The Canadian Constitution provides a rough division of powers across the two levels of government: federal and provincial. Municipal government was born out of provincial/territorial legislation. Today, all three levels of government share responsibility for service delivery to Ontarians. In practice, however, the lines have proven to be rather fuzzy and have shifted many times in many areas. In our study of numerous policy and service delivery areas, we found two, and often three, levels of government involved. We often noted inconsistent objectives and unco-ordinated activities among these governments. The result is less-than-optimal overall public service to the people of Ontario. In some cases, we can identify fairly straightforward ways in which all governments can better co-ordinate their activities. In other cases, we question whether the additional effort and expense of co-ordination is not second best to a clearer and sometimes different delineation of responsibilities. In many instances, efforts at co-ordination can themselves be a deadweight loss.
Intergovernmental relations also have a profound bottom-line fiscal impact on the provincial government. Its bottom line is being squeezed from both ends. The net result of federal tax and spending policies is a large, persistent draw of resources from the Ontario economy. This leaves the Ontario government with fewer resources to provide the services that its population wants and deserves. At the other end, transfers from the Ontario government to municipalities have been one of the fastest-growing spending items and, even as that growth moderates in our Status Quo Scenario, it will continue to grow faster than our overall target for program spending.
Within this chapter, we divide our discussion of Ontario’s intergovernmental relations into two subsections: federal-provincial relations and provincial-municipal relations.
Despite the hurt caused by the recent global recession, Ontario continues its tradition of punching above its weight in the federation. On a net basis, the federal government persistently transfers large resources out of the province for redistribution elsewhere in the country. It would be enough of a challenge for Ontario to prosper in an increasingly competitive global economy with all its resources at its disposal.
The net flow of dollars out of Ontario can be assessed by comparing the federal government’s revenues and expenditures in Ontario to the province’s population share. In 2009–10, Ontarians contributed about 39 per cent of federal revenues; this appears fair as Ontario is also home to 39 per cent of Canada’s population. Parity is as good it as it gets for Ontario in recent history — 10 years prior, when they constituted 37.8 per cent of the Canadian population, Ontarians provided 43.8 per cent of federal revenues. This gradual decline is attributable to the erosion of Ontario’s economic advantage over other Canadian provinces and the absence of province-specific features in the federal government’s tax structure.
On the expenditure side, the disparity is worse: despite its 39 per cent population share, only 34 per cent of federal program spending, in the form of services and transfers, was returned to Ontario in 2009–10. This too is the most modest gap since 1999–2000, again in part reflecting the loss of Ontario’s economic advantage.
The net result of this revenue and spending pattern on a per capita basis is worth about $12.3 billion or 2.1 per cent of Ontario’s 2009 GDP1. These are resources that would have been available to Ontarians if not for the per capita net federal expenditure gap in the province.
A second measure illustrating this phenomenon requires a deconstruction of the Canadian budget surplus (or deficit). In 2009–10, the federal government ran a $55.6 billion deficit. Put another way, $55.6 billion more was spent on services and transfers across Canada plus interest on the public debt than was recouped from Canadians in all provinces and territories. However, knowing that Ontarians provided 39 per cent of federal revenues but benefited from only 34 per cent of federal expenditures, we observe that Ontario received only $9.2 billion of that $55.6 billion overspend.2 This is a full $12.3 billion shy of an equal per capita share, matching the previous methodology, or 2.1 per cent of Ontario’s 2009 GDP. In recent times, this gap has exceeded $20 billion — quite an astounding figure given Ontarians’ expectation that their provincial government provide excellent public services that will enable the province to compete on the global stage. For instance, over the period from 1999–00 to 2005–06, the federal funding gap in Ontario relative to its equal per capita share averaged $19.1 billion, or 4.0 per cent of Ontario’s GDP.
Some degree of disparity is natural when Ontario has a comparative economic advantage relative to other provinces. Progressive tax systems, for example, tend to extract more revenue per capita from wealthier provinces. But this is no longer the case for Ontario: per capita GDP has been below the national average since 2006, clearly demonstrating the perverse structure of Canadian fiscal federalism.3
The three major federal transfer programs — Canada Health Transfer (CHT), Canada Social Transfer (CST) and Equalization — all have roots in bygone eras. Equalization, traceable back to the Federal-Provincial Tax Sharing Arrangements Act of 1957, was entrenched as a principle in the Canadian Constitution when it was patriated in 1982, while CHT and CST have direct lineages to Established Programs Financing and Canada Assistance Plan, which began in 1977 and 1962 respectively.
Unlike today, the world economy in those times was less globally competitive. In part because of significantly higher tariffs, trade among provinces was more important then than it is now. Accordingly, federal wealth redistribution tended to flow back through Ontario, justifying wealth distribution among provinces. With the breaking down of world trade barriers through the latter part of the 20th century, all provinces including Ontario now battle for business with a much larger suite of competitors. Ontario’s trade flows are now considerably more international, so the effects of redistribution increasingly leave Ontario shorthanded in the competitive global economy.
There are further complications. Persistently high commodity prices in recent years have not only contributed to strong economic growth in Alberta and Saskatchewan, but also to the relatively slower economic growth in Ontario; they contributed to an inflated Canadian dollar, making Ontario goods and services more costly in global markets. The deep recession and underwhelming recovery of the U.S. economy were also key reasons for the downturn of Ontario’s fortunes. Together with changes to the Equalization formula, these factors contributed to Ontario becoming an Equalization-receiving province in 2009–10.
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. For instance, Ontario is fifth among provinces in ability to raise revenues4, but falls to near last after federal transfers are included — above only Prince Edward Island.
In addition, the federal government recently dictated changes to the CHT that will have a negative impact on Ontario. Its recent commitment to move to a per capita cash transfer in 2014 without expanding the existing funding mechanism will result in an annual $400 million hit to Ontario compared to the current formula. Tying future growth of the CHT to nominal national economic output beginning in 2017 is certain to constrain payments further (more on this later in the chapter). Outside the major transfers, the federal government has not committed to renew other expiring transfers for infrastructure and labour-market training that support vital public services.
Although Canada’s Constitution invests each order of government with certain responsibilities, overlap exists. In areas such as public safety and agriculture, the Constitution provides a role for both orders of government, federal and provincial. In other areas, modern issues that transcend traditional 19th-century constitutional divisions of roles and responsibilities have necessitated that governments work together.
