2015 Ontario Budget
Chapter III: National Leadership — Strong Ontario, Strong Canada

Intergovernmental Partnerships that Address 21st Century Challenges

Ontarians, like all Canadians, expect their governments to work together to improve everyone’s economic well-being and quality of life. To do this, Canada needs to address the challenges of today’s world: globalization, the rise of new economic superpowers, the accelerating revolution in technology, and climate change.

A strong Canadian economic union requires strong intergovernmental partnerships. The Province is doing its part by building Ontario up. The government continues to work to expand the economy by investing in people’s talents and skills, building modern infrastructure and transportation networks, creating an innovative and dynamic business environment, and strengthening retirement security. But Ontario cannot do all this alone. To make the most of limited resources, Ontario needs the federal government’s cooperation, as well as collaboration with other provinces and territories.

Ontario is showing national leadership by working with its municipalities, as well as other provinces and territories, to build stronger economies across the country. The government is partnering with municipalities on priorities such as solving congestion and improving public transit, planning for growth and infrastructure, and promoting economic growth across all regions of Ontario. Through the Council of the Federation, Canada’s Premiers are working together to promote international trade, reduce internal trade barriers, and develop a Canadian Energy Strategy that includes equal focus on energy innovation and climate change. Ontario and Quebec are partnering to exchange electricity capacity to make power more affordable for residents and businesses in each province.

The challenges facing the Canadian federation cannot be tackled by one order of government alone. The federal government must play a role in building a stronger economic union. The time is right for a new era of intergovernmental partnerships that focus on investments in areas such as public infrastructure, skills development and training, national pharmacare, energy and climate change strategies, and resource development. This would enhance competitiveness and prosperity for Ontario and the Canadian federation. When Ontario is strong, Canada is strong.

Need for Responsible Federal Action

The Fiscal Imbalance in the Federation

The current mismatch between revenue resources and responsibilities, called the vertical fiscal imbalance, puts provinces and territories at a fiscal disadvantage compared to the federal government. By constitutional design, Ontario — like other provinces in the federation — is responsible for delivering key public services such as health care, education and social services. However, the federal government collects most of the tax revenues. Even in the face of current challenges, such as falling oil prices and lower-than-anticipated economic growth, the federal government is expected to be in a position to realize large and increasing fiscal surpluses in the future.

This vertical fiscal imbalance is expected to worsen over time, partially due to the federal decision to reduce Canada Health Transfer annual growth from six per cent to the rate of nominal gross domestic product (GDP) growth. This measure will take effect in 2017–18 and is expected to remove an estimated $21 billion from health care nationally — $8 billion in Ontario alone — by 2023–24. In addition, according to the federal Parliamentary Budget Officer, the paths of fiscal sustainability of the two orders of government are expected to diverge over time.

Left unaddressed, the vertical fiscal imbalance in the federation could have profound effects on the federation’s future. It could limit provinces and territories from making the necessary investments that strengthen their economies and maintain the public services that Canadians expect and deserve.

The current set of federal–provincial fiscal arrangements is shaped by dated assumptions and works against, not for, Ontarians. The Mowat Centre estimates that, in 2009–10, the shortfall between what the people of Ontario paid in federal taxes versus what they received in federal transfers and services was roughly $11 billion.1 This represents $850 per Ontarian or $3,400 for a family of four.

Even the Equalization program works against Ontario. In 2015–16, Ontarians will contribute approximately $6.7 billion to Equalization while the Province will only receive approximately $2.4 billion in return. Ontario’s net contribution to the program is a symptom of a broader problem that requires federal and provincial collaboration.

The Equalization Program

The principle of Equalization is enshrined in the Constitution to “ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation,” as per section 36(2) of the Constitution Act, 1982.

Fiscal Arrangements Need to Be Modernized

The primary focus of the country’s fiscal arrangements has traditionally been on supporting the high‐quality social services delivered by provinces and territories that Canadians across the nation rely on. To strengthen Canada’s economic union and respond to 21st century realities and challenges, the federal government needs to collaborate with provinces and territories to modernize fiscal arrangements. Modernizing Canada’s fiscal relationships would create a more effective and efficient alignment of resources to responsibilities across orders of government in the federation — for instance, implementing federal funding for pharmacare to strengthen universal health care or a dedicated federal transfer for public infrastructure to boost long-term economic growth.

