2016 Ontario Economic Outlook and Fiscal Review
Chapter IV: Together Towards a Stronger Ontario and a Stronger Canada

Ontario and the federal government are collaborating to make positive impacts on the health, prosperity and quality of life of Ontarians. The Province is partnering with all levels of government to support the financial sustainability and capital needs of municipalities across Ontario. Working with Indigenous partners to identify ways to improve social conditions and create economic opportunity is key to ensuring a bright future for all.

Collaborative Action in the Federation

A collaborative approach to federalism is yielding positive results. Ontario and the federal government have been partnering to find meaningful solutions and deliver real benefits to people in their everyday lives, such as stronger pension benefits and renewed infrastructure.

The increasingly complex challenges facing the federation, such as uncertain global economic growth, climate change and the impacts of an aging population, need to be tackled by more than one level of government.

The Province looks forward to continued collaboration with the federal government and other partners in the federation to build Ontario up and ensure a bright future for its residents.

Federal–Provincial Collaboration: Progress and Next Steps

Since the release of the 2016 Ontario Budget, the Province has actively engaged its federal, provincial and territorial counterparts, resulting in successful intergovernmental collaboration that will secure beneficial outcomes for all Ontarians.

In March 2016, Premier Kathleen Wynne, along with her federal, provincial and territorial counterparts, agreed to the Vancouver Declaration on Clean Growth and Climate Change. The First Ministers agreed to develop a concrete plan to achieve Canada’s international environmental commitments through a pan-Canadian framework. Following the declaration, Ontario participated in the development of a national carbon-pricing policy that recognizes existing cap-and-trade mechanisms in Canada. Ontario is a willing national partner with the federal government in meeting its international commitments to climate change and the environment, and will continue to work with federal and provincial governments on a pan-Canadian framework to reach targets.

Following the June 2016 Finance Ministers’ meeting, with strong leadership from Ontario, the federal government and nine provinces agreed to enhance the Canada Pension Plan (CPP), starting on January 1, 2019. As a result, the federal government tabled legislation on October 6, 2016, to enhance the CPP. (See Chapter I, Section D: Strengthening Retirement Security for more details.)

Also as a result of the Finance Ministers’ meeting, Ontario is actively participating with its federal, provincial and municipal partners to examine the issues of housing affordability and market stability in Canada.

In response to the federal government’s commitment to legalize and regulate marijuana, including tabling legislation in spring 2017, the Ontario government is working responsibly to ensure it is ready to respond to this significant change.

Under the leadership of the Attorney General, 13 provincial ministries are working collaboratively across government to examine the issues arising from legalization, with the objectives of developing a framework that focuses on the promotion of public health and education, community and road safety, the protection of young people and vulnerable populations, as well as undermining the existing underground economy and illicit activity related to marijuana.

Federal–Provincial Fiscal Balance in the Federation

There continues to be a structural fiscal imbalance between orders of government in Canada: provincial and territorial governments lack the revenue resources required to meet their constitutional expenditure responsibilities, while the federal government collects more revenue than is needed for its responsibilities.

Furthermore, this gap is growing and putting increasing fiscal pressure on provinces and territories that are already faced with a range of challenging factors outside their control, such as continued global economic uncertainty and aging demographics.

According to a recent report from the federal Parliamentary Budget Officer (PBO),1 over the long term, provinces and territories as a whole are not in a fiscally sustainable position, while the federal government has surplus fiscal room. Left unaddressed, this mismatch could limit the ability of provinces and territories to make the necessary investments to strengthen their economies and maintain the public services that Canadians expect and deserve.

In addition to this federal–provincial fiscal imbalance, Ontario’s contribution to the federation continues to grow.

For example, in 2016–17, Ontarians are projected to contribute approximately $6.9 billion to the federal Equalization program, while the Province will only receive approximately $2.3 billion in Equalization payments in return. As Ontario’s economic growth outpaces the Canadian average, Equalization payments to the Province are expected to shrink, which will lead to a growing net contribution to the federal Equalization program by Ontarians.

While Ontario recognizes its long-standing role as a net contributor to the Canadian federation, the Province will continue to call for federal–provincial fiscal arrangements that result in better alignment of resources and jurisdictional responsibilities. At the same time, these arrangements must allow provinces and territories to promote economic growth and prosperity.

Continued Need for a Strong Partnership

While the new partnership with the federal government has already produced positive results, there continues to be a need for a federal partner to take principled action in areas that impact people’s everyday lives.

Health Care

Ontarians and Canadians are proud of their health care system. However, the pressures associated with changing demographics, including an aging population, along with other cost drivers such as inflation, drug prices and advances in technology, will increase the demands on provincial health care services. Even the most conservative estimates project that health spending is set to grow as a share of total government spending and as a share of the economy as a whole.

Even as Ontario and other provinces and territories continue to innovate and improve the effectiveness of health care services, there are concerns about the long-term sustainability of provincial and territorial health care systems.