This collaboration has resulted in many accomplishments, including the establishment of universal medicare, expansion of social services and reform of the tax system, but it has also presented challenges. As a result of this shared policy space, the actions of the federal government can sometimes cause disruptions to provincial fiscal planning and public services.
Public services and fiscal arrangements must be reformed for Ontario to address the fiscal, economic and demographic challenges that it faces. But this complex system of intergovernmental interdependence means that, in many areas, the province requires the co-operation of the federal government.
The purpose of this Commission is to provide recommendations to get Ontario back to balance by 2017–18. But Ontario is not alone. Most governments in Canada, including the federal government, are also facing budgetary pressures and are working towards fiscal sustainability (see Chart 20.5). Now, perhaps more than ever, governments at all levels must work together towards reforming public services.
While independent, Canada’s two orders of government work collaboratively to serve their citizens. But collaboration should not mean delivering the same services. Both federal and provincial governments deliver services for labour-market training, immigration settlement and corrections. This duplication creates an environment that is both inefficient and confusing for citizens.
While improving co-ordination is often the instinctive response to dealing with duplication — and in many circumstances is appropriate — sharper treatments too must be considered. Often, co-ordination efforts require considerable resources that add up to a deadweight loss, adding no value to the outcome of the program or service. Alternatively, a succinct delineation of responsibilities can be more efficient, accountable and transparent. Provincial and federal governments must not shy away from these choices.
The world is rapidly changing and the structure and arrangements of the Canadian federation must keep pace. Ensuring that Ontario continues to have the capacity and flexibility to compete on the world stage will reap dividends for the province and the federation. The time for a new federal-provincial paradigm is now.
Recommendation 20-1: Establish an understanding with the federal government that actions taken at the federal level pose fiscal risks to Ontario.
Prime examples of these risks include:
In some sectors, both federal and provincial governments work together to provide services to citizens. This partnership has resulted in many accomplishments but has also created challenges, particularly when the actions of the federal government have effects on provincial fiscal planning and public services. Some notable examples: in the mid-1990s, the federal government significantly reduced transfer payments for health care and education; in 2005, it cut support for child care, forcing Ontario to step in with more funding; and more recently, it has been underfunding settlement agencies in Ontario.
|Federal Action||Effect on Ontario|
|Mid-1990s Cuts to Provincial Transfers||The federal government cut transfers for health, post-secondary education and social services from $18.8 billion in 1993–94 to $12.5 billion in 1997–98 nationally. This drastic cut severely impacted provincial health and education systems, and put significant pressure on provincial budgets.|
|Federal Income Tax Error
(T3 Error Forgiveness)
|The federal government revealed in January 2002 that overpayments of $2.8 billion were made to Ontario for the 1993 to 1999 tax years. Although overpayments were made to other provinces, only Ontario has been required to pay back a portion of the error, amounting to $1.3 billion over 10 years.|
|Termination of the 2005 Early Learning and Child Care Agreement (ELCC)||In 2006, the federal government terminated the 2005 ELCC Agreement with provinces, which put 8,500 child care spaces at risk. In its 2010 Budget, the province stepped in with a $63.5 million annual investment to maintain these spaces.|
|Underspending for Immigration Services||Breaking its commitment under the Canada-Ontario Immigration Agreement, the federal government underspent by more than $220 million in Ontario immigration settlement services.|
|Error in Calculation of 2011–12 Equalization Entitlements||The federal government committed an error in its calculation of 2011–12 Equalization entitlements, which disrupted provincial fiscal planning by $700 million over three years.|
|Source: Ontario Ministry of Finance.|
Ontario and the federal government share common bases for personal and corporate income taxes and the HST, which simplify the process of filing tax returns. 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. Additionally, Ontario parallels certain federal tax provisions for businesses, such as the base of the federal Scientific Research and Experimental Development tax credit, to reduce the complexity of the tax system and minimize administrative and compliance costs. Federal changes to these tax measures affect both Ontario businesses and the province’s tax system, and should only be done in consultation with the province.
Responsibility for the Criminal Code rests with the federal government while responsibility for implementation lies mainly with provinces. Changes to federal crime legislation can place further demands on the provincial court and corrections system, adding to the fiscal burden on provinces. For example, as outlined in Chapter 14, Justice Sector, the new “tough on crime legislation” is expected to result in ongoing costs of $22 million to $26 million annually. It also risks creating the need for an additional facility, with an estimated capital cost of $900 million and additional ongoing costs of about $60 million per year.
In 2005, the federal and Ontario governments agreed to increase funds for immigration settlement services in the province. However, the federal government has underspent relative to its commitment under this Canada-Ontario Immigration Agreement (COIA) by more than $220 million. The success of immigrants could be impaired without adequate services to help newcomers settle, integrate, receive language training and find work. The federal government informed Ontario in 2010 that funding for Ontario settlement agencies will be further reduced by $44 million in 2011–12.
The CHT, along with the Wait Times Reduction Fund (which is also set to expire in 2013–14), provides valuable resources to provincial health systems. The federal government has committed to retaining the six per cent growth rate on the CHT until 2016–17, but its growth beginning in 2017–18 will be tied to a three-year moving average of Canada’s nominal GDP growth, with a three per cent floor. While we recommend capping the growth in Ontario health expenditures below that level to achieve a balanced budget by 2017–18, the long-run cost of health care will almost certainly grow at a rate above nominal GDP. The effects of Ontario’s aging population on health costs will not ramp up considerably until after the six per cent growth rate is no longer in effect. And as a “luxury good” — purely in the microeconomic sense — demand for health care services tends to increase faster than income. One estimate implies that a four per cent rise in nominal GDP results in additional 6.4 per cent growth in health care costs.5
Moving to a GDP-based growth rate is not an insignificant issue. In 2017–18, the new growth rate based on GDP would cost Ontario almost $239 million based on current forecasts6 but could reach almost $421 million if GDP growth falls to the three per cent floor. These gaps will grow over time. In 2023–24, Ontario’s CHT share could be $2.3 billion to $3.8 billion lower than under the current formula. By constraining CHT transfers to nominal GDP growth, the federal government’s minority share of health care funding in Ontario, as in other provinces, is likely to steadily decline even further in the long run. This must be factored into Ontario’s fiscal and health policy design.
