Don't cry for Ontario

Canada, my old boss Bill Thorsell used to say, is a nation of sumkeepers. Successive governments have tried to persuade Canadians it was possible to redistribute income from everyone to everyone. Instead, they succeeded only in leaving every region of the country in a state of permanent aggrievement, each convinced it was paying for all the rest. Welcome to Canada, where all the children are below average.

If it is arithmetically impossible for every region to be “paying in” more than it “takes out,” in the mercenary language of these discussions -- ask not what you can do for your country, my fellow Canadians, ask what you can take out of it -- it is arithmetically inescapable that, if some regions are to be net beneficiaries, some others must be net contributors. (Unless, by some miracle, everyone were to come out exactly even.) So the question is not, do some regions get “less” out of Confederation than others, but which ones? And how much?

I ask these questions in the wake of the premier of Ontario’s hugely successful campaign to convince his citizens that they are being taken to the cleaners, by virtue of the now-famous $23 billion “gap.” How successful? Given his record, it’s a wonder Mr. McGuinty could persuade anyone of anything. But not only has he the support of the Toronto Star in his campaign for redress of this injustice, he has somehow lured the National Post on board.

I kid you not. “Dalton McGuinty is right,” the paper editorialized over the weekend. “The ‘$23-billion gap’ being hyped by the Ontario Premier … represents a destructive drain on Canada's most economically successful region.” The editorial blamed the equalization program, though it seemed to confuse this with employment insurance (“In some parts of Atlantic Canada, for instance, it is the norm for workers to work three months a year at a fishing plant, then spend the rest of the year on the dole.”). But never mind. Is he right, in principle? Is Ontario, though to all appearances “Canada’s most economically successful region,” in fact its biggest victim?

Let’s assume for the moment that $23-billion figure is correct -- that if you added up all of the revenues the federal government raises in Ontario every year, then added up all of what it spends in Ontario, the first would exceed the second by that amount. Is that a lot? Too much? How much less would be appropriate? How do we know? By what yardstick? The McGuinty government likes to drive the point home by noting that a few years ago the province’s net contribution was only $2-billion. But who knows? Maybe that was too little.

A bit of context: Canada’s GDP last year was about $1.3-trillion. Ontario accounted for just over 40% of that, or about $525-billion. So the $23-billion yoke the province is groaning under amounts to a little over 4% of its income -- not nothing, but hardly Russia-under-the-Czars levels. Equalization’s share of that burden is even less. The whole program is worth $11-billion a year. Let’s say Ontario, as one of the two “have” provinces -- Alberta is the other -- bears three-quarters of that, or about $8-billion. That’s 1.5% of the province’s GDP. O, infamy!

What might account for that “gap”? Is it the province’s lack of clout in Ottawa, with half the seats in the governing caucus? Does the federal government bear it some sort of grudge? Or might there be another, simpler explanation? There are, for example, fewer unemployed people in Ontario, proportionately, than in most other provinces, meaning it draws less than its share of employment insurance benefits. It has a higher than average per capita income, too, so a progressive income tax necessarily collects a disproportionate amount from the province’s citizens.

The mere existence of a “gap,” in other words, tells us nothing. And even if it were rooted in some unfairness, it’s not clear why the remedy to an imbalance affecting the province’s taxpayers should be remedied by giving more money to the province’s government: a government that -- as a matter of simple, verifiable, statistical fact -- has more revenues as it is than it has ever had in its history ($6300 and change per capita). And yes, that’s after inflation.

Much of the reporting of this story makes it sound as if the federal government is dependent on provincial transfers, rather than the other way around: “Ontario wants an admission from Prime Minister Paul Martin that it pays Ottawa billions of dollars more each year to help poorer provinces than it gets back from the federal government...” If, on the other hand, the province is successful in its attempt to extort more money out of a weakened federal government, it will not be supplied by some entity called “Ottawa.” It can come, rather, from only two sources: the rest of Canada, or its own citizens.

If the former, then someone should explain why taxpayers in the rest of Canada should cough up more for a province that is already richer than they are. If the latter, how the taxpayers of Ontario are better off if the state passes their money from its right pocket to its left.