Filling the Gap
March 28, 2013 | By Noah Zon
Measuring Ontario’s Balance with the Federal Government
This Mowat Note examines the balance between what Ontarians pay to the federal government and the amount returned in services and transfers to Ontario and Ontarians. We find that based on the latest available figures, Ontarians transfer approximately $11B on net to the rest of Canada. This transfer is equivalent to 1.9% of the province’s GDP.
For many years, residents of Ontario have funded a disproportionate share of federal spending, at a time when the province was relatively wealthy compared to other Canadian provinces. However, Ontario is no longer wealthier than the Canadian average, with below–average GDP per capita (since 2006)1 and below–average government fiscal capacity (since the 2009–10 fiscal year).2
Several factors have combined to drive this relative decline, including:
- structural changes in the Ontario economy;
- a resource–driven boom in some other provinces;
- and weakness in the U.S. economy, Ontario’s main trading partner.3
One might assume that, given Ontario’s below average fiscal capacity, it would now be a net recipient of redistribution in the federation, but that turns out not to be the case. Canada’s fiscal arrangements have not evolved to reflect changing circumstances. As a result, Ontarians continue to see their federal taxes redistributed away from Ontario on a net basis at a time when the province can ill–afford it, at a rate estimated at approximately $11B in the 2009-10 fiscal year, the most recent year for which numbers are published.
The gap is almost entirely a result of federal spending and program decisions that leave Ontarians receiving less than their per capita share of spending and transfers, rather than regional inequities in revenue collection. This Mowat Note is intended to provide context for Ontarians on the complicated relationship between the taxes they pay to the federal government and the services they receive.View PDF
More related to this topic
- Can Canada learn anything from the Eurozone debt crisis?
- Calm counsel: Fiscal federalism and provincial credit risk
- Why Canada needs a Federal Economic Agenda for Ontario
- The Federal Economic Agenda for Ontario at the Northern Policy Institute's Leadership Luncheon
- What the government isn’t telling you about federal transfers
- Public Services For Ontarians: A Path To Sustainability And Excellence, the report of the Commission on the Reform of Ontario’s Public Services http://www.fin.gov.on.ca/en/reformcommission/chapters/ch1.html [↩]
- Based on the technical measure of fiscal capacity used to determine Provinces’ entitlements under the federal Equalization program. As described in the 2009 Federal Budget. http://www.budget.gc.ca/2009/pdf/budget-planbugetaire-eng.pdf [↩]
- These are explored more fully in other Mowat Centre publications, most recently in Mendelsohn, Matthew. Back to Basics: The Future of the Fiscal Arrangements. http://www.mowatcentre.ca/research-topic-mowat.php?mowatResearchID=75 [↩]