The outcome of the negotiations for a comprehensive free trade agreement with the European Union could have significant impact on the cost of prescription drugs in Ontario. A key negotiating point, the extension of Canadian patent protections for pharmaceutical drugs to European standards, could cost Ontario taxpayers up to $1.2 billion annually ($551 million for the Ontario government and $672 million for the private sector), thus wiping out gains from recent drug reforms. The province should work with the federal government to ensure that a CETA does not undermine Ontario’s interest in expanding the use of generic drugs.
Aside from the major transfers,7 the federal government has made no commitment to renew any other expiring transfer. These transfers support health, labour-market training and infrastructure in addition to other vital public services that could otherwise be at risk.
|Transfer||2011–12 Payment to Ontario||Function|
|Wait Times Reduction Fund||$97 million||Supports provinces for initiatives to reduce wait times.|
|Labour Market Agreement||$0.2 billion||Supports provincial training measures for unemployed workers not eligible for Employment Insurance benefits.|
|Labour Market Agreement for Persons with Disabilities||$0.1 billion||Provides funding for employment programs for persons with disabilities.|
|Building Canada Plan||$0.2 billion||Provides support for investments in infrastructure.|
|Source: Ontario Ministry of Finance.|
In the mid-1990s, provinces and territories endured major cuts to federal transfers that put pressure on their fiscal plans and public services. At a time when Ontario is moving to sustain and improve both, the province needs a reliable and predictable federal partner.
“Federal involvement in areas of provincial jurisdiction can undermine the ability of provinces to plan and deliver the services and programs for which they are responsible. When the federal government moves in and out of social policy and programs, it is disruptive to provincial plans and leaves provinces on the hook financially for picking up programs it abandons.”
M. Mendelsohn, J. Hjartarson and J. Pearce, “Saving Dollars and Making Sense,” 2010, Mowat Centre for Policy Innovation.
Through its programs, policies and transfers, the federal government plays an important role in the provision of public services in Ontario. Some federal programs that directly serve Ontarians or fiscal arrangements that support provincial services should be modernized and reformed.
Recommendation 20-2: Advocate strongly for reforming federal programs that are not working effectively in Ontario’s interests.
The Equalization program constitutionally mandates the federal government to ensure that provinces have the ability to “provide reasonably comparable levels of public services at reasonably comparable levels of taxation.” Provinces unable to raise revenues at the national average standard are provided with payments funded through federal taxation.
Over the past 10 years, Ontarians have contributed almost $45 billion more to the Equalization program through their contribution to federal revenue than they have received back in Equalization payments. Additionally, Ontario’s per capita GDP is slightly less than the national average8 and at 7.7 per cent its unemployment rate is above the 7.5 per cent national rate.9 Yet, as noted earlier in the chapter, federal spending in and transfers to Ontario fall short of an equitable share of its revenues. Further, there is no requirement under the funding formula for provinces to include full resource revenues in the redistribution equation, to Ontario’s considerable detriment. The Equalization program requires reform.
“Ontario has yet to find its competitive positioning in the new global economy, in part because it has been the largest net contributor to federal regional subsidies for over 50 years and has been unable to build a more globally competitive economy as a result.”
Joe Cordiano and David MacKinnon, “New Regional Policies Are Urgently Needed,” Ottawa Citizen, June 24, 2011.
Despite rising fiscal disparities among provinces, the federal government introduced a ceiling on Equalization in 2009 that limited the size of the program to the growth rate of national GDP. As a result, the program equalizes less now than at any other time in the previous 20 years, measured as a proportion of GDP. Under this ceiling, Equalization cannot fully capture and share the wealth generated from high commodity prices in other regions of Canada.
In addition, the program does not account for differences in price levels across the country, which affect the cost of public services. Ontario faces higher cost pressures than other provinces (see Chart 20.7). Even with its Equalization payment, Ontario may not be able to deliver “comparable levels of public services” because of these additional cost pressures. Similar to other equalization programs across the world, Equalization should recognize and address these differences in prices.
Recommendation 20-3: Advocate for reforms to Equalization by, at a minimum, fully capturing resource revenues and accommodating differing price levels between provinces.
“It is important to note that Ontario’s actual per capita revenues are, after equalization, less than those of any traditional have-not province… It will cost more (i.e. require more revenue) for Ontario to provide one such bundle [of public services] than it will for any of the traditional recipients, because wages and prices are higher here.”
Tom Courchene, “Economy, Ontario: Have Not Province,” Sept. 20, 2011, Mowat Centre for Policy Innovation.
“…in many important ways, residents of the have provinces of British Columbia, Alberta and Ontario receive lower levels of government services than do taxpayers in the have-not provinces whose government activities they subsidize.”Ben Eisen and Mark Milke, Frontier Centre for Public Policy, 2010.
Canada’s fiscal arrangements have served to narrow fiscal inequities through cash transfers but experts have argued for more structural reform — to allow provinces to raise more of their own revenues to fund their services. There is a clear basis to this argument.
As noted, the federal government generates revenues from Ontario at a rate very close to an equal per capita basis. The CST then returns money to the province, again on an equal per capita basis. Unlike the CHT, where provinces are technically required to adhere to the Canada Health Act, there are no such provisions for the CST. It is a block transfer with effectively no strings attached — little more than a semantic shell game. This unnecessary step is a source of inefficiency and reduces both accountability and transparency, but it also presents an opportunity for reform.
Without a clear purpose, the CST should be eliminated and transferred to provinces in the form of tax points. The federal government should reduce its taxes so provinces could increase theirs by an equivalent, revenue-neutral amount. A similar approach was undertaken in 1977 when the federal government transferred personal and corporate income tax points to the provinces. It should be done again.
Recommendation 20-4: Simultaneously eliminate the Canada Social Transfer and transfer the equivalent tax points to the provinces.
A growing number of organizations have criticized the federal Employment Insurance (EI) program for not meeting the needs of the modern labour market. In 2010, Ontarians contributed about 40 per cent of EI premiums, but received only 32 per cent of benefits. Despite being one of the hardest-hit provinces during the global economic recession and with the province’s unemployment rate above the national average, 10 Ontarians’ coverage remained near the lowest in the country, with only 32 per cent of the unemployed receiving EI. This inadequate coverage in EI benefits also restricts Ontarians’ eligibility for training measures associated with EI.