This work requires intergovernmental partnerships rooted in mutual understanding and ongoing consultation. It will entail all orders of government achieving their goals while avoiding unilateral actions that have lasting negative effects on others. Going forward, the federal government should model its fiscal relations with provinces and territories on past collaborative efforts that have proven successful, such as harmonization of the sales tax system in some provinces, including Ontario.

Unilateral Federal Actions

In February 2014, Ontario released a report listing over 110 federal actions negatively impacting Ontarians. The Province called on the federal government to be fair to Ontario and work collaboratively on mutual priorities.2

The Province has taken measures to protect Ontarians from some of these actions including:

  • Stepping in with $63.5 million annually to address the gap left by the elimination of the Early Learning and Child Care Agreement;
  • Providing support to refugees by filling in gaps in health care coverage for refugees left by the scaling down of the Interim Federal Health Program; and
  • Providing $4 million a year to fund the 40 First Nation police officers previously supported by the federal government under the Police Officer Recruitment Fund.

The Province cannot step in every time the federal government abandons its responsibilities.

Building Blocks of a Strong Economic Union

Building a stronger economic union requires complementary federal–provincial efforts towards long-term, sustained and coordinated investments. The federal government is showing willingness in some areas to work with provinces in a way that expands Canada’s economy. For example, the partnership on the Cooperative Capital Markets Regulatory System and the renminbi trading hub are laudable examples of federal–provincial collaboration that attract investment and improve Canada’s competitive advantage internationally. But more collaboration is needed to build the national economy.

Canadian Infrastructure Partnership

Investments in public infrastructure create jobs, enhance productivity and competitiveness, and boost long-term economic growth and prosperity. At the January 2015 Council of the Federation meeting, Canada’s Premiers expressed their commitment to continue investing in strategically important public infrastructure and called for a stronger commitment from the federal government and greater federal funding.

The Economic Case for Investing in Public Infrastructure in Canada Is Strong

Public Infrastructure Investments Improve Economic Growth Public Infrastructure Investments Boost Productivity

The federal Department of Finance’s analysis shows that investments in public infrastructure increase Canada’s production capacity — real gross domestic product (GDP) was boosted by $1.60 in the fourth quarter of 2010 for each dollar invested in infrastructure.3

Statistics Canada estimates that growth in public infrastructure contributed to roughly 50 per cent of Canada’s multifactor productivity growth, representing about 10 per cent of labour productivity growth overall, in the private sector on average between 1962 and 2006.4

In Canada, provinces and territories are investing three times as much as the federal government on infrastructure. Provincial and territorial spending makes up 46 per cent of total government infrastructure spending, and municipal spending represents 40 per cent. This means that federal spending represents only 14 per cent, even after taking into account federal transfers to other orders of government.

Provinces, territories and their municipal partners fund the majority of infrastructure projects across Canada, which include building hospitals, schools, colleges, public transit networks and roads. However, the federal government collects roughly the same amount of revenues derived from the economic growth associated with these infrastructure investments as do provinces and territories combined. A pan-Canadian infrastructure partnership is needed to balance this misalignment between investments and benefits.

Ontario is investing more than $130 billion in public infrastructure over 10 years, including $31.5 billion in dedicated funds available for public transit, transportation and other priority infrastructure projects under Moving Ontario Forward. Other provinces have announced similar multi-year capital plans, recognizing the importance of public infrastructure investments. Projects such as completing the twinning of segments of Highway 11/17 and Highway 69 enhance parts of the existing Trans-Canada Highway network that links Ontario to neighbouring provinces.

See Chapter I, Section B: Building Modern Infrastructure and Transportation Networks for details on Ontario’s public infrastructure priorities.

Infrastructure Investment Is a Key Priority Among Provinces

  • The 2015–2025 Quebec Infrastructure Plan included in the 2015 Quebec budget proposes to invest $88.4 billion, including 19 per cent of the investments dedicated to road networks, 16 per cent to the health and social services sector, 10 per cent to the education sector, and eight per cent to public transit.
  • New Brunswick’s 2015 capital budget announced a four-year capital plan that outlines $2.6 billion in investments, including almost $600 million dedicated to the rehabilitation of roads, bridges and other provincial priorities under the strategic infrastructure initiative.
  • British Columbia’s current infrastructure spending on hospitals, schools,
    postsecondary facilities, transit and roads will total $10.7 billion over three years, according to its 2015 budget.
  • Announced in the 2015 Saskatchewan budget, the four-year Saskatchewan Builds Capital Plan is expected to provide $5.8 billion of capital investment in infrastructure, including $3.2 billion in transportation infrastructure.

