Federal transfers to Ontario up 87.8 per cent since 2005/06
According to a narrative persistently advanced by some in Ontario’s government, inadequate transfer payments from Ottawa are at least partly to blame for Ontario’s fiscal problems. This narrative does not withstand scrutiny.
Despite frequent complaints from Ontario and other provincial governments that they aren’t getting enough money from Ottawa (without stating how much “enough” is), federal transfers to the provinces have actually increased substantially in recent years. In fact, after accounting for inflation and population changes, federal transfers to the provinces and territories are now at an all-time historic high.
These transfers include equalization, which depend on a province’s fiscal capacity, as well as the Canada Health Transfer and Canada Social Transfer, which are paid to all provinces based on the size of their populations.
While federal transfers are on the rise overall, transfers to the specific provinces are not increasing at the same rate. Instead, some provinces have experienced much faster growth in the size of their federal transfer envelopes than others over the past decade.
Of particular significance are federal transfers to Ontario, Canada’s most populous province and largest economy, which have increased especially rapidly since 2005/06. In fact, over the past decade, major federal transfers to Ontario increased from $10.9 billion to $20.4 billion—an increase of 87.8 per cent. This is the second largest increase among all provinces. By comparison, total transfers to the provinces and territories have increased by 62.3 per cent during the same period.
The chart below compares each of the ten provinces in terms of the increase in their transfer payments since 2005/06. It shows that transfers to Ontario have increased much faster than transfers to all other provinces except for Alberta. Alberta’s uniquely large increase was caused by a substantial increase in its population, as well as a recent change to the formula for determining the distribution of Canada Health Transfer payments.
While the overall federal transfer “pie” has grown significantly over the past decade, Ontario’s “slice” has also grown larger. In 2005/06, Ontario received 26.0 per cent of all federal transfers. In 2015/16, Ontario’s share is projected to be 30.1 per cent. Major transfers now represent 16.4 per cent of Ontario’s total revenue take, up from 12.0 per cent in 2005/06.
The most important reason Ontario’s transfers have increased so quickly is Ontario’s emergence as equalization receiving province. Ontario, historically an engine of economic growth for the country, became a “have-not” province in 2009/10 and began to receive equalization payments. Since then, the province has received over $14 billion from equalization, contributing to rapid growth in the size of its overall federal transfer envelope.
The data clearly show that federal transfers to the provinces have increased substantially in recent years, and that transfers to Ontario have increased especially quickly. Blaming Ottawa for Ontario’s poor fiscal performance in recent years may be a convenient narrative, but it is a false one.
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