: BUDGET 2014
Federal Underfunding of Ontarians*

May 1, 2014

Ontario continues to manage costs while providing efficient public services and helping create jobs and grow the economy.  In fact, Ontario already has the lowest program spending per capita among provinces while, at the same time, raising the lowest total revenue per capita including federal transfers. However, as the Province continues to implement its fair and responsible plan to return to balance, actions by the federal government are putting this at risk.

Unilateral Federal Actions Hurt Ontario

Since 2006, the federal government has taken more than 110 actions that have hurt people and businesses across Ontario and undermined the Province’s fiscal plan.

Inequitable federal programs and policies cause imbalances between Ontarians and Canadians in other provinces. According to the Mowat Centre, the people of Ontario contributed $11 billion more to the federal government than they received in return in 2009–10 (the year with the latest available data). This represents about $850 per Ontarian.

Elimination of Total Transfer Protection Payments

In 2014–15, Ontario will experience a year-over-year decline of $641 million in entitlements for major transfers. Over the last four years, the federal government paid a total of $2.2 billion in Total Transfer Protection payments to seven provinces that would otherwise have seen their major transfers reduced. This year, when Ontario would have qualified for a payment for the first time, the federal government decided to end the practice of transfer protection payments. As a result, since 2010–11, Ontario is the only province to face a decline in its overall major transfers.

Federal Cuts to Canada Health Transfers

In 2011, the federal government unilaterally changed the growth rate of the Canada Health Transfer, beginning in 2017–18. By 2023–24, this will remove an estimated $21 billion in support for health care nationally — $8 billion of that in Ontario, or about $550 for every Ontarian. This will have an impact on the quality of health care provided to Ontarians. Unless action is taken, the fiscal position of provinces and territories will deteriorate in the long term.

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, hire more doctors and nurses, and improve investments in the province’s home care initiatives that help older Ontarians live healthier, more independent lives.

Equalization

In 2014–15, Ontarians will contribute $4.5 billion more to Equalization than the Province is receiving in payments. While this money could be used in Ontario to fund more hospitals, nurses or public transit, it is redistributed to other regions of Canada to subsidize programs and services that Ontarians themselves may not enjoy.

While Ontario is committed to the principles of the Equalization program, 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’s Equalization payment will be $1.2 billion lower in 2014–15 than the previous year, partly due to factors that have no relation to Ontario’s economic performance.

As an example, $300 million of the reduction in Ontario’s entitlement in 2014–15 is due to the closure of Quebec’s Gentilly-2 nuclear power plant — an action that has no bearing on the relative strength of Ontario or Quebec’s economic base. But, due to the Equalization formula, this closure will increase Quebec’s payment between 2014–15 and 2016–17. Under the program, one province’s increasing Equalization entitlements are paid for by reductions in payments to others. In this case, larger payments to Quebec reduce payments to Ontario.

While Ontario’s payment is lower in 2014–15, the program is growing by more than $560 million nationally. Ontarians are paying more into the program compared to previous years while receiving less. The difference between what the people of Ontario will pay into the Equalization program through federal taxes and what the Province will receive from the program is $4.5 billion in 2014–15, and has reached $43 billion over the last 10 years.

The Need for a Committed Partner on Infrastructure Investment

Given the fundamental role infrastructure plays in Canada’s economic growth and the Province’s ongoing commitment to infrastructure funding, it is essential that the federal government be a strong partner and invest more in public infrastructure.

The federal government has committed to provide $70 billion nationally for infrastructure over the next 10 years, including $47 billion through the new Building Canada Plan. This $70 billion investment is equal to roughly $2,000 per capita over 10 years, given that Canada has a population of about 35 million.

By comparison, Ontario plans to invest more than $130 billion in the province over the next 10 years. This investment is equal to almost $10,000 per capita over the next 10 years, given that Ontario has about 13.5 million people.

The Province plans to invest nearly five times more per capita on infrastructure than the federal government over the next decade.

Inadequate federal investment means fewer improvements to transit systems, roads, bridges, and water and wastewater systems. To support jobs and economic growth, federal funding for infrastructure should be closer to the level being invested by Ontario.

Investing in Ontario’s Resource Development: The Ring of Fire

Ontario is Canada’s leading jurisdiction for the exploration and production of minerals and a major player around the world. The Province’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 $60 billion for known chromite (a key material in the production of stainless steel) and nickel deposits.

By 2025, significant output from the Ring of Fire will make the Province a major world producer of chromite and strengthen Ontario’s position as a world leader in nickel production. This would have a positive economic impact not only for Northern Ontario, but for Canada as a whole.

