Canada’s parliamentary budget officer has released a report that shows what many of us have known for a long time: the federal government is shortchanging Ontario on fiscal transfers. The PBO highlights a $1.2-billion shortfall due to recent tinkering, but this is just the tip of the iceberg.

The current federal government has politicized fiscal transfers to an unprecedented degree. In the hands of the federal government, what should be nation-building fiscal tools have become weapons to wage fiscal battles.

Like his predecessor, the current federal finance minister worries out loud about Ontario’s deficit and publicly speculates about credit rating agencies. These are real issues. But the federal government should do more than just nag. It should stop manipulating federal fiscal transfers in a manner that hurts Ontario’s balance sheet.

Ontario’s complaints have been dismissed by the federal government as whining. Former Finance Minister Jim Flaherty was fond of saying Ontario’s problem was that the government of Ontario just didn’t understand the simple math of equalization.

While it is true there are mathematical formulas for allocating fiscal transfers, the federal government has also very deliberately changed the formulas several times over the past five years. The interventions are technical and difficult to understand but each has resulted in Ontario getting less than it otherwise would have and weakened Ontario’s balance sheet.

Ontario first qualified for equalization in 2009. In response, the federal government put a new cap on payments. The result was that, in the middle of the most severe economic downturn since the Great Depression, Ontario was denied funds to which it was entitled.

To compound matters, the federal government then implemented this cap by clawing back 25 per cent of Ontario’s equalization payment, but only 5 per cent from other provinces. There has never been an explanation for why.

Last year, the federal government made “technical” changes to the equalization formula that cost Ontario another $200 million.

More recently, Ontario qualified for a special program known as “Total Transfer Protection” (the first and only time it qualified), which had provided seven other provinces with $2.1 billion in the previous five years. Seeing as Ontario was the only province to qualify this year, the federal government ended the program, costing Ontario $640 million. Again, no sensible explanation has been offered.

The pattern above has been repeated in recent years in many other funding decisions. Earlier this year, the federal government announced its new infrastructure funding programs across the country. In one program, each province will receive the same amount — $250 million.

To put that in perspective: Ontario, home to nearly 14 million people, will receive the same amount as PEI and its 150,000. The result is that Ontario, with 39 per cent of the Canadian population, will receive about 28 per cent of federal infrastructure spending.

The PBO looked only at recent federal tinkering to the equalization program and other major transfers. An examination of the structure of the program, as well as the pattern of federal spending more generally, would have revealed even more federal complicity in exacerbating Ontario’s deficit.

The Mowat Centre has been highlighting some of these issues for years. We are often told to stop whining. The issues are complicated and many people refuse to believe that the federal government would actually engage in tinkering with allocation formulae and fiscal transfers to weaken Ontario’s balance sheet. But that seems to be the logical conclusion based on recent evidence.

Some are now suggesting that the federal government has put the Ontario government on its enemies list. Others suggest that the federal government is focused on balancing its books and assumes people in Ontario are less likely to raise a stink than people in Quebec or B.C. might if they were being treated unfairly.

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It is not possible to be sure about federal intentions or motivations. But the result is clear. The people of Ontario — who now get less job training, fewer services, less infrastructure money, carry a larger debt — are collateral damage. All Ontarians — regardless of partisan orientation — need to start paying attention, and demanding better of our federal government.

Matthew Mendelsohn is the Director of the Mowat Centre at the School of Public Policy & Governance at the University of Toronto. He served as Ontario’s Deputy Minister of Intergovernmental Affairs from 2005-2008. Recent publications on federal transfers to Ontario can be downloaded at www.mowatcentre.ca .

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