It is clear that the system needs reform. The changes recommended by the Mowat Centre for Policy Innovation, 11 including a single national entrance requirement, as well as consistent formulas to calculate benefit durations and levels, would improve outcomes for Ontario workers and employers.
See Chapter 8, Social Programs, for the full recommendation.
Individuals with severe disabilities face significant barriers to participating in the labour force, gaining employment and earning a decent wage (see Chart 20.10). Those with severe disabilities are half as likely as those without disabilities to participate in the labour force. Those who are active in the labour force are twice as likely to be unemployed, and earn over 40 per cent less if they can find a job. As described by the Caledon Institute, people with severe disabilities “have a tenuous relationship to the labour force.” 12
These vulnerable individuals are currently served by a “tangled safety net” that includes disability benefits from the Canada Pension Plan (CPP) disability benefit, federal disability tax credit and provincial social assistance programs. However, assistance from CPP and disability tax credit is of little benefit to individuals who are detached from the labour market. In addition, provincial social assistance programs, which already serve 22 per cent of those with severe disabilities, are overburdened.
See Chapter 8, Social Programs, for the full recommendation.
Immigration will be an increasing source of growth for Ontario’s working-age population and economy. As discussed in Chapter 10, Immigration, the integration of these newcomers into society and the workforce requires effective settlement and integration services, in addition to health, social and education services. Despite this, the federal government underinvested in settlement services in Ontario from 2005 through 2011 compared to its commitment to the province, and plans to further reduce its immigration settlement spending in Ontario in 2011–12 and beyond. Moreover, Ontario is allowed to nominate only 1,000 principal applicants through its Provincial Nominee Program, compared to 5,000 for Alberta.
The province requires greater influence in determining the policy that governs immigration to meet Ontario’s specific needs. In addition, the federal government should provide the province with the tools it needs to effectively integrate these newcomers by devolving immigration services, with funding, to Ontario.
The federal government should also look to jurisdictional best practices, particularly in the area of foreign credential recognition, where non-recognition too often gets in the way of a newcomer’s ability to participate in the labour force. Australia’s Pre-Application Skills Assessment is promising and an equivalent program should be piloted in Canada.
See Chapter 10, Immigration, for the full recommendation.
|Responsibility for immigrant selection and management of settlement services is devolved to the province.||Quebec (1991)|
|Province is responsible for planning and delivering settlement services on behalf of the federal government; compensation is provided.||Manitoba (1996) British Columbia (1998)|
|Planning of settlement services is co-managed by provincial and federal governments, but federal government is responsible for delivery; formal consultation mechanisms exist and partnerships with municipalities are identified as an objective.||Ontario (2005) Alberta (2007)|
|Source: Nick Bradford and Caroline Andrew, "The Harper Immigration Agenda: Policy and Politics in Historical Context," in How Ottawa Spends, 2011–12, Christopher Stoney and G. Bruce Doern, eds., 2011.|
There is an alarming gap in the educational attainment rate between on-reserve First Nations and the non-Aboriginal population. Improving educational outcomes on reserves is crucial to improving the social and economic outcomes of First Nations peoples. A serious investment in on-reserve education has the potential to increase their economic inclusion and reduce the long-run strain on public resources by reducing above-average demand for government programs such as health care, social services and the justice system.
It is commonly noted that federal funding for on-reserve education falls short of the per-student provincial average, making it difficult to achieve the goal of “provincial comparability.” The Commission believes there is an urgent need to significantly reform the provision of on-reserve First Nations education. The province should put strong pressure on the federal government to provide funding for First Nations on-reserve education that at least reaches parity with per-student provincial funding for elementary and secondary education. Barring the action that is clearly justified and desperately needed, the province should step up and fill this gap.
See Chapter 6, Elementary and Secondary Education, for the full recommendation.
The federal government has provided little support for Ontario’s move towards green energy. Yet it provides direct and indirect subsidies to Canada’s oil and gas sectors worth $1.4 billion annually,13 in addition to $2.0 billion in total spending 14 for carbon capture and storage, the Clean Energy Fund and the ecoEnergy Technology program — all of which are primarily spent in two provinces. Even where the federal government has promised support for clean energy, most has been directed to fossil fuels and projects that do not build on Ontario’s strengths. Ontario needs fair and equitable support for its clean energy initiatives.
Recommendation 20-5: Advocate for federal greenhouse gas mitigation programs to provide fair and equitable support for Ontario’s clean energy initiatives.
The purpose of this Commission is to provide recommendations to get Ontario back to balance by 2017–18. This includes making existing services more efficient. Given the level of interdependency in the Canadian federation, Ontario cannot seek these efficiencies alone. Services overlap and are inefficiently allocated between the two orders of government.
Recommendation 20-6: Sort out areas of responsibility with the federal government where there is overlap and duplication and establish a more efficient economic and fiscal relationship that saves money and provides better services to citizens.
There are opportunities to reshape roles and responsibilities to capture efficiencies and improve effectiveness. This discussion could start by examining:
“Due to large budget deficits, particularly at the provincial level, there is considerable public concern over the sustainability of existing government services. These pressures are not temporary. An aging population means that public services will be under increasing strain, making rationalization of program delivery necessary.”
M. Mendelsohn, J. Hjartarson and J. Pearce, “Saving Dollars and Making Sense,” 2010, Mowat Centre for Policy Innovation.
Ontario is best positioned to deliver employment and training services that meet the changing needs of its labour market, and fit coherently into its larger human capital agenda that incorporates other programs such as post-secondary education.
“Workforce development … has a deep historic relationship to higher and post-secondary education, since many aspects of labour market training are delivered by community colleges, part of the higher education sector. Devolution has provided provincial governments with enhanced ﬂexibility to tailor employment and training programs and services that are responsive to provincial and local labour market conditions and political directions.”
Donna Wood and Thomas Klassen, “Bilateral Federalism and Workforce Development Policy in Canada.”
