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The Fraser Institute: 'Have Not' Ontario Radically Alters Canada's Equalization Program

VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 01/16/14 -- Ontario's shift from a "have" to a "have not" province has profoundly affected Canada's equalization program and the country overall, finds a new study published today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

The study, Equalization, Ontario, and the politics of division, notes the consequences ever since Ontario became a "have not" province eligible for equalization payments.

"A dramatic shift in the economic balance of the Canadian federation occurred when Ontario, which represented 38 per cent of the Canadian economy and 39 per cent of the Canadian population, became eligible for equalization," said Mark Milke, study author and senior fellow at the Fraser Institute.

For example, due to Ontario's shift (in 2009/10), the majority of Canadians (71 per cent) now live in equalization-receiving provinces whereas in 2008/09, the year before Ontario first received equalization, "have not" provinces represented only 32 per cent of the 10-province population.

Moreover, Ontario's share of federal equalization has grown from $347 million in 2009/10 to almost $3.3 billion in 2012/13, or from 2.4 per cent to 21.1 per cent of all equalization payments.

"Ontario's crowding out of other provinces in the equalization program may prompt calls for more redistribution from the richer Canadian West and her resource wealth, increased equalization funding, a subsequent increase in federal spending, and political rancour among the provinces over the equalization pie," Milke said.

Adding to the potential tension, while "have-not" Ontario receives equalization from the federal government, it enjoys a higher household income per capita ($39,273) than "have" provinces British Columbia ($38,463) and Newfoundland & Labrador ($37,101).

"Ontario is an equalization recipient even though the province is technically richer in terms of per capita income when compared to two 'have' provinces," Milke said.

Finally, the four "have" provinces (Newfoundland & Labrador, Saskatchewan, Alberta and B.C.) are rich in resource revenues, which may lead to more demands from "have not" provinces (Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Ontario and Manitoba) to include a higher percentage of resource revenue when calculating the wealth of provinces, and the subsequent equalization payment formula.

"Equalization is a federal transfer program designed to subsidize provinces with weak revenues and unify the country politically. However, the flip in Ontario's status from 'have' to a 'have not' has had, and will continue to have, profound consequences for Canada," Milke said.

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

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