On-welfare-tario

Wow!  Who could have imagined that the Centre of the Universe would qualify for the federal government version of welfare payments?  I can hear the calls for subsidies and protection already. 

Ontario to get handouts as have-not province by 2010: TD

Jacqueline Thorpe,  Financial Post  Published: Tuesday, April 29, 2008

National Post File

TORONTO -- Ontario will officially become a "have-not" province in 2010-11 and begin to qualify for entitlement payments under the federal government's new equalization formula announced in last year's budget, according to a report from Toronto-Dominion Bank.

The bank calculates Ontario stands to collect as much as $400-million in fiscal 2010-11 and $1.3-billion in fiscal 2011-12.

"Current data do not suggest Ontario would qualify for a payment in 2009-10 but that could easily change," Derek Burleton, TD's director of economic studies, and Don Drummond, chief economist, said in their report.

It would be the first time since 1977-82 that Ontario would qualify for equalization payments.

The National Post first reported the possibility that the province, which was once considered the country's economic engine, could begin to receive payments in February. But this is the first time economists have come up with detailed estimates.

"[A] closer look reveals that the relative decline is not so much a story of Ontario weakness as it is of booming economic strength in Canada's commodity-based economies," the report said.

Soaring commodity prices have raised revenue in other provinces, principally in the west. At the same time, a switch from a five-province to a 10-province standard in the 2007 equalization reforms brought Alberta into the formula and that raised the fiscal capacity standard.

High commodity prices have not only raised revenues in many provinces but have also hit Ontario's economy hard. The strong dollar, and strong international competition have also hammered Ontario's manufacturing base.

In 2002, Ontario had the second-highest nominal GDP per capita, behind only Alberta and a 7% advantage over the national-average level. By 2007 it had fallen to 2% below the Canadian average, or the equivalent of fourth place in the provincial rankings, TD said.

Despite all Ontario's headwinds, the province's GDP per capita actually grew 3% per year during the 2002-07 period ‹ a healthy performance but one that paled in comparison to the sizzling 5% to 8% rates turned in by the four Western provinces.

Newfoundland and Labrador took top prize as offshore oil activity powered a double-digit surge in GDP per capita over the period.

Ontario's GDP per capita is expected to sit 4% below the national average next year while the West's advantage is expected to climb to around 20%.

TD says the change in equalization trends can largely be traced to the inclusion of 50% of non-renewable resource revenues for all provinces, including Alberta, in the new federal formula and the exceptional gain in oil prices.

The oil shocks of 1973 and 1974, and the recession of the early 1980s placed Ontario as a recipient of equalization payments from 1977-82, TD said. But the province did not actually receive any as several qualifications and caveats were brought in.

TD says the parallels today are uncanny: soaring energy prices, a switch to a 10-province from standard, inclusion of 50% of non-renewable resource revenues. It then asks whether the change in standards are appropriate.

TD says Ontario's equalization status could prove fleeting if the economy recovers 2010 and 2011.