“Budget 2007 delivers on that commitment through a comprehensive new labour market training architecture that will provide labour market programming to those who need it…by recognizing that provinces and territories are best placed to design and deliver this programming… With the full implementation of this new architecture, in combination with existing provincial and territorial labour market programming, Canadians will have access to integrated labour market programming delivered by provinces and territories that can be tailored to their specific needs.”
2007 Federal Budget.
Recognizing that provinces are best positioned to deliver training programs, the federal government devolved responsibility for training programs associated with EI to Ontario in 2007. This devolution, funded through an allocation under the Employment Insurance Act, requires that corresponding provincially delivered programs need to be similar to the original federal training programs and that clients must be eligible for EI.
The federal government continued to provide support to provincial training programs by creating a number of agreements — each with its own client eligibility criteria, program design, and reporting and accounting requirements. For example, the Labour Market Development Agreement only supports services for EI-eligible job seekers (only 31 per cent of EI Part II funding flowing to Ontario). In addition, the Targeted Initiative for Older Workers supports services for only older workers. For job seekers, this fragmentation presents a confusing environment comprising multiple offices and locations, exacerbating an already stressful time.
As discussed in Chapter 9, Employment and Training Services, the fragmented nature of these agreements also limits the province’s ability to maximize the benefits and savings that fully integrated services and streamlined reporting requirements would provide, and results in fragmented and distorted policy-making.
|Primarily targeted to Employment Insurance (EI) clients.|
|Labour Market Agreement||Unemployed individuals who are not EI eligible such as social assistance recipients, immigrants and other key groups.|
|Employed individuals who are low skilled (no high school diploma or recognized certification).|
|Targeted Initiative for
|Laid-off workers aged 50 and over (primarily targeted to those aged 55 to 64).|
|Must be in communities of less than 250,000 people that have high unemployment or a high reliance on single industries.|
|Labour Market Agreement
for Persons with
|Employment-related programming for persons with disabilities.|
|Source: Ontario Ministry of Training, Colleges and Universities.|
The devolution is not complete. In its 2007 budget, the federal government committed to exploring the transfer of around $500 million annually to allow provinces to deliver the remaining federal training programs. These programs include services for youth and persons with disabilities, which overlap with existing provincial programming. Despite this commitment, the federal government has not yet consulted the provinces on further devolution.
Ontario’s services for youth and persons with disabilities are effective. Client surveys indicate that both participants and employers are satisfied with programs. The transfer of responsibility for the training of these groups would allow the province to integrate remaining federal programs into the existing suite of effective provincial services. This would improve the quality of programming and outcomes for job seekers, while achieving efficiencies through administrative savings.
|Year||Number of Placements||Client Satisfaction|
|Source: Ontario Ministry of Training, Colleges and Universities.|
Several labour-market agreements expire after 2013–14, presenting an opportunity for reform. The current patchwork of labour-market agreements for persons with disabilities, older workers, EI or non-EI recipients should be replaced with a flexible per-capita transfer that is wholly funded outside of the EI program, with streamlined reporting requirements and that includes the further devolution of residual training programs for youth and persons with disabilities. Greater flexibility for Ontario would allow the province to continue adapting the full suite of labour-market programs to keep pace with the changing needs of its labour force.
See Chapter 9, Employment and Training Services, for the full recommendation.
Given the importance of immigration to the growth of Ontario’s labour force and economy, it is crucial that newcomers are effectively integrated into the community and the labour force so they can fully realize their potential.
Both the federal and Ontario governments provide immigration settlement services. Although both governments share the same values and desired outcomes, significant overlap in services and administration exists, which creates inefficiencies and reduces co-ordination.
“The Manitoba and BC experiences provide evidence that devolution can provide the space for innovation and adaptation to changing circumstances and the needs and views of the settlement sector.”
F. Leslie Seidle, “The Canada-Ontario Immigration Agreement.”
“Even countries with traditions of highly centralized government, such as the United Kingdom, are now experimenting with new devolutionary, decentralized arrangements.”
Myer Siemiatycki and Phil Triadfilopoulos, “International Perspectives on Immigrant Service Provision.”
Experts agree that responsibility for integrating newcomers should lie with regional or local authorities, which can design programs that best meet regional needs. Ontario could also integrate federal settlement services into its existing suite of settlement programs (see Table 20.6), in addition to programs for education, training and social services. Settlement programs have been devolved to provincial governments in British Columbia, Manitoba and Quebec, but the federal government has not agreed to do the same for Ontario.
|Bridge Training||Over 100 different highly skilled, in-demand occupations have been targeted with Ontario Bridge Training Programs.|
|Approximately 70 per cent of participants who complete bridge training programs targeting licensure obtained licensure in their profession within a year of completing the program.|
|On average, 65 per cent of participants who completed bridge training programs obtained employment in their field within a year of completing the program.|
|Language Training||94 per cent of learners surveyed responded that their class would be either "helpful" (33 per cent) or "very helpful" (61 per cent) in reaching their goals.|
|Newcomer Settlement Program||97 per cent of service users report a high overall level of satisfaction with the services they received, and find the services useful and relevant.|
|78 per cent say that they can make more informed decisions about their new life in Ontario after receiving services.|
|75 per cent indicate that they are more knowledgeable about services and how to access them.|
|Global Experience Ontario||Over 90 per cent of clients who met with GEO advisors indicated that they were satisfied with the overall quality of services they received.|
|Source: Ontario Ministry of Citizenship and Immigration.|
With the expiration of the COIA, anticipated reductions in federal immigration settlement spending, and the growing importance of immigration to Ontario’s economy, the federal government should provide the province with the tools it needs to effectively integrate newcomers by devolving settlement services to Ontario, with funding. Devolution would produce savings through rationalization and generate better outcomes for newcomers.
See Chapter 10, Immigration, for the full recommendation.
Effective rehabilitation services help keep communities safe and control correctional expenses. But the current arrangement for allocating responsibilities for inmates prevents Canada’s correctional sector from maximizing the benefits of these services. Offenders sentenced to two years or less serve their terms in provincial prisons while the remainder serve in federal penitentiaries. Effective rehabilitation services can be provided for inmates serving longer than six months. However, provincial inmates serving sentences longer than six months (and under two years) do not constitute a critical mass for provinces to provide rehabilitation services at scale.
