Ministry of Finance
November 17, 2014
While Ontario is delivering on its plan to balance, it is critical that the federal government avoid unilateral actions that hurt Ontarians and put the Province’s fiscal plan at risk. Ontario, like other provinces in the federation, has responsibility for key public services such as health care and education while the federal government collects most of the tax revenue. This situation, called the vertical fiscal imbalance, leaves Ontario’s fiscal sustainability — and that of other provinces — vulnerable to federal unilateral actions.
Provinces and territories are doing their part and reducing the fiscal gap by managing growth in program spending, in particular by controlling health care costs in the face of the growing demographic and other pressures. Ontario has taken action to manage growth in program spending, holding average annual growth to 1.2 per cent between 2010–11 and 2013–14.
Meanwhile, the unilateral federal decision to limit increases for the Canada Health Transfer to the rate of nominal GDP growth starting in 2017–18 will remove $21 billion in funding from Canadians’ health care — and $8 billion from health care in Ontario — by 2023–24.
Unilateral actions by the federal government put Ontario’s fiscal plan and public services at risk, particularly given the vertical fiscal imbalance within the federation.
Ontarians are significant contributors to the Canadian economy, but as discussed in the 2014 Budget, the shortfall between what the people of Ontario pay in federal taxes versus what they receive in federal transfers and services was roughly $11 billion in 2009–10. This represents $850 per Ontarian or $3,400 for a family of four.
Equalization is a federal program that provides funding intended to support reasonably comparable provincial services across the country. Even this fundamental federal program works against Ontario. In 2014–15, Ontarians will contribute approximately $6.5 billion to the Equalization program, while
the province will receive only approximately $2 billion in return — representing a net contribution of $4.5 billion — the highest of all provinces.
The major focus of the fiscal arrangements has traditionally been on supporting the high-quality social services delivered by provinces that Canadians across the nation rely on. While there is continued need for this support, the federal government should modernize the fiscal arrangements to support economic development across the country as well.
The Province is investing more than $130 billion in public infrastructure over the next 10 years. This includes making nearly $29 billion in dedicated funding available for public transit, highways and other critical infrastructure.
The Province invests three times as much as the federal government in public infrastructure in Ontario. Despite this imbalance, the federal government receives roughly equal revenue from the economic activity enabled by modern infrastructure. In a fair partnership, the share of costs and benefits should be aligned. The Province is calling on the federal government to significantly increase its investments in public infrastructure.
The province’s Ring of Fire area includes the largest deposit of chromite — a key ingredient of stainless steel — ever discovered in North America, as well as nickel and other minerals. The Ring of Fire has the potential to have a positive economic impact not only on northern Ontario, but also on Canada as a whole.
The Province has committed up to $1 billion to develop strategic transportation infrastructure. Ontario is calling on the federal government to be an equal partner and match the Province’s investments to build the infrastructure required for this important project in the north that will create jobs, provide opportunities for First Nation communities, and boost the northern economy. A strong and clear federal commitment to match provincial funding will help boost investor confidence and accelerate development in the Ring of Fire.
Ontario and Canada have successfully worked together to make strategic investments in the Province’s auto sector, resulting in economic growth and jobs for thousands of Canadians. Ontario’s automotive sector has shown tremendous resilience, with production, shipments and exports on the rebound.
As opportunities arise in the future, Ontario will look to collaborate with the federal government to build on this success and strengthen this vital part of Canada’s economy.
The Province continues to invest in the skills and talents of Ontarians to help them compete globally and to meet the demands of a rapidly evolving economy. The new Canada-Ontario Job Fund Agreement is a good step forward in supporting skills and training programming, but the federal government has not come far enough to address the critical need for funding.
Alongside adequate and reliable funding, good labour market information is critical to helping Ontarians find high-quality, well-paying jobs. Greater coordination between the federal government and the provinces and territories is needed to ensure that a reliable and up-to-date labour market system is available.
It is expected that immigration will account for all of the increase in Ontario’s working-age population over the next 25 years, meaning that immigrants will be one of the main sources of future labour force growth in the province. However, recent federal changes to immigration policy have resulted in fewer skilled immigrants coming to Ontario.
In 2014, Ontario’s Provincial Nominee Program, which supports employers in attracting and retaining the skilled workers they need to be competitive in today’s knowledge-based economy, increased its target to 2,500 — still well below the 5,000 requested by the Province. The Province urges the federal government to support a strong and resilient workforce in Ontario and increase the Provincial Nominee target.
Federal funding for existing social housing units in Ontario will decline from almost half a billion dollars annually to zero by 2033, jeopardizing the maintenance of existing facilities and putting more families at risk of homelessness. Ontario urges the federal government to come back to the table as a long-term funding partner in the area of social housing.
Ontario also encourages the federal government to make enhancements to the Working Income Tax Benefit (WITB). Increases to the WITB would support the incomes of low-wage workers and make it easier for families to participate in employment and remain in the labour market.
In its 2012 budget, the federal government announced changes to the Old Age Security (OAS) benefit, Guaranteed Income Supplement (GIS) and Allowances (ALW). Over the 2023 to 2029 period, the federal government plans to increase the minimum ages of eligibility for OAS and GIS from 65 to 67 and ALW from 60 to 62. Those changes will have a wide range of negative impacts on seniors in Ontario, particularly vulnerable seniors with low incomes.
Ontario is again calling on the federal government to release its proposed national strategy and action plan to address the underground economy. A national strategy would serve as a foundation for sustained action and enable a more coordinated approach with the Province to address behaviours that Ontarians believe are unfair, unsafe and unacceptable.
The Province will also continue to review its tax collection arrangements with the federal government on a regular basis to ensure that quality services are provided to Ontarians and that optimal revenues are realized through tax administration and compliance activities.
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