With federal transfers at all-time high, provinces can’t blame Ottawa for a lack of money

“After accounting for inflation and population changes, federal transfers to the provinces are higher now than they have ever been so provincial governments can’t reasonably blame insufficient money from Ottawa for their fiscal woes,” said Ben Eisen, associate director of provincial prosperity studies at the Fraser Institute and co-author of Are the Provinces Really Shortchanged by Federal Transfers? The study notes that between 2005/06 and 2015/16, federal transfers to the provinces and territories increased by a total of 62.3 per cent—a rate much higher than required to offset both increasing overall prices (inflation) and a growing population (31.6 per cent). Major federal transfers are now higher (on an inflation-adjusted per capita basis) than at any other point in Canadian history. Over the past decade, federal transfers have made up a greater share of provincial revenues. In 2005/06, transfers represented 14.8 per cent of all provincial revenues. This share has climbed steadily since then and is projected to reach 17.3 per cent this year, the highest level in recent history. Consider the situation in Ontario, Canada’s largest province, which has a projected deficit of $7.5 billion this year. From 2005/06 to 2015/16, federal transfers to Ontario increased by a total 87.8 per cent, more than transfers to most other provinces. This is more than twice the amount that would have been necessary to keep pace with both inflation and population growth in the province (31.1 per cent).

Major transfers now represent 16.4 per cent of Ontario’s revenues, up from 12.0 per cent in 2005/06. Ontario is also gaining an increasing share of total federal transfers. The province received 26.0 per cent of all federal transfers in 2005/06 but that’s projected to increase to 30.1 per cent in 2015/16. This means that even as the total federal transfer “pie” has grown substantially over the past decade, Ontario’s share of the pie has also increased, due primarily to its relatively recent “have-not” status (as of 2008/09) within Canada’s equalization program. Despite this rapid increase in transfers, Ontario ran a persistent string of deficits since 2008/09. “The Ontario government should look inward at its past policy choices rather than blame inadequate transfers from Ottawa for its deficits,” said Eisen. “Ottawa is already sending record amounts of money to the provinces. Provincial governments can’t reasonably blame a lack of federal transfers for the fiscal challenges they face,” said Charles Lammam, study co-author and Fraser Institute director of fiscal studies.