Furthermore, recent federal changes to the Criminal Code put fiscal pressures on provincial court and correctional services. The Commission recommends that the Ministry of Community Safety and Correctional Services explore the possibility of uploading responsibility for inmates serving six months and longer to the federal government, which would better align fiscal incentives for corrections and would give these inmates access to federal rehabilitation services. In addition, the uploading of these responsibilities would allow governments to specialize and enhance their services to reduce recidivism, which could reduce long-run costs while making communities safer.
See Chapter 14, Justice Sector, for the full recommendation.
The Ontario government has transformed the way front-line public services are delivered with the creation of ServiceOntario, which integrates the services delivered by various ministries into one easy-to-access location. ServiceOntario has reduced wait times, improved accessibility and achieved efficiencies.The province has worked with the federal government to deliver integrated services such as the Newborn Registration Service, BizPaL and a single 1-888 number for business, in addition to co-locating four shared offices. The federal, provincial and municipal governments should continue to explore other opportunities to work together and deliver integrated, seamless and timely solutions for citizens.
See Chapter 16, Operating and Back-Office Expenditures, for the full recommendation.
Despite Canada’s enormous geographical size, it is one of the world’s most urbanized countries. Eighty per cent of Canadians live in urban centres. Unsurprisingly, traffic congestion is not limited to the Greater Toronto and Hamilton Area or Ontario. It is a systemic issue from coast to coast, justifying a national approach. Indeed, the federal government is affected by gridlock as much as any province through lost productivity and tax revenue; in 2006, Transport Canada noted that congestion poses a national challenge in terms of the costs it imposes in lost time, increased fuel consumption, and increased greenhouse-gas emissions.15 And the Canadian Chamber of Commerce has noted that despite Canada’s urban nature, it is the sole member nation of the Organization for Economic Co-operation and Development that lacks a national transit strategy.16
See Chapter 12, Infrastructure, Real Estate and Electricity, for the full recommendation.
Environmental management is a responsibility shared by both orders of government. Some major projects are subject to the assessment and regulation of both jurisdictions, which creates complexity and uncertainty for proponents.
To reduce duplication and streamline environmental assessment, Ontario signed the Canada–Ontario Agreement on Environmental Assessment Co-operation in 2004, which commits both governments to conduct a co-operative assessment while retaining their respective decision-making powers.
However, more remains to be done to streamline environmental assessments and harmonize regulations. As discussed in Chapter 15, Labour Relations and Compensation, the federal government is currently reviewing its legislation governing federal environmental assessments, the Canadian Environmental Assessment Act, and has expressed interest in the removal of duplication between approvals processes. The Commission recommends that the federal and provincial governments continue to press ahead in their efforts to create a “one project–one environmental assessment” approach that continues to maintain high environmental standards.
See Chapter 13, Environment and Natural Resources, for the full recommendation.
Canadians are served by two orders of sovereign governments that, while independent, should work collaboratively to serve their citizens. But collaboration and working together do not necessarily mean delivering the same services. Rather, collaboration means having a dialogue on rationalizing and disentangling services or, where necessary, working together towards common objectives.
“Nineteenth century institutional arrangements groan under the weight of 21st century pressures.”
M. Mendelsohn, J. Hjartarson and J. Pearce, “Saving Dollars and Making Sense,” 2010, Mowat Centre for Policy Innovation.
Having a strong federal partner means a federal government that is willing to discuss transformative changes to how the federation works. The arrangements within and structure of the federation must keep pace with a rapidly changing world.
The provincial-municipal relationship in Ontario is complex and intertwined. There are 444 municipalities in Ontario, ranging in population from over 2.5 million in the City of Toronto to fewer than five permanent residents in the Township of Cockburn Island. Municipalities have shared responsibility for many important areas of public policy and provide many of their services based on provincial legislation, requirements and standards. Examples of municipal service delivery include social housing, social assistance, drinking water quality, public transportation, land use planning and waste management.
Significant strides have been made in recent years to stabilize and strengthen the provincial-municipal relationship. However, as we highlight in the federal-provincial section, intergovernmental arrangements must keep pace with a rapidly changing world. While it is important that the province and municipalities continue to have dialogue on improving co-ordination of services, as discussed previously, a sharper delineation of responsibilities between governments may be more prudent. For municipal service delivery, the Commission has noted that quite often all three levels of government are involved in delivering programs and services, and in some cases, a fourth layer is added through the involvement of non-profit or community service organizations. This causes service delivery confusion, duplication of efforts and additional bureaucracy. A thorough review of funding and service delivery relationships and responsibilities may prove to be useful in providing clarity.
Provincial support to municipalities has increased significantly in recent years, and it is important that both levels of government work together to ensure that these provincial investments result in tangible outcomes for Ontarians.
Municipalities raise most of their annual revenues from their own sources; these include property taxation, user fees and licences, and other revenues such as investment income, development charges, donations and so on. These sources accounted for 78 per cent of municipal annual revenues in 2009 (see Chart 20.11). Yet provincial transfers remain an important source of funding for municipalities — nearly one-fifth of their annual revenues (see Chart 20.11). These transfers include the provincial share of funding for cost-shared programs, as well as unconditional funding provided through the Ontario Municipal Partnership Fund (OMPF).
From 2003 to 2010, the Ontario government increased financial support to municipalities by almost $1.6 billion or 150 per cent through the upload of social assistance benefit program costs, as well as other uploads in the areas of public health, land ambulance and the provincial gas tax. This significant increase in support to municipalities was intended to address municipal concerns regarding previous efforts to realign service and funding responsibilities, particularly through the Local Services Realignment (LSR) initiative in 1998.
Through the LSR exercise, the provincial government transferred the full or partial cost of a number of services to municipalities, including social housing, Ontario Drug Benefit (ODB) program, Ontario Disability Support Program (ODSP) and child care. To help municipalities fund this realignment of services, the province transferred $2.5 billion in residential education tax revenue to municipalities.17 The province also created an unconditional grant, the Community Reinvestment Fund (CRF), to ensure that the transfer of services was revenue neutral.
Municipalities argued that LSR was not revenue neutral and that it imposed additional costs on the property tax base, which prevented needed investments in local priorities such as infrastructure. Municipalities maintained that the burden of paying for social assistance benefits, in particular, constrained their ability to invest in important priorities.
