Notes for Remarks by The Honourable Greg Sorbara Minister of Finance to the Sub-Committee on Fiscal Imbalance

March 11, 2005

Introduction

  • The work this Committee is doing is extremely important for the strengthening of Canada.

  • The subject of fiscal imbalance is topical.

  • It has raised serious concerns across the country. But it is of particular concern to Ontario.

  • As late as Wednesday night the Premier of Ontario had this to say about what we describe as the $23 billion gap.

  • "Ontarian's are proud Canadians but we are sending $23 billion to the federal government to support higher levels of funding in other provinces. This $23 billion gap is restricting our ability to build a stronger Ontario for a stronger Canada."

  • Even outside the realm of politics there have been many who have commented on the $23 billion gap.

  • David MacKinnon, former president of the Ontario Hospital Association and former civil servant in Nova Scotia has said, "Ontario regularly transfers through the federal government an amount to support services in other provinces that exceeds the total amount it spends on hospitals, universities, and community colleges within Ontario. This redistribution of wealth, approaching $100 million dollars every working day, is probably the biggest single expenditure Ontario taxpayers make."

  • The Toronto Star has even called for a Royal Commission to address the question of fiscal imbalance.

  • I don't propose to call for that kind of commission. Our circumstances are far too urgent.

  • My purpose this morning is to make the following two points:

    1. We urgently need additional federal investment in Ontario - we urgently need our fair share of funding in a number of current programs

      and

    2. The way in which this country finances itself and its public programs is out of balance and disadvantageous to Ontario.

  • This Committee needs to know three things about Ontario's case:

    1. Ontarians are proud of the fairness and sharing that underlie Canadian values and we expect - we need - that fairness to be extended to Ontario.

    2. Ontario is the economic engine of the country - more than 40 per cent of its GDP and that engine needs to continue fire on all cylinders

    3. Right now, Ontario is disadvantaged in a number of areas of federal spending - specifically, in health and social transfers, in infrastructure investments, in immigration settlement, and in labour market development.

  • Let me begin to make that case:
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Federal Government Has Considerable Fiscal Flexibility

  • Mr. Chair, much has been said and written recently about the "fiscal imbalance" in Canada.

  • There are those who say it simply doesn't exist. They point out that provinces have access to the same revenues as the federal government.

  • So, if a province needs to support a higher level of social spending, for example, these commentators simply say, "Well, just raise taxes".

  • Our government has already asked Ontarians to do their share. We are conscious that any further distance travelled down this road might affect our tax competitiveness.

  • And then there are those who say: of course there's an imbalance -- responsibility for major expenditures lies with the provinces, most of which, by the way, are experiencing budgetary pressures, while the federal government collects far more revenue than it needs to fulfil its constitutional responsibilities.

  • Whether or not you accept one argument or the other, the fact remains that the federal government - according to its own numbers - has considerable fiscal flexibility.

  • Since 1994, the federal government has consistently underestimated its own budgetary surplus - and thus, its fiscal capacity - by some $73 billion.

  • The surplus for 2003-04 was $9.1 billion - even though the federal government had projected $1.9 billion.

  • Estimates in the 2005 budget project continuing underlying budgetary surpluses until 2009-10.

  • And if history is anything to go by, many - if not all - of these surpluses will turn out to be larger than first thought.
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Ontarians Make Substantial Contributions to Federal Revenues - $23 billion more than they get back

  • Some people have disputed the source of the $23 billion gap between what Ontarians pay in taxes to the federal government, and what they get back in programs and services.

  • Let me clear that up right now.

  • It comes from Statistics Canada - specifically, the Provincial Economic Accounts, a federal publication.

  • And - contrary to what some federal ministers have said - it includes all federal spending in Ontario. Everything.

  • The Toronto Dominion Bank has recently issued a report confirming these numbers.

  • Ontario's contribution to federal revenues in 1995-96 was $55.2 billion.

  • By 2004-05 - the year just ending - it will have climbed to $84.9 billion.

