Equalization formula a hot topic as finance ministers meet

For the first time in a decade Ontario will not receive an equalization transfer from Ottawa, prompting the province's finance minister to join calls for the federal government to review how the program is set up.

Canada's finance ministers are in Ottawa for the second of their two yearly meetings, which started with a working dinner at an Ottawa hotel Sunday night.

Just ahead of that dinner, federal Finance Minister Bill Morneau released publicly the amount of money Ottawa will transfer to the provinces and territories in 2019-20, including nearly $20 billion in equalization.

It's up almost $880 million from the current year, but that amount will be split among just five provinces — Quebec, Manitoba, Nova Scotia, Prince Edward Island and New Brunswick. For the first time since the 2008 recession put Ontario on the have-not province list, Ontario is not among them.

Quebec on the other hand is getting more than $13 billion from the program, an increase of nearly $1.4 billion.

Technically Ontario's economic growth was good enough in 2016-17 to push it out of have-not status, when a province's finances are considered lower than average and qualifies them for equalization. However because of the way the program works, Ontario still received $963 million in 2018-19.

The government was well aware it would not be qualifying this year for equalization but Ontario Finance Minister Vic Fedeli said it's further proof of why the equalization program needs an overhaul. He said Ontario will contributed $8 billion into equalization, and won't get anything from it. Overall Ontario will give Ottawa $12.9 billion more in taxes than it will receive from federal spending, he said.

"So we're certainly calling on the feds for a review of their federal transfer payments because we want to make sure that Ontario businesses and families are getting our fair share," said Fedeli.

Alberta, Saskatchewan and Newfoundland have also called for changes to the formula.

Morneau said the formula was renewed earlier this year for a five-year period after extensive discussions from his department but he knows the formula will be raised at the table.

"Ontario's moving out of that program is a reflection of sustained positive economic results in Ontario and I expect that is overall positive but it will almost certainly be a discussion," Morneau said.

Morneau added that the program is just one of the ways Ottawa assists provinces with their finances, pointing to a stabilization program that has helped Alberta and Newfoundland through a rough patch in recent years.

He also suggested Ottawa's decision to spend $4.5 billion to buy the Trans Mountain pipeline with a view to ensuring its expansion was another aid program for the province, done to try to help Alberta overcome challenges getting its oil to market. He did not mention the fact the expansion is on hold pending further environment and Indigenous consultations after the Federal Court of Appeal ripped up the original federal approval.

Quebec Finance Minister Eric Girard said Quebec has 22 per cent of Canada's population but accounts for 19 per cent of its economy, and that's something his newly elected government wants to change. Girard said the Coalition Avenir Quebec wants to see Quebec's need for equalization go down as it works to improve its economic standing but said that will take some time.

Fedeli also said while carbon taxing wasn't on the agenda he would make sure it was discussed. Ontario and Saskatchewan are both challenging in court Ottawa's plan to impose a carbon tax on their provinces next year.

Fedeli and Saskatchewan Finance Minister Donna Harpauer wrote to Morneau last week asking him to do a thorough economic impact analysis of what the carbon tax will do, particularly when it comes at the same time as businesses are going to paying more for Canada Pension Plan contributions. The long-planned CPP expansion kicks in next month, with contributions from employees and employers rising over the next five years so the program can increase benefit payments.

Morneau said businesses will see a decrease in their employment insurance payments at the same time, and he said because Ottawa is returning revenues from the carbon tax to individuals, there shouldn't be an economic impact.

-with files from Andy Blatchford