“The [federal] government has fiscal room for one‐time capital investment of $50 billion in 2015–16, or $10 billion annually over the medium-term. This investment can be undertaken while still achieving balanced budgets and achieving the government’s 25 per cent debt‐to‐GDP ratio target in 2021.” 5

The federal government has the capacity to commit to a greater amount of infrastructure investments. According to the Parliamentary Budget Officer, the federal government has considerable room for increasing its capital spending without putting at risk its current fiscal targets.

Higher levels of investment by the federal government would strengthen the economic union by generating considerable economic benefits. This includes boosting revenue at all orders of government, which could be used to maintain vital public services for Canadians. The federal government should partner with the provinces and territories to increase investments in public infrastructure and improve Canada’s economic competitiveness.

Ring of Fire

Ontario’s Ring of Fire area, located about 540 kilometres northeast of Thunder Bay, has the potential to drive the creation of good, high-paying jobs in northern Ontario. The Ring of Fire holds significant deposits of minerals, including the largest deposit of chromite ever discovered in North America, as well as nickel and other minerals. Chromite is the key ingredient of stainless steel.

Ontario has taken a leadership role in driving progress in the Ring of Fire region. The Province has committed up to $1 billion for strategic transportation infrastructure development in the region. The Province calls the federal government to the table as a willing and active partner to match Ontario’s investments and seize the opportunities in the Ring of Fire.

The Province continues to make progress in the Ring of Fire region. In the spring of 2014, a landmark Regional Framework Agreement was signed with Matawa-member First Nations to discuss and negotiate an approach for development in the First Nations’ traditional territories. This process will help ensure that First Nations participate in and benefit from Ring of Fire developments, and that regional environmental impacts are considered.

In the summer of 2014, the Province established the Ring of Fire Infrastructure Development Corporation to move forward in a smart, sustainable and collaborative way with First Nations, the private sector and communities on infrastructure development in the region.

Recently, Ontario and the federal government announced more than $785,000 for a joint study in the region. Funding is being provided to remote Matawa communities to examine the benefits of developing an all-season transportation corridor connecting First Nation communities in the area with existing roadways. Ontario is in a position to move forward with partners on this important project in the north that will create jobs, provide opportunities for First Nation communities, and boost the northern economy.

See Chapter I, Section B: Building Modern Infrastructure and Transportation Networks for more details on Ontario’s plan for the Ring of Fire region.

First Nation Communities

A strong economic union is founded on the provision of the basic necessities of life and good health for all Canadians. Too many First Nation reserves in Ontario are without access to safe drinking water. Some of the longest-standing drinking water advisories in Canada are found in First Nation communities within Ontario. Increasing access to water suitable for drinking and bathing is essential for improving economic and health outcomes on reserves.

Drinking Water Advisories in First Nation Communities

As of March 2015, in Ontario alone, there were 60 public water systems across 30 First Nations impacted by a drinking water advisory.6

Significant infrastructure, training and capacity gaps persist in the provision of water and wastewater services on reserves. A long-term, sustainable and comprehensive approach is needed to address these pervasive and long-standing issues and make substantive progress.

Although the federal government is primarily responsible for the provision of safe drinking water on reserves, Ontario is committed to working collaboratively with the federal government and First Nations to ensure First Nation communities in Ontario have access to safe, clean and reliable drinking water.

Developing a vision and long-term plan for improving drinking water on First Nation reserves through multilateral collaboration can lead to substantive progress. This plan should be supported by using existing resources in the most efficient way possible. The federal government brings its knowledge of First Nation water issues and existing funding allocated for communities in Ontario. Ontario has expertise in drinking water management, watershed planning, water technologies, system design, operations, maintenance and training. A pilot partnership project between the governments of Ontario and Canada, as well as four First Nation communities, called the Canada–Ontario First Nations Drinking Water Improvement Initiative, has led to the removal of two long-term boil water advisories to date.

Ontario is proposing to build on previous efforts with the federal government and First Nations to find effective and sustainable solutions to provide safe drinking water to First Nation communities and use existing resources as efficiently as possible.

Support for Advanced Manufacturing

A strong manufacturing sector is a pillar of a diversified national economy. For example, Ontario is a leader in automotive manufacturing — a sector that provides well-paying jobs for Canadians. Since 2004, Ontario has invested over $1 billion in strengthening the productive capacity of the automotive sector, leveraging more than $10 billion in total automotive industry investment.