  • Since 1995, Ontario's net contribution to Confederation has increased from $2 billion to $23 billion.

  • Put differently, there is a $23-billion gap between what Ontarians pay in taxes to the federal government, and what they get back in federal investments in the province.

  • In pure dollar terms, the difference is equally stark: This year, the federal government will collect $84.9 billion in taxes from Ontarians, and return $62 billion.
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Equalization Isn't Equal Any More

  • Mr. Chair, as I've already said, Ontarians are proud of the fairness and sharing that underlies Canadian values.

  • We are proud of helping to generate the economic wealth that benefits all Canadians.

  • And we are proud supporters of equalization.

  • However, as a result of changes in federal policy, as a result of special "side deals" - such as the recent off-shore oil agreement - over the past number of years, equalization has, quite simply, ceased to be equal.

  • Let me explain.

  • Once the new "side deal" on revenue sharing from offshore oil is included, Newfoundland will have a higher per-capita fiscal capacity than Ontario - $7,529 versus $7,277.

  • That means that the government of Newfoundland will have $252 more per person than Ontario to spend on such programs as post-secondary education, health care and social services.

  • When Ontarians see $23 billion more going to Ottawa than they get back, this sort of arrangement looks unfair, because it is unfair.

  • Our quarrel is not with the governments or people of Newfoundland or Nova Scotia.

  • Our concern is that the federal government has allowed the equalization program to become distorted.

  • And that should not come as any great surprise to this Committee.
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How Does This Gap Occur?

  • The federal government collects much more revenue than it transfers to Ontario in particular.

  • And specifically, in certain types of programs - such as health and social services - the federal government insulates itself from growth pressures.

  • It does that by providing short-term or time-limited funding, and by investing in start-up costs but not continuing costs.

  • And, on occasion, it does this by unilaterally withdrawing from - or rewriting the rules for - past agreements.

  • It did this most dramatically when it created the CHST.

  • As a more recent example, the Medical Equipment Trust will expire at the end of next year.

  • That's $194 million that will drop off the table in Ontario.

  • But even after the federal contribution ends, we are still with a program - a program with associated wages, and other operational costs that can fluctuate substantially and will continue into the future.
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Shortfall on Health and Social Transfers

  • Mr. Chair, there are four specific areas where we believe the federal government is coming up short in meeting Ontario's needs: health and social transfers - including post-secondary education; infrastructure; immigration settlement; and Employment Insurance funding for training.

  • I think we would all agree, Mr. Chair, that investment in post-secondary education is a key element in a strong economy.

  • Ontario is currently in 10th place out of 10 provinces in funding for post-secondary education.

  • We are planning to make some new investments to address this situation, but here again, we need Ottawa's help.

  • In 1994-95, the federal government was providing slightly more than $2.7 billion for post-secondary education in Ontario.

  • Today that amount stands at $1.8 billion.

  • The Rae Report has recommended that the federal government should restore funding to its historical level and escalate it by inflation and enrolment.

  • We're prepared to do our part.

  • But we need your help in ensuring that Ontario has the money to invest in priority programs such as post-secondary education - which is a key element, as the Rae report pointed out, in keeping the province strong.

  • We see this pattern repeated in other areas of social program spending.

  • Under the Canada Social Transfer, the shortfall is $374 million - $234 per Ontarian, as compared to $264 for in Equalization-receiving provinces.

  • Post-secondary education is a key element of our economic strength. The same is true of our health care system.

  • Under the Canada Health Transfer, Ontario experiences a $610 million shortfall - federal funding is $374 per person, compared to $423 in Equalization-receiving provinces.
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Shortfall on Infrastructure Funding

  • There are four major federal programs that provide infrastructure investment.

  • Ontario comes up short on each of them.

  • Admittedly, capital spending is a somewhat different beast than operating spending, in that it tends to have a longer lifespan.