The OMPF replaced the CRF in 2005 and is the province’s main transfer to municipalities. It is designed to target support to municipalities with high social program and policing costs, as well as address challenges faced by northern and rural communities. The program responds to the individual circumstances of each municipality. In 2012, the province will provide $583 million in OMPF grants to 373 municipalities. 18
A landmark agreement for the provincial-municipal relationship was the Provincial-Municipal Fiscal and Service Delivery Review (PMFSDR) in 2008. The PMFSDR was a joint initiative involving the province, Association of Municipalities of Ontario (AMO) and City of Toronto. This agreement committed the province to upload from the property tax base municipal costs related to the ODB, ODSP, Ontario Works, and court security and prisoner transportation costs between 2008 and 2018, without any corresponding commitment from the municipal sector. In 2012, the estimated benefit of the provincial uploads to municipalities, combined with $583 million in OMPF funding, totals $1.8 billion.
In addition to this ongoing support, the province is increasingly involved in funding municipal infrastructure — having provided municipalities with over $12 billion for infrastructure since 2003.
Provincial-municipal issues and recommendations are found throughout the report’s chapters. Below, we provide a comprehensive recommendation list. Please refer to the respective chapters for broader discussion of the recommendations.
Recommendation 8-5: The Commission for the Review of Social Assistance in Ontario should examine system design options that deliver a more efficient and higher-quality service to social assistance recipients. This examination should consider combining Ontario Works and the Ontario Disability Support Program and having the combined program delivered at the local level. It should also address the further integration of employment services available through Employment Ontario.
Recommendation 12-1: Place more emphasis on achieving greater value from existing assets in asset management plan reporting requirements than is currently proposed in the Long-Term Infrastructure Plan for certain organizations (e.g., universities, municipalities, etc.).
Recommendation 12-2: Implement full cost pricing for water and wastewater services.
Recommendation 12-5: Pursue a national transit strategy with the federal government, other provinces and municipalities.
Recommendation 12-13: Consolidate Ontario’s 80 local distribution companies along regional lines to create economies of scale.
Recommendation 13-7: Rationalize and consolidate the entities and agencies involved in land use planning and resources management.
Recommendation 15-10: The government should facilitate a voluntary movement to centralized bargaining for municipalities — particularly in relation to police and firefighting bargaining.
Recommendation 16-13: Selected shared services should be expanded to agencies, boards and commissions and the broader public sector.
Recommendation 16-14: The government should consolidate information and information technology (I&IT) services throughout the broader public sector.
Recommendation 16-15: Significant savings and efficiencies can be achieved by further co-ordinating existing horizontal supply chains across the broader public sector.
Recommendation 18-10: The Ministry of Finance should take the lead by providing assistance to municipalities in developing policy for the collection of unpaid Provincial Offences Act fines in the province.
Recommendation 18-12: Allow fines to be added via the property tax roll by adding Provincial Offences Act fines to the offender’s property tax bill, even if the property is jointly owned.
Recommendation 18-25: Conduct a review of education tax rate-setting policies for residential and business tax rates to maintain a stable level of education tax revenues in real terms.
Recommendation 18-26: Continue to implement the business education tax (BET) reduction plan while considering options for adjusting the plan in order to avoid part or all of the revenue loss associated with reducing high BET rates by also increasing low BET rates.
Recommendation 18-27: Build on the existing business education tax (BET) reduction plan to address historical BET rate inequities and distortions by gradually implementing a single uniform BET rate.
Recommendation 19-14: Ontario should negotiate with the federal government to commit to a housing framework for Canada that includes adequate, stable long-term federal funding and encourages its housing partners and stakeholders, including municipal governments, to work with the federal government to secure this commitment.
Going forward to 2018, support to municipalities is projected to increase at an average annual rate of 5.2 per cent (using 2010 as the base year). This projected annual growth is well in excess of the 0.8 per cent annual growth target for total program spending identified in this report.
from 2003 to 2010
|Average Annual Increase
from 2003 to 2010
|Projected Average Annual
Increase from 2010 to 2018
|Support to Municipalities||148%||13.8%||5.2%1|
|1Large incremental increases in provincial upload occurred in 2010 and 2011, which increased the percentage of the projected average annual increase. Using 2012 as the base year, the projected average annual increase until 2018 is 3.8 per cent.|
|Source: Ontario Ministry of Finance.|
The province is in the process of uploading social assistance benefit costs as agreed through the PMFSDR. Municipal representatives recognized through the PMFSDR that the OMPF would decline to reflect the reduction in municipal costs associated with the provincial uploads. More specifically, they agreed that the OMPF would decline to $500 million by 2016, when the social programs component of this grant would be completely phased out. In 2012, the province will provide municipalities with total ongoing support of about $3.2 billion (see Table 20.8).
|Funding Programs (e.g., OMPF)||$583|
|Projected value of the uploads committed to
through the PMFSDR (ODB, ODSP, OW, court security)
|Other Uploads (OW – Admin; Public Health;
Land Ambulance; Provincial Gas Tax)
|The figures in this table reflect the province's ongoing support to municipalities, which includes provincial uploads of municipal social assistance benefit programs costs (ODB, ODSP, Ontario Works benefits, and additional funding for Ontario Works Administration costs), court security and prisoner transportation costs, OMPF/CRF, provincial gas tax funding, public health and land ambulance. The figures do not include other transfers, such as the provincial share of social program costs. In addition, these values do not capture one-time infrastructure investments.|
|Source: Ontario Ministry of Finance.|
This support, in addition to the OMPF and provincial uploads committed to through the PMFSDR, includes funding to maintain the provincial share of public health and land ambulance costs, as well as gas tax funding — an increase of $2.2 billion since 2003 (see Chart 20.12).
Between 2010 and 2018, provincial support is projected to grow by 5.2 per cent per year. Such a rate of growth is simply unaffordable. It significantly exceeds the 0.8 per cent annual growth target for total program spending identified in this report. A portion of the projected growth comes from the remaining $500 million of uploading. Excluding that, support would grow by 3.5 per cent per year — a rate of growth that is still far in excess of our 0.8 per cent annual growth target. The projected 3.5 per cent annual growth in the absence of the remaining uploads can be attributed mainly to increased costs associated with uploads that have already been completed — the uploads of ODB and ODSP. As a result of factors such as increased caseloads, the costs to the province (and by extension, the effective savings to municipalities) of these already completed uploads continue to increase.