The federal government has been a key partner of the Province in supporting the automotive sector. Working together, the Province and the federal government have secured major investments in Ontario’s motor vehicle and parts manufacturing sector.

TABLE 3.1 Recent Examples of Investments in the Automotive Sector
Company Total
Investment
Including Contributions from Jobs
Created/Retained
Government of
Ontario
Government of
Canada
Linamar Over $500 million $50.3 million $50.7 million 8,000 jobs in Guelph
Ford Over $700 million $70.9 million $71.6 million 2,800 jobs in Oakville
Toyota Over $120 million $16.9 million $16.9 million 400 jobs in Cambridge

Continued support for key manufacturing sectors, such as the automotive industry, will reinforce Canada’s competitive edge and build a stronger economic union. Ontario will continue to collaborate with the federal government to build on successful past partnerships and strengthen this vital part of Canada’s economy.

See Chapter I, Section D: Creating an Innovative and Dynamic Business Environment for details on Ontario’s support for the manufacturing sector, including the automotive sector.

Labour Market Development Agreement

A strong economic union requires investments in people’s skills and talents to foster a culture of innovation and generate high productivity. The Labour Market Development Agreement (LMDA) is the largest of the four Canada–Ontario labour market fiscal agreements. The LMDA funding helps support programs and services such as Second Career, the Employment Service and apprenticeship training.

The federal government has indicated its intention to renegotiate LMDAs with provinces and territories. A modernized LMDA needs to address Ontario’s long-standing concerns and must work for Ontarians.

The Current Labour Market Development Agreement (LMDA) Is Not Working for Ontarians

Limited client eligibility

Most LMDA-funded training is available only to active and former Employment Insurance (EI) recipients. In 2014, only 27 per cent of unemployed Ontario workers received EI regular benefits, compared to an average of 44 per cent in other provinces. This means that relatively few unemployed Ontarians were eligible for LMDA-funded training.

Unfair funding

Ontario receives only 29 per cent of the national LMDA funding, despite accounting for 39 per cent of Canada’s population.

Ontario, along with other provinces and territories, is calling on the federal government to:

  • Expand eligibility so that more unemployed Canadians can receive the skills training they need; and
  • Increase federal funding for the LMDA to meet the needs of all of Canada’s unemployed and to address the lack of any funding increase since 1996, despite a nearly 30 per cent increase in Canada’s labour force.

Through the Council of the Federation, Ontario is leading the collective engagement with the federal government on proposed federal changes to the LMDA. Provinces and territories expect to work with the federal government to ensure that the new agreement provides stable, predictable and adequate funding for employment and training.

See Chapter I, Section A: Investing in People’s Talents and Skills for more details on Ontario’s plan to improve education and skills training for Ontarians.

Canadian Energy Strategy

Capitalizing on energy resources remains an enormous opportunity for Ontario and Canada. To achieve this potential on behalf of all Canadians, resources must continue to be developed responsibly, with an equal focus on energy innovation measures and actions to address climate change.

In this spirit, Canada’s Premiers are developing a Canadian Energy Strategy (CES). They released the revised CES Vision and Principles last summer, and anticipate the release of the CES this year.

Canadian Energy Strategy

Vision

Canada is a global leader in providing a secure, sustainable and reliable supply of energy that is delivered with a high standard of environmental and social responsibility, consistent with efforts to reduce greenhouse gas emissions, and contributes to continued economic growth and prosperity for all Canadians.

Principles

Collaboration and Transparency
Climate Change and Social and Environmental Responsibility
Energy Security and Stability

“Council of the Federation Communiqué,” Canadian Energy Strategy (August 2014).

Support for Clean Energy

Ontario has become a North American leader in clean energy. However, an active federal partner is needed to collaborate on a Canada-wide framework for climate action to ensure Canada’s contribution to an ambitious international climate change agreement is more than a tally of provincial programs.

Ontario calls on the federal government to support clean energy by:

  • Facilitating greater regional integration of electricity grids to encourage the development of new, larger‐scale renewable projects that would benefit the economy and the environment — both in Ontario and elsewhere in the country;
  • Providing federal funding support and the appropriate regulatory environment for an east–west transmission grid that would carry electricity across provincial borders; and
  • Enhancing collaboration on the criteria used by the National Energy Board to assess interprovincial pipeline projects.