  • However, the numbers speak for themselves:

    • Under the Canadian Strategic Infrastructure Fund, Ontario receives $92 per person, while the rest of Canada receives $146

    • Under the Municipal-Rural Infrastructure Fund, Ontario receives $24 per person, while the rest of Canada receives $36

    • Under the Strategic Highways Infrastructure Program Fund, Ontario receives $15 per person, while the rest of Canada receives $21

    • Under the Border Infrastructure Fund, Ontario receives 51 per cent of federal funding - even though Ontario accounts for 75 per cent of the value of goods moved by truck between Canada and the United States.
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Shortfall on Immigration Settlement

  • This pattern of disparity re-appears - again - on immigration settlement.

  • Ontario - which absorbs more than 50 per cent of all new immigrants to Canada - gets only $819 per immigrant.

  • Meanwhile, Quebec - which gets 18 per cent of all new immigrants - receives $3,806.

  • This shortfall amounts to some $400 million.

  • Changes announced in the 2005 federal budget will not address this issue in any significant way.

  • The extra $20 million provided in 2005-06 may increase Ontario's share of national settlement and language training funding from 34 to 36 per cent, assuming Quebec's funding does not change.

  • That would still leave us almost $3,000 behind Quebec.

  • Clearly, that's unfair.

  • Minister Goodale, I am pleased to note, has acknowledged this unfairness.
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Shortfall on EI-Funded Training

  • On Employment Insurance training for people who are unemployed, Ontario is behind the rest of the country.

  • Current federal investment in this area averages $1,827 per person in other provinces - but only $1,143 in Ontario.

  • If Ontario were to be funded at the same level as other provinces, it would mean an additional $314 million to us.
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Federal budget surplus history: More money than expected, but not for Ontario

  • As I said a few minutes ago, Mr. Chair, the federal government has a documented history of underestimating its own budgetary surplus.

  • This practice is clearly demonstrated by the federal government's own numbers.

  • Just as distressing, though, is that the federal government - no matter how much its surplus - has not chosen to use the extra money available to address Ontario's needs.

  • Once again, the 2005 federal budget commits to $76 billion in new spending - but again, nary a mention of Ontario's need for federal investment in post-secondary education. In other health and social transfers. In infrastructure. In immigration settlement. Or in EI funding for training.
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Ontario as economic engine

  • Mr. Chair, there was a time when Ontario - and Canada - benefited primarily from east-west trade.

  • It was the benefit of this east-west trade that allowed the federal government to fund equalization, and other transfers to provinces.

  • Today the landscape has shifted - the majority of our trade is north-south.

  • Given that Ontario represents more than 39 per cent of Canada's population and 40 per cent of its economy, we need to take into account this new economic reality.

  • And that means that, to keep Ontario strong, the federal government needs to adjust the way it invests in this province - so that the federal government can, in turn, continue to fund the programs and services that all Canadians rely on.

  • We are, after all, the country's economic engine.

  • We need to make sure this engine continues to fire on all cylinders

  • We face a substantial structural deficit, exacerbated by:

    • the previous government's flawed fiscal policy

    • the $23-billion gap

    • spending pressure in health care at twice the rate of revenue growth, and

    • the need for vital investments in post-secondary education and infrastructure.

  • The federal government has the fiscal capacity to help us deal with these problems.

  • We're doing this not just for the benefit of Ontario - but for all Canadians.

  • The 2005 federal Budget did not address these key areas.

  • That said, we welcome the investment that we did get.

  • We were pleased to hear that Minister Goodale and others have made positive noises regarding immigration and funding for post-secondary education.

  • We are also encouraged at the signals we're hearing that federal cabinet ministers from Ontario are beginning to understand the scope of the problem.
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Conclusion

  • We will be urgently pursuing these matters - matters of the utmost concern to our province, and to the country.

  • What we are asking for, ultimately, is fairness.

  • We want the federal government to treat Ontario as it treats other provinces.

  • Not better, or worse, but the same.

  • As the Premier has said, the $23-billion gap is restricting our ability to build a stronger Ontario for a stronger Canada.

  • A strong, economically vital Ontario means morefederal revenue - money that can, in turn, help every region of the country.

  • I would be pleased to answer your questions.
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