Ontario is playing a leadership role in the development of the Ring of Fire, and calls on the federal government to advance regional infrastructure development in the Ring of Fire, just as it has supported industry development in other provinces and territories.

Examples of Federal Investment to Encourage Development of Resource Industries in Other Provinces
Newfoundland and Labrador and Nova Scotia To encourage the commercial development of offshore oil and gas, the federal government signed the 2005 Atlantic Accords with Newfoundland and Labrador and Nova Scotia. Newfoundland and Labrador received $2 billion from the federal government through the Accord. Nova Scotia received $1.1 billion between 2004–05 and 2014–15.
Newfoundland and Labrador In 2013, the federal government finalized a loan guarantee with Newfoundland and Labrador to develop the Muskrat Falls Hydroelectric Project. According to Newfoundland and Labrador, the loan guarantee is projected to result in savings of $1 billion in interest costs.
Alberta and Saskatchewan The Commission on the Reform of Ontario’s Public Services reported that federal support for the oil and gas sectors is worth $1.4 billion annually in addition to $2 billion for carbon capture and storage.

The Province is willing to commit up to $1 billion towards infrastructure development, contingent on matching investment by the federal government.  This would ensure that the necessary infrastructure investments, estimated to be over $2 billion, would proceed.

The Province Needs a Federal Partner Committed to Helping Create a Stronger Ontario and Stronger Canada

As the federal government plans to balance its budget beginning in 2015–16, it is in a position to make investments that will help grow Ontario’s economy and protect services. Ontario calls on the federal government to:

  • Treat Ontarians the same way it treats residents of all other provinces
  • Protect the Province from the $641 million decrease in payments from major transfers in 2014–15, as it has done with other provinces in the past
  • Stop unilateral actions that impact the Province’s public services and fiscal plan and instead work with Ontario on important issues that affect Ontarians
  • Increase funding significantly for infrastructure, given that Ontario plans to invest nearly five times more per capita in infrastructure than the federal government plans to invest over the next 10 years
  • Match the Province’s $1 billion commitment to advance regional infrastructure development in the Ring of Fire area.

* Refer to “Building Ontario Up Today For A Brighter, Stronger Tomorrow” (July 14, 2014 Budget news release) for updated language.

FOR MEDIA INQUIRIES ONLY:
Susie Heath, Minister’s Office, 416-325-3645
Scott Blodgett, Ministry of Finance, 416-325-0324

FOR PUBLIC INQUIRIES CALL:
1-800-337-7222
TTY: 1-800-263-7776

ontario.ca/finance-news
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Chart Descriptions

Ontario’s Net Contribution to the Federation in 2009–10

This chart shows that in 2009–10, Ontarians contributed $97.3 billion to the federal government while receiving $86.2 billion in federal transfers and services. The gap between Ontario’s contribution to the federal government and benefit from federal transfers and services is $11 billion or 1.9 per cent of GDP.

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Total Transfer Protection Payments from 2010–11 to 2013–14

This chart shows the amount of Total Transfer Protection Payments paid to provinces from 2010–11 to 2013–14. During this time, Quebec received $731 million, followed by Manitoba with $660 million and Nova Scotia with $421 million. These provinces are followed by New Brunswick, Newfoundland and Labrador, Saskatchewan and Prince Edward Island. However, the federal government decided to end the practice of transfer protection payments in
2014–15, when Ontario would have qualified for a payment of $641 million.

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Reducing Federal Health Transfers Downloads Fiscal Burden to Provinces and Territories

This chart shows that, based on the ratio of net debt-to-GDP, the financial position of the federal government is projected to improve over time, whereas the financial positions of provincial, local and Aboriginal governments are projected to deteriorate over the same period. From 1991 to 2014, the federal government is expected to have a net-debt-to-GDP ratio higher than provinces’. This relationship is projected to reverse, starting in 2015, and widen over time. From 2015 to 2087, the difference between net-debt-to-GDP ratios between the federal and provincial governments increases, reflecting a progressively stronger fiscal position for the federal government and a deteriorating fiscal position for provinces and territories.

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Net Contribution to Equalization, 2014–15

This chart shows that in 2014–15, Ontario is the largest net contributor to the Equalization program. Ontario is followed by Alberta, British Columbia, Saskatchewan, and Newfoundland and Labrador. All other provinces receive more in Equalization payments than their taxpayers contribute through federal taxes.

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Public Infrastructure Investment Per Capita (2014–15 to 2023–24)

This bar chart illustrates per capita investment in public infrastructure by order of government over the next decade. The federal investment is roughly $2,000 per capita over 10 years. By comparison, Ontario plans to invest $10,000 per capita over the same period.

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