November 3, 2008 / 6:59 PM / 9 years ago

Ontario gets federal handout as industry pinched

TORONTO (Reuters) - Ontario will receive its first-ever handout from a federal program designed to help poorer provinces as the global financial slowdown crimps demand in its key manufacturing industries.

<p>Dwight Duncan, Ontario Finance Minister, speaks to the media after the federal and provincial finance ministers meeting in Toronto, November 3, 2008. REUTERS/Mark Blinch</p>

Canada Finance Minister Jim Flaherty said after a meeting with his provincial and territorial counterparts on Monday that Ontario will receive C$347 million ($292 million) next year under the C$14.2 billion national equalization program.

It will mark the first time that Ontario, the most populous and industrialized province in Canada, will receive funds under the program -- a sign the province’s once booming manufacturing sector is cracking under the weight of the global financial crisis.

“I don’t rejoice at this. The reality is that Ontario is entitled to enter the program and will be receiving substantial funds next year. Regrettably, I expect that Ontario will be in the equalization program for some time to come,” Flaherty told reporters after the meeting.

Ontario’s auto industry has been at the center of the province’s manufacturing slowdown, hard hit by weakening U.S. demand, high energy prices and a strong Canadian dollar that have prompted a deterioration in revenues.

Flaherty, a former Ontario finance minister, said that a dramatic transformation is taking place in the auto industry, where thousands of jobs have been lost since 2002.

Flaherty said it was an “odd feeling” to see Ontario, Canada’s economic hub, facing difficulties that would put it on the receiving end of federal payments meant for poor provinces.

With changes to the funding formula, future payments under the equalization program will grow at a “sustainable rate” based on economic growth, Flaherty said.

Equalization has grown by 56 percent since 2003-04, a pace which Flaherty described as not sustainable. But Flaherty said future equalization payments will now be based on a three-year moving average of gross domestic product.

Ontario, which makes up about 40 percent of Canada’s gross domestic product, has qualified for assistance from the federal equalization program in the past but has never received funds.

But the global economic slowdown that has wreaked havoc on financial markets for the past month has also caught up with Ontario and lowered demand for its factory exports.

Ontario politicians have argued for several years that the province’s residents and businesses send more money to Ottawa than they get back in transfer funds for programs. Ontario says this “gap” amounts to more than C$11 billion.

In response to news of next year’s equalization payment, Ontario Finance Minister Dwight Duncan said that “every bit helps,” but that provincial residents were effectively paying themselves.

“I don’t expect we’ll see cash flowing for very long,” Duncan added.

It would be preferable if the federal government provided aid for the auto sector comparable to what U.S. and European governments are doing, Duncan said.

Overall payments are due to rise to C$14.2 billion in 2009-10 from C$13.6 billion in the current 2008-09 fiscal year.

The mostly French-speaking province of Quebec will be the largest recipient of federal equalization funds. It is due to get C$8.355 billion in 2009-10, more than half the total available, up from C$8.028 billion this year.

Prince Edward Island, Nova Scotia, New Brunswick and Manitoba are also due to receive payments.

($1=$1.19 Canadian)

Reporting by Frank Pingue, writing by Lynne Olver; editing by Richard Valdmanis

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