With the plunge in oil prices over the last six months (and already soft natural gas prices), it’s not headline news to note that provinces heavily dependent on energy-related revenues are suffering.
The decline in the resource sector has also contributed to a decline in the value of the Canadian dollar against the greenback. That has led some to speculate that Ontario’s economy will improve. (The depreciation of the loonie makes Ontario’s manufactured goods artificially more competitive.)
Perhaps. But as the resource economies of the West and Newfoundland and Labrador see significantly less revenue, there is this consequence for Ontario: the provincial treasury will receive less in equalization payments from the federal government. So balancing the books may not get any easier for the Ontario government.
For those not familiar with the details of federal transfers to the provinces and territories, in total Ottawa “cut” cheques worth $65 billion to the provinces and territories in 2014/15 (the fiscal year now ending). One federal program, equalization, was worth $16.7-billion.
Equalization, in its constitutional mandate, is meant to ensure “that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.”
And that’s where we circle back to Ontario. In the past six years, Ontario’s own poor economic performance, combined with the gusher of western and Newfoundland and Labrador resource revenues, meant that Ontario fell below the 10-province average.
As a result, since 2009/10, Ontario was and still is an equalization recipient — a “have not” in equalization speak. From that first equalization cheque six years ago to the end of this March, Ontario will have garnered $12 billion in equalization payments from the federal government.
more
Why falling oil prices will squeeze Ontario, too | Financial Post
The decline in the resource sector has also contributed to a decline in the value of the Canadian dollar against the greenback. That has led some to speculate that Ontario’s economy will improve. (The depreciation of the loonie makes Ontario’s manufactured goods artificially more competitive.)
Perhaps. But as the resource economies of the West and Newfoundland and Labrador see significantly less revenue, there is this consequence for Ontario: the provincial treasury will receive less in equalization payments from the federal government. So balancing the books may not get any easier for the Ontario government.
For those not familiar with the details of federal transfers to the provinces and territories, in total Ottawa “cut” cheques worth $65 billion to the provinces and territories in 2014/15 (the fiscal year now ending). One federal program, equalization, was worth $16.7-billion.
Equalization, in its constitutional mandate, is meant to ensure “that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.”
Ontario’s treasury will receive less in equalization payments from the federal government
That means not every province receives equalization. That only happens if a province’s assumed ability to raise revenues, its “fiscal capacity,” is below the average of all 10 provinces. And that average is calculated measuring a variety of revenues including personal and corporate taxes, and resource revenues.
And that’s where we circle back to Ontario. In the past six years, Ontario’s own poor economic performance, combined with the gusher of western and Newfoundland and Labrador resource revenues, meant that Ontario fell below the 10-province average.
As a result, since 2009/10, Ontario was and still is an equalization recipient — a “have not” in equalization speak. From that first equalization cheque six years ago to the end of this March, Ontario will have garnered $12 billion in equalization payments from the federal government.
more
Why falling oil prices will squeeze Ontario, too | Financial Post
