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Can only one man see that Canada’s equalization program is broken?

No one does a better job than David MacKinnon of revealing what he calls "the tragic consequences" of Canada's broken equalization program.

But the real tragedy may be that no one, especially no one in Ontario, seems to be listening.

Mr. MacKinnon, now semi-retired, was a senior public servant in both the Nova Scotia and Ontario governments. He was also CEO of the Ontario Hospital Association and the Ontario Development Corporation. He knows what he's talking about.

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Using data from Statistics Canada, the Organization for Economic Cooperation and Development and think tanks in Ontario, Nova Scotia and British Columbia, Mr. MacKinnon has drawn a portrait of a country that pumps $15-billion each year into a program that fails both those who pay and those who receive.

Canada's Constitution requires that the federal government ensure, through its equalization program, "reasonably comparable levels of public services at reasonably comparable levels of taxation" across Canada.

But equalization does no such thing, Mr. MacKinnon maintains. Instead, it ensures that Ontario taxpayers – who pay twice as much into equalization as the province receives from the program – endure lower levels of public services than those in receiving provinces.

(Though Mr. MacKinnon focuses on Ontario, much of what he says applies to Alberta and British Columbia as well.)

Consider: There are twice as many federal bureaucrats, as a share of the overall population, in Prince Edward Island as in Ontario, even though the national capital is in Ontario, according to data provided by Mr. MacKinnon.

PEI also has three times as many provincial bureaucrats, on a per-capita basis, as well as 50 per cent more nurses, 28 per cent higher university funding and twice as many long-term-care spaces.

Twenty-six per cent of the Manitoba and Nova Scotia labour force is employed in the public sector. In Ontario the figure is 18 per cent.

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Both Manitoba and Quebec subsidize electricity consumption. Ontario taxpayers help pay for those subsidies.

In fact, over the past 50 years, Mr. MacKinnon calculates, Ontario has on average contributed 4 per cent of its gross domestic product to support other provinces. This is roughly the same percentage of GDP that the United States spends on defence, and the U.S. over the past 50 years has been at war more often than not.

"Viewed from this perspective, the impact of the regional subsidy effort on Ontario is like fighting a 50-year war," Mr. MacKinnon observed in a recent address to an Ottawa-area Rotary Club.

Everyone suffers: Ontario is less able to compete with other manufacturing-based economies, who don't see a sizable portion of their GDP drain away to other jurisdictions.

Receiving provinces pay, too, through subsidy distortions that undermine the private sector. Ganong Chocolates in New Brunswick must import Romanian workers to keep its factory going, even though unemployment in the province is 11 per cent.

In Prince Edward Island, where the unemployment rate is also 11 per cent, it's Russians and Ukrainians who are brought in to work in the fish plants.

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The distorting, debilitating effect of equalization "harms productivity everywhere," Mr. MacKinnon maintained in an interview. But Ontario, as the largest economy, suffers most. "It could cut us off from what could otherwise be a very bright future," he warns.

Yet though he has been sounding the alarm in speeches and articles for 15 years or more, no one in the federal governments listens, and few people in Ontario listen either.

As David Cameron, a political scientist at University of Toronto, once observed, an Ontario premier is like "a general without an army." The same voters who put the premier in office put the prime minister in office, because, with almost 40 per cent of the population, Ontario voters largely determine the federal government.

Those voters don't seem to much notice, or care, that the federal government, as Mr. MacKinnon puts it, "is robbing Peter to pay Paul so that Paul can live better than Peter."

Maybe that will change. Maybe the hundreds of thousands of lost jobs, an employment rate chronically above the national average and a growth rate chronically below it, the growing provincial debt and crumbling provincial roads will finally cause Ontario to rise up.

Or not. As Mr. MacKinnon notes, in something approaching despair: "Ontario's great sin is complacency.

"It's a sin it needs to shed, if it wants a future."

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About the Author
Writer-at-large

John Ibbitson started at The Globe in 1999 and has been Queen's Park columnist and Ottawa political affairs correspondent.Most recently, he was a correspondent and columnist in Washington, where he wrote Open and Shut: Why America has Barack Obama and Canada has Stephen Harper. He returned to Ottawa as bureau chief in 2009. More

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