At the same time, the health care funding partnership between the provincial and territorial governments and the federal government has weakened since the early days of medicare — and several experts have shown that the federal share of health funding is set to be reduced even further.2

Based on a unilateral decision made by the previous federal government in 2011, the rate of growth in the Canada Health Transfer (CHT) will be cut from six per cent to a new floor of three per cent, beginning in 2017–18. The negative budgetary impact for all provinces and territories will be more than $1 billion in the first year. Over the next 10 years, this cut will remove an estimated $60 billion from health care nationally — more than $23 billion from Ontario alone.

With this impending reduction, the level of federal funding will not only be insufficient to sustain the existing health care system, but it will also not support the Province’s efforts to prepare for the emerging and changing health care needs of Ontarians. Now is the wrong time to reduce growth in the CHT.

Ontario, along with the other provinces and territories, believes that a long-term agreement is achievable and is committed to working with the federal government to make this happen. In the year representing the 50th anniversary of the beginning of Canadian medicare, Ontario urges the federal government to work with the provinces and territories to secure long-term health care funding to sustain the existing system and continue to help support health care system improvements.

Infrastructure

Over the last several years, provincial and territorial governments have led the way with investments in infrastructure that are laying the foundation for Canada’s economic growth and for strong, prosperous communities.

The Province’s infrastructure investments of more than $160 billion over 12 years, starting in 2014–15, contribute to economic growth and job creation today, while supporting jobs in the future (see Chapter I, Section B: Building Tomorrow’s Infrastructure Now for more details).

Federal funding is an important component of this plan. Ontario welcomes the federal government’s commitment to new infrastructure investments announced in its Fall Economic Statement. Ontario looks forward to partnering with the federal government to support the Province’s significant infrastructure investments that will help grow the economy.

Since the 2016 Budget, the Province and federal government have reached a number of bilateral infrastructure agreements through the initial phase of the federal infrastructure plan to invest in priority projects.

However, to support sound infrastructure planning, it is essential that federal funding agreements provide provincial and territorial governments with greater flexibility to direct federal funding towards existing priorities and do not impose unexpected fiscal costs on the Province. These priorities include investments in transit networks, such as light rail transit projects that can help improve commute times and economic growth.

A more flexible approach overall, particularly with respect to the use of “incrementality” for project eligibility, is necessary to more fairly and properly recognize the many years of critical capital planning and prioritization work already undertaken by Ontario.

Further, this funding must also be allocated in an equitable manner and respect provincial and municipal relations.

Evidence-based infrastructure planning allows jurisdictions to respond where needs are greatest. This priority setting takes time and consultation. To leverage its investment quickly, the federal government should build on work already completed by the Province. As the federal government looks to the longer-term elements in the next phase of its infrastructure plan, it should continue to collaborate with Ontario to ensure that alignment exists between federal investment programs and the Province’s existing plans and priorities to have the best impact on Ontarians and the economy.

Jobs and the Economy

Canadian labour markets are in transition, with technology transforming industry across the world at an unprecedented pace. The economy of the future is expected to be driven by disruption, innovation and fundamental change in the workplace.

Ontario has already embarked on a multifaceted, long-term transformation agenda for Ontario’s employment and training programs and services, and to support a highly skilled and inclusive workforce (see Chapter I, Section C: Investing in People’s Talents and Skills for more details).

The Province has also collaborated with the federal government and other partners on renewing labour market agreements. Both governments agree that concerted efforts are needed to support training targeted to those in need, upskilling and good jobs. It is critical that these renewed agreements enable Ontarians to get the skills and support needed to adapt to a technology-driven economy. The renewed agreements must:

  • Maximize flexibility in labour market transfers to allow Ontario to design and deliver inclusive labour market programs to help all Ontarians;
  • Increase overall federal investment in national labour market transfers, building on federal platform commitments; and
  • Allocate a proportionate and fair share of the new federal investment.

The key challenge for Ontario is that current federal funding is inflexible, tying about 70 per cent of funding for training to current or recent Employment Insurance (EI) recipients. Only 29 per cent of unemployed Ontarians received EI regular benefits in 2015. This means that the majority of Ontario’s unemployed workers are not eligible for federally funded training.

Ontario is pleased that the federal government has recently taken steps to improve access to EI regular benefits. However, a broader review of the program is still needed.

Ontario would welcome the opportunity to work with the federal government, provinces and territories to explore ways to better align the EI program with today’s labour market and improve access to EI benefits for unemployed Ontarians.

Continued Action with Municipal and Indigenous Partners

The Province continues to move forward with municipalities and Indigenous partners on shared priorities and to build on solid partnerships.

