OTTAWA - Ontario will not get shafted by federal plans to rein in the growth of Canada's $13.6-billion wealth-sharing program, Finance Minister Jim Flaherty says.
Flaherty is poised to unveil a plan Monday to constrain the growth of the equalization program -- a move that has set off alarm bells in Ontario as the province teeters on the brink of have-not status.
Premier Dalton McGuinty's government fears the federal government intends to rejig the program to ensure that the country's largest province will not qualify for hundreds of millions of dollars in equalization payments from Ottawa.
But Flaherty told The Canadian Press that's not his intention.
"That is not what this is about, no," he said in an interview.
Flaherty was planning to talk Sunday to his Ontario counterpart, Dwight Duncan, before meeting Monday with all provincial finance ministers to explain what he has in mind.
"It'll give me an opportunity to explain what Ontario's involvement would be were Ontario to be a recipient of equalization in the next fiscal year," he said.
"In fact, the news for Ontario is good. Ontario, in fact, will benefit substantially."
Ontario is the only province that has never received any payments under the 51-year-old equalization program, which is intended to ensure that have-not provinces are able to provide comparable services at taxation levels comparable to those in wealthy provinces.
However, a report by TD Economics last April projected that economically-battered Ontario will qualify for equalization of $400 million in 2010-11 and $1.3 billion the following year. Deteriorating economic conditions in the country's manufacturing heartland since the report's release could well hasten the province's descent into have-not status during the 2009-10 fiscal year.
On Friday, Duncan warned that the federal government will face a "tidal wave of anger and opposition" if it tries to preclude the province from receiving equalization.
"It appears as though what the federal government is going to do is to change the equalization formula to prevent Ontario from qualifying," Duncan said.
"So at the very time recession and the downturn in the economy in Ontario is happening, the federal government is looking for ways to not assist Ontario. So we will be really fighting this tooth and nail."
Flaherty predicted Duncan will "be saying quite a different thing once he understands what we're proposing to do.
"It's very simple, and that is that we have to constrain the growth of the plan. There'll be more money for those provinces entitled to equalization, and Ontario may well be entitled to equalization and there will be money for Ontario."
In the absence of any details, however, Flaherty's assurances were greeted with skepticism by the McGuinty government.
"After paying over $100 billion over five decades to the rest of Canada through equalization and not getting a penny in return, Ontarians should be more than a little skeptical of the latest noises coming from Ottawa," a provincial official said.
The official added that any changes that limit Ontario's ability "to fully benefit from the program for the first time would be hard to swallow given the challenges hitting our economy."
Flaherty acknowledged that Ontario's inclusion among equalization recipients would be costly to the federal treasury. But he said Ottawa would need to rein in the rate of growth of equalization payments, irrespective of Ontario's status.
"The reality is that the growth in equalization payments . . . is about 15 per cent per year and given what is happening in the world today, including in Canada, that is not sustainable. We could continue on that path, and we would run deficits and the equalization program would go bankrupt."
Flaherty said the unsustainable increases are due primarily to "unprecedented volatility" in natural resource prices.
The equalization formula adopted by the Harper government just last year, after acrimonious negotiations with the provinces, is based on the average fiscal capacity of all 10 provinces, including 50 per cent of their non-renewable natural resource revenues.
Because payments are based on a three-year average with a two-year time lag, Flaherty said the federal government could wind up "paying equalization on the basis of $140 per barrel oil at a time when, as you know, the price of oil is in the sixties."
Ontario's concern about Flaherty's intentions is based on bitter past experience. The impact of energy prices on the cost of equalization today is almost identical to conditions in the 1970s, when the federal government modified the program to prevent a recession-ravaged Ontario from qualifying.
Ontario's entry into the equalization program would be a double-whammy on the federal treasury. It would mean not only paying hundreds of millions to Ontario, but increased payments to the other six equalization-receiving provinces as well.
Equalization payments are currently capped so that no receiving province winds up with a fiscal capacity greater than that of the poorest non-recipient province, which is now Ontario. But if Ontario becomes a recipient, the cap would rise to next poorest province, British Columbia, whose fiscal capacity is much higher than Ontario's.
Alberta and Saskatchewan are the only other provinces that currently do not receive equalization.