See Chapter I, Section D: Creating an Innovative and Dynamic Business Environment for details on Ontario’s plan to tackle climate change.

Support for Natural Disaster Response, Assistance and Mitigation

The frequency of extreme weather-related events is expected to increase due to climate change. A strong federal partnership with provinces and territories is needed to provide an adequate response and help with assistance costs when natural disasters occur — and help mitigate the risks of natural disasters.

Unilateral Federal Changes to Disaster Financial Assistance Arrangements

Effective February 2015, the federal government raised the threshold for provinces and territories to be eligible for disaster financial assistance — from $1 to $3 per capita.7

This means that for a province the size of Ontario, the minimum eligible expenses for responding to and recovering from a disaster in 2015 increased from $13.8 million to $41.4 million.

The federal government offers financial support to provinces and territories through the Disaster Financial Assistance Arrangements program for eligible disaster response and recovery costs when a natural disaster occurs. However, recent federal changes to this program will result in a lower federal share of future disaster assistance costs.

Offloading emergency support and recovery responsibilities onto provinces and territories without providing adequate federal support is a unilateral federal action that works against the spirit of building and maintaining collaborative partnerships in the federation. The federal government must reconsider its decision and provide adequate assistance for natural disaster response and recovery.

Proactive and coordinated action by all orders of government in disaster prevention and risk mitigation is also necessary to protect Canadians from the impact of natural disasters. The development of a new National Disaster Mitigation Program is an opportunity for the federal government to work meaningfully with provinces and territories to ensure that adequate and flexible funding meets the needs of all provinces and territories.

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

2 See the list of Federal Actions Negatively Impacting Ontarians here: http://bit.ly/1BnbPR5 (accessed in April 2015).

3 Finance Canada, “Canada’s Economic Action Plan (Year 2) – Built to Keep Our Economy Growing, A Seventh Report to Canadians,” Catalogue no. F2-189/7-2011E (2011). Reproduced with the permission of the Minister of Finance Canada, 2015.

4 Wulong Gu and Ryan MacDonald, “The Impact of Public Infrastructure on Canadian Multifactor Productivity Estimates,” Statistics Canada, Catalogue no. 15-206-X (2009).

5 Scott Cameron, Helen Lao and Trevor Shaw, “Economic and Fiscal Outlook Update 2014,” Parliamentary Budget Officer (2014): 9.

6 Ontario Ministry of the Environment and Climate Change estimates based on drinking water advisories in First Nation communities published by Health Canada.

7 Public Safety Canada, “Guidelines for the Disaster Financial Assistance Arrangements,” (2015), http://bit.ly/1aNE5Wy (accessed in April 2015).

Chart Descriptions

Chart 3.1: Paths of Fiscal Sustainability Diverge Once Reductions in Federal Health Transfers Take Place

This line chart illustrates trends of the ratio of net debt as a share of Canada’s gross domestic product (GDP) from 1991 to 2081. The net debt-to-GDP ratio is often used to analyze the fiscal sustainability of the federal government and other governments combined. Other governments combined include provinces, territories and local governments. Net debt-to-GDP estimates are based on data from the Parliamentary Budget Officer.

The chart shows that the federal government is expected to have a net debt-to-GDP ratio higher than that of other governments combined from 1991 to 2014. This relationship is projected to reverse starting in 2015. By 2017, this relationship begins to widen over time thanks partly to the change in the growth rate of the federal health transfer to provinces and territories called the Canada Health Transfer. From 2017 to 2081, the difference between net debt-to-GDP ratios between the federal government and other governments’ combined increases, reflecting a progressively stronger fiscal position for the federal government and a deteriorating fiscal position for other governments combined.

Return to Chart 3.1

Chart 3.2: Contribution to Infrastructure Investment in Canada by Order of Government, 2013

This bar chart illustrates the share of total public infrastructure investment made in Canada in 2013 by the federal government, provincial and territorial governments combined, and municipal governments combined. The three bars show that the federal government contributed 14 per cent to total public infrastructure investment, compared to 46 per cent by provinces and territories, and 40 per cent by municipalities. These shares demonstrate that provinces and territories are investing three times as much as the federal government in infrastructure in Canada. These calculations are based on data from the Council of the Federation’s Fiscal Arrangements Working Group, Infrastructure Sub-Group.

Return to Chart 3.2