Provincial–Municipal Partnerships

The Province has a strong record of supporting and working with municipalities, while also taking measures to ensure local accountability. Both the Province and municipal governments face fiscal challenges resulting from demographic, economic and other pressures. Ontario continues to work in partnership with municipalities to promote a mature, positive and stable provincial–municipal financial relationship.

In 2017, the Province is providing municipalities with ongoing support of more than $4 billion — an increase of $2.9 billion above the support provided in 2003.

Further, as announced in the 2016 Budget, provincial uploads of social assistance benefit costs and court security and prisoner transportation costs will be fully implemented by 2018. This represents a significant milestone in the provincial–municipal relationship and will help put municipalities on financially sustainable footing.

Going forward, the Province’s focus will be on investing in the infrastructure that is vital to the health, prosperity and quality of life of Ontarians.

In partnership with communities, Ontario is making significant investments to revitalize municipal infrastructure. On September 14, 2016, the Province announced a bilateral agreement with the federal government that will make available more than $1.1 billion from all partners in combined funding under the Clean Water and Wastewater Fund. The Province also announced that it will triple Ontario Community Infrastructure Fund funding to $300 million per year by 2018–19 (see Chapter I, Section B: Building Tomorrow’s Infrastructure Now for more details).

Working with Indigenous Partners

In a spirit of collaboration and mutual respect, Ontario is committed to strengthen relationships by working with Indigenous partners and the federal government to improve social conditions and build economic opportunity for Indigenous communities across the province.

Significant progress has been made on a number of fronts since the 2016 Budget:

  • Algonquin land claim negotiation: In October, the Province, federal government and Algonquins of Ontario celebrated a major milestone in their journey towards reconciliation and renewed relationships by signing a historic agreement-in-principle, paving the way for continued negotiations towards a final agreement that will define the ongoing rights of the Algonquins to lands and natural resources within the settlement area.
  • Truth and reconciliation: As announced in May, the Province is moving forward with a $250 million strategy over three years that responds to the calls to action released by the Truth and Reconciliation Commission of Canada in June 2015 (see Chapter I, Section E: Towards a Fair Society for more details).
  • Moving towards community-based regulation: The government has made good progress towards community-based regulation, working with partners such as the Mohawk Council of Akwesasne, Chippewas of the Thames First Nation and Anishinabek Nation. The Province is also engaging other First Nation communities to begin a dialogue on self-regulation of tobacco sales and revenue-sharing.
  • Gas card modernization: This fall, the Province sought advice from Indigenous partners and will be developing recommendations to modernize the Ontario Gas Card Program. Changes will seek to improve program integrity and make it easier for on-reserve gasoline retailers to receive refunds from the Ministry of Finance for their tax-exempt sales to
    First Nation consumers.
  • First Nations health action plan: Ontario is investing nearly $222 million over the next three years, plus a continuing annual investment of $104.5 million, to ensure Indigenous peoples have access to more culturally appropriate care and improved outcomes, with an initial focus on areas in northern Ontario. (See Chapter I, Section E: Towards a Fair Society for more details.)
  • Electrification of northern communities: In July, Ontario announced the selection of Wataynikaneyap Power LP to connect 16 remote First Nation communities to the electricity grid. Connecting these communities would provide a reliable clean supply of electricity, reduce GHG emissions and create jobs during the construction period.

    The Province has also engaged the federal government to secure a fair cost-sharing agreement.
  • Aboriginal Loan Guarantee Program: The Province facilitates Aboriginal participation in renewable electricity generation and transmission projects through the Aboriginal Loan Guarantee Program, which recently approved a loan guarantee that supports a portion of Aamjiwnaang and Walpole Island First Nations’ equity investment in the Grand Bend Wind Farm.
  • Energy Partnerships Program: Starting in June, the Independent Electricity System Operator (IESO) began accepting applications under its new Energy Partnerships Program (EPP) that promotes broad participation in Ontario’s energy sector by providing funding support to Indigenous communities, cooperatives, municipalities and public-sector entities to develop energy projects.

[1] Office of the Parliamentary Budget Officer, “Fiscal Sustainability Report 2016,” (2016),
http://www.pbo-dpb.gc.ca/web/default/files/Documents/Reports/2016/FSR_2016/FSR_2016_EN.pdf
.

[2] Erich Hartmann and Alexa Greig, “Partnership Renewed: Transforming Canada’s Health Funding Arrangements,” (Mowat Centre, September 2016); Kevin Page, Sahir Khan and Helaina Gaspard, “We Need Health Care and Innovation, Tied Together by Sustainable Finances,” The Globe and Mail, July 19, 2016.

Chart Description:

Chart 4.1: Net Contribution to the Equalization Program, 2016–17

This chart shows that in 2016–17, Ontario is expected to be the largest net contributor to the Equalization program. Ontario is followed by Alberta, British Columbia, Saskatchewan, and Newfoundland and Labrador. All other provinces receive more in Equalization payments than their taxpayers contribute through federal taxes.

Return to Chart 4.1