund expired on March 31, 2013. This time-limited program provided annual funding of $31.4 million to support up to 329 police officers in communities across Ontario, including 40 First Nation police officers. As the federal government has not committed to extend this funding, the 2013 Budget provided additional annual funding of $4 million to continue to fund the 40 First Nation police officers hired under the Police Officers Recruitment Fund to ensure the safety of First Nation communities. Ontario calls on the federal government to fully fund the police officers hired under the Police Officers Recruitment Fund and to make the funding permanent.

Recently, the federal government announced it will raise the minimum age eligibility for Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) by two years, beginning in 2023 and to be fully implemented in 2030. This federal action is estimated to increase the number of seniors living in poverty by about 44,000 and may result in a loss of $4.4 billion in OAS and GIS payments for the 630,000 Ontario seniors aged 65 to 67 in 2030. That means that a low-income senior who is 66 could lose out on benefits of up to $23,000 in 2030.

The federal decision to change the eligibility criteria for these federal elderly benefits is also expected to create financial pressures on provincial and municipal programs, such as social assistance, that provide support to low-income adults and seniors.

Federal Actions with Impacts on Ontario’s Finances and Public Services

The new Building Canada plan, specifically the Building Canada Fund program, may include funding conditions that could skew spending priorities. Ontario expects the federal government to provide greater flexibility when negotiating funding agreements. Ontario looks forward to working with the federal government on options that reduce the financial and administrative burden on Ontario.

Certain federal actions — such as those included in the Safe Streets and Communities Act — will increase justice sector costs for the Province. This will limit Ontario’s ability to provide the public services on which its residents rely. Ontario calls on the federal government to provide additional funding to fully address any provincial costs that may result from federal policy changes, including changes to the criminal justice system.

Ontario agreed to share common tax bases with the federal government on the understanding that complexity for taxpayers and administrative costs would be reduced. However, unilateral federal actions that impact a tax base can significantly reduce provincial revenue. For example, there are proposals at the federal level to introduce income splitting for families and to double contribution limits for Tax-Free Savings Accounts when the federal budget is balanced, which is forecasted for 2015–16. These proposals, if implemented unilaterally by the federal government, could have a significant impact on the Province’s path to eliminating the deficit. The Province expects the federal government to consult with Ontario on the policy objectives and the implementation of any federal proposals that significantly affect a shared tax base.

“Proposed federal changes on income splitting and Tax-Free Savings Accounts would affect the shared personal income tax base because Ontario would probably mirror these changes to maintain similarity. These two proposals alone could result in $1.3 billion less revenue for Ontario per year.”

Commission on the Reform of Ontario’s Public Services, “Public Services for Ontarians: A Path to Sustainability and Excellence,” 2012, p. 458.

Managing Risks from Federal Actions

The government remains on track to balance the budget by 2017–18 in a fair and responsible way. The Province cannot fill gaps left by the federal government every time the latter decides to make changes without considering the pressures it puts on Ontario. Time-limited transfers and unilateral changes to shared common tax bases and federal programs increase volatility in Ontario’s fiscal plan and could create discontinuity of services. The Province expects the federal government to support its efforts, rather than undermine Ontario’s plan for jobs and economic growth and put at risk the public services that Ontarians deserve and expect.

At this summer’s Council of the Federation at Niagara-on-the-Lake, Premiers called on the federal government to avoid further unilateral changes to programs affecting provinces and territories, and particularly measures involving cutbacks in financial support, including offloading or downloading responsibilities. Finance ministers will prepare an inventory of federal downloading and other unilateral actions impacting provinces and territories for Premiers to review at the upcoming Council of the Federation meeting in Toronto in November.

1 The Mowat Centre analysis relies on data from Statistics Canada (Provincial Economic Accounts) that have not been updated since 2010.

Chart 4.1: In 2013–14, Ontario’s Fiscal Capacity Is Fifth But Federal Transfers Bring Ontario to Last
This chart presents provinces ranked by per-capita fiscal capacity — before and after federal transfers — for 2013–14. Before transfers from the federal government, Ontario’s per-capita fiscal capacity ranks fifth compared to other provinces based on own-source revenues in 2013–14. After transfers from the federal government are included, Ontario’s per-capita fiscal capacity drops to last. Both before and after federal transfers, the top three provinces in terms of per-capita fiscal capacity are Alberta, Newfoundland and Labrador, and Saskatchewan. British Columbia falls from fourth to fifth after federal transfers. Quebec falls from sixth to seventh after federal transfers. Manitoba falls from seventh to ninth after federal transfers. Nova Scotia moves from eighth to fourth after federal transfers. New Brunswick moves from ninth to sixth after federal transfers. PEI moves from tenth to eighth after federal transfers.

Return to Chart 4.1

Chart 4.2: Net Contribution to Equalization by Province, 2013–14
In 2013–14, Ontario is the largest net contributor to the Equalization program. Ontario is followed by Alberta, British Columbia, Saskatchewan, and Newfoundland and Labrador. The other provinces — Prince Edward Island, Nova Scotia, New Brunswick, Manitoba and Quebec — receive more in Equalization payments than their taxpayers contribute through federal taxes. Among Equalization-receiving provinces, Ontario is the only province where its taxpayers contribute more than what the Province receives in Equalization payments.

Return to Chart 4.2