Ontario’s Other $20-Billion Gap

Premier McGuinty and other commentators like to emphasize that federal revenues from Ontario exceed federal spending in Ontario by about $20 billion annually. Although this total partly reflects the overall federal surplus and federal spending outside Canada, it is usually presented as a transfer of expenditure from Ontario to other provinces.

A standard story is that, back in the days of tariff protection and east-west trade, these funds were returned through purchases of Ontario-made products by the rest of Canada. However, in today’s environment of globalization and north-south integration, the $20-billion gap is supposedly an undue drain on Ontario’s international competitiveness.

However, as Marc and I like to emphasize, trade is far more intense across provincial borders than across international borders. Ontario remains the predominant supplier of many private services to the entire country. Indeed, Ontario exports to other provinces exceed Ontario imports from other provinces by $25 billion. (This annual figure holds for 2007 and has been remarkably consistent over the preceding decade.)

Ontario’s positive interprovincial trade balance constitutes a transfer of expenditure from other provinces to Ontario. The story about Ontario getting public transfers back through private purchases is not outdated. If interprovincial trade is considered alongside government activity, Ontario is clearly still a net economic beneficiary of Confederation.