The Commission supports the general notion of the upload — these matters are better financed by the broader, more diverse provincial revenue base. And we realize that any change in the upload simply shifts the fiscal problem in the province from one jurisdiction to another; it does not solve it. Most of the province’s municipalities are also struggling with their budgets.
Nonetheless, we feel that to respect the overall spending restraint required at the provincial level, total transfers to the municipalities should increase by less than 5.2 per cent per year. Therefore we recommend two main measures:
Recommendation 20-7: Extend the period of the final $500 million of upload by another two years, so it is not complete until 2020. For illustration, if we reach 2015’s $232 million by 2017, that would save $165 million ($397 million minus $232 million).
Recommendation 20-8: Ensure that, beginning in 2013, the Ontario Municipal Partnership Fund (OMPF) declines to the planned $500 million by 2016. A reasonable assumption would be a $25 million decrease in each of the next four years beginning in 2013, resulting in a $500 million OMPF envelope in 2016.
We recognize the important public policy rationale, as well as the provincial commitment, to uploading social assistance benefits program costs from the property tax base. However, given the current fiscal climate, the Commission is concerned that continued implementation at this time, according to the current schedule, may not be appropriate.
Additionally, it is important to ensure that these provincial investments result in tangible outcomes for Ontarians.
Recommendation 20-9: The province and municipalities must work together to establish an accountability framework that would track how municipalities are investing the benefits realized as a result of the uploads.
Because infrastructure investments were identified as an important priority by municipalities, the focus of this accountability framework should be on tracking incremental new municipal capital expenditures. Some municipalities, such as the City of Ottawa, have released a detailed accounting of how the savings associated with the uploads are being invested, and we encourage the province to collaborate with municipalities to share best practices in this area.
Another key feature of the provincial-municipal fiscal relationship is the fact that the province and municipalities share the property tax base.
Property taxes raised over $23 billion in 2010 in Ontario. The municipal portion of the tax raises $16.4 billion, and is the largest single source of revenue for municipalities. The provincial education portion of the tax raises over $6.6 billion.
Property taxes are a stable source of revenue for municipalities to fund local services and for the province to fund a portion of elementary and secondary education.
Municipalities were provided with $2.5 billion in “property tax room” at the time of LSR, and in subsequent years, the province has adopted a policy to fully offset reassessment impacts when resetting residential and BET rates.
This practice of cutting education tax rates to offset reassessment increases has contributed to a significant decrease in revenues in real terms and as a share of education funding supported by property taxes. In fact, the province’s education tax rate decisions have contributed to a 30 per cent decrease in revenue in real terms over the last two decades, which has provided municipalities with additional tax room to fund local services.
We recommend that the province conduct a review of its education tax rate-setting policies to maintain a stable level of education tax revenues in real terms. More on that recommendation is found in Chapter 18, Revenue Integrity.
As we discuss in Chapter 8, Social Programs, municipalities play an important role in providing programs to Ontarians. For instance, social assistance programs are delivered by municipalities but funded mainly by provincial transfer payments. Other examples include social housing and child care programs, which are delivered primarily by municipalities and funded by all three levels of government.
As also discussed in that chapter, program design and delivery will need to be integrated and aligned across different government ministries and delivery agents. And as we note in the federal-provincial relations section of this chapter, people expect public services to be easy to use, timely and staffed by knowledgeable people. Different levels of government will need to work together to determine the most efficient ways to provide services for those most in need. If service levels are to be maintained within a 0.8 per cent growth in overall program spending, a sustained commitment to enhanced efficiency and transformation will be required from all players, including municipalities.
1. Calculations based on figures from the National and Provincial Accounts for 2009.
2. Based on federal revenues of $86.4 billion, program spending of $84.3 billion and public debt interest of $11.4 billion.
3. Calculation based on 2010 StatsCan data for provincial population and GDP
4. The ability to raise revenue, generally termed as fiscal capacity, refers to the potential revenue a province could raise if it taxed at national average tax rates.
5. R.W. Fogel, “Forecasting the Cost of U.S. Healthcare in 2040,” Journal of Policy Modeling 31 (2009), no. 4, pp. 482–88.
6. Assumes a flat line of the 4.3 per cent federal forecast for nominal GDP growth in 2016, as presented in the 2011 Update of Economic and Fiscal Projections.
7. Major transfers include Equalization, Canada Health Transfer and Canada Social Transfer.
8. $46,303 versus $47,605; as calculated using 2010 CANSIM data accessed in January 2011, downloaded from http://www40.statcan.ca/l01/cst01/econ15-eng.htm or http://www40.statcan.gc.ca/l01/cst01/demo02a-eng.htm.
9. Figures from December 2011.
10. As of December 2011.
11. Mowat Centre EI Task Force, “Making It Work: Final Recommendations of the Mowat Centre EI Task Force,” 2011, Mowat Centre for Policy Innovation.
12. Michael Mendelson, Ken Battle, Sherri Torjman and Ernie Lightman, “A Basic Income Plan for Canadians with Severe Disabilities,” November 2010, Caledon Institute of Social Policy.
13. Department of Natural Resources Canada, downloaded from http://www.nrcan.gc.ca/energy/science/programs-funding/1477 and http://www.nrcan.gc.ca/energy/science/1335.
14. M. Bramley, “Evaluation of the Government of Canada’s Greenhouse Gas Reduction Policies,” prepared for the Climate Change Performance Index 2011, Pembina Institute, p. 2, downloaded from http://www.pembina.org/pub/2129.
15. Transport Canada — Environmental Affairs, “The Cost of Urban Congestion in Canada,” March 22, 2006, downloaded from http://www.gatewaycouncil.ca/downloads2/Cost_of_Congestion_TC.pdf.
16. Canadian Chamber of Commerce, “Strengthening Canada’s Urban Public Transit System,” downloaded from http://www.chamber.ca/images/uploads/Resolutions/2009/T-Strengthening_Canada.pdf.
17. By 2011, the $2.5 billion in transferred residential education tax revenue had grown to an estimated $3.1 billion in revenue for municipalities, as a result of non-reassessment-related growth, such as new construction.
18. Ontario Ministry of Finance.