Energy folly helped push Ontario into ‘have-not’ status

April 25, 2014
Economic wounds self-inflicted in service to energy fashion have helped push Canada toward uncharacteristic instability.

Economic wounds self-inflicted in service to energy fashion have helped push Canada toward uncharacteristic instability.

An important balance point shifted in 2009 when Ontario, embracing 38% of the Canadian population, became a recipient province in the country’s equalization program.

Using a formula based on net revenue per capita and tax-rate averages, the federal government receives equalization payments from comparatively wealthy provinces for distribution to poorer ones. The aim is to balance spending on social services.

Before Ontario joined the group, so-called have-not provinces represented about a third of the Canadian population. Now the have-not share exceeds 70%. The majority position thus has swung strongly from giving to receiving.

What’s more, note researchers at the free-market Fraser Institute, equalization status now divides resource-rich provinces from the other kind.

At the national level, Ontario’s conversion changed the landscape economically as well as politically.

Ontario, with its outsize population, manufacturing base, and financial power, once dominated the Canadian economy. Now it underperforms. The global financial crisis of 2007-08 hit the province hard. But the province has hurt itself, too.

An incredibly timed culprit is the Ontario Green Energy and Green Economy Act of 2009. The law uses feed-in tariffs to guarantee uneconomic forms of energy used to generate electrical power above-market rates. Predictably, rising electricity costs are hurting people and businesses. Further increases are predicted.

The scenario is familiar. Many European governments have wrecked economies and personal budgets the same way. As in Europe, promises of net job creation from the construction of wind towers and biofuel plants have proven delusional. Private-sector job growth during 2000-13 in Ontario was the third lowest in Canada at 14.1%. In national leader Alberta, where people produce competitive energy, growth over the period amounted to 42.1%.

Having done this to itself, Ontario relies on less-populous provinces with more-sensible approaches to energy for equalization money. This can’t represent cozy politics for any of them.

But it should be yet another lesson in energy folly for all.

(From the subscription area of www.ogj.com, posted Apr. 25, 2014; author’s e-mail: [email protected])