A Northern Province for Ontario? – by Livio Di Matteo (Part 2 of 2)

Originally published in February,1997

Livio Di Matteo is Professor of Economics at Lakehead University in Thunder Bay, Ontario.  Visit his new Economics Blog “Northern Economist” at http://ldimatte.shawwebspace.ca/

These figures suggest that a province of northern Ontario would be as viable economically as Saskatchewan, Manitoba or any other of the Atlantic provinces and should be able to
generate comparable levels of government expenditure and revenue. – Livio Di Matteo

While the North would definitely have been economically viable as a separate province at the turn of the century, that does not mean it still would be today. Modern northern Ontario has seen a decline in its traditional natural resource and transportation employment base. Since the mid-twentieth century, the north’s economy and population have grown at a much slower rate than the south and the north has possessed a chronically higher unemployment rate. Since the 1960s, the north’s economy has been supported by a substantial expansion of government spending to the point where the broader public sector accounts for nearly one-third of the labour force.  

As well there has been a decline in the importance of natural resource revenues to the Ontario government to the point to where they account for barely one percent of provincial revenue.  Combined with the higher per capita cost of providing government services in the north, the implication is that the last twenty-five years have seen a reversal of the traditional fiscal flows from the north to the south.

Nevertheless, interesting questions are what an economy of northern Ontario would look like in terms of  size and whether it would provide the necessary tax base for our current level of government services. Unfortunately, estimates of Gross Domestic Product (GDP) are not provided on a regional basis. However, using data from the 1991 census, it is possible to construct a crude approximation to the region’s GDP using household income data which yields a regional output of nearly 21 billion dollars. With a population of about 870,000, the economy of northern Ontario would be at the middle ranks of Canada’s provinces. Northern Ontario’s economy would be bigger than any one of the Atlantic provinces, slightly smaller than Manitoba’s and about the same size as Saskatchewan. Using the same figures, per capita income in a province of northern Ontario was about $23,700 in 1990 which was about four percent below the national average figure and 18 percent lower than per capita income for southern Ontario.

These figures suggest that a province of northern Ontario would be as viable economically as Saskatchewan, Manitoba or any other of the Atlantic provinces and should be able to generate comparable levels of government expenditure and revenue. However, with  per  capita income below the national average, a province of Northern Ontario would technically become a have not province. As a result, a province of Northern Ontario would likely qualify for federal equalization payments though it is not possible at present to calculate how large these might be. On the other hand, the north would no longer be part of Canada’s wealthiest province and would have to pay out of its own revenue base for roads, medical, social and education services over a geographically dispersed area. The result is high per capita public expenditures relative to the south that currently are subsidized by the richer southern Ontario tax base. Moreover, the new province would have to assume a share of the current Ontario debt and service it. 

In economic terms, there is currently not an overwhelming case for a separate province but neither is there a case against. If northern Ontarians want their own province they will have to be prepared to accept a lower level of public expenditure or face higher taxes. However, as public spending in Ontario falls anyway because of the current fiscal situation, the prospect of making do with less public spending becomes a much smaller deterrent to provincial status. Another economic question is whether separate provincial status could somehow stimulate more private sector development activity in the north. While such an option may have worked earlier in this century when natural resource revenues could have been used to attract industry, there is no reason to believe that it would work today. 

While economic factors do not present an insurmountable barrier to provincial status for the north, there are some serious political obstacles. First, there is really not one but many “norths” each with its own unique concerns: the northeast and northwest, native and non-native, urban and rural. For example, there are differences between the northwest and the northeast that could lead to difficulties. As a case in point, given the large francophone population in the northeast, would the northwest be willing to make the new province bilingual? Uniting such a geographically and culturally diverse area is not as easy as drawing a line on a map. 

Second, this is not a unilateral decision. The north is not a federal territory but part of Ontario. While the federal government still has the power to create a new province, the province of Ontario would need to agree to a change in its borders and agreement would also have to be provided by the other provinces. For all their ambivalence towards the north, southern Ontarians are not likely to approve the disappearance of 90 percent of their province’s landmass. As well, the other provinces are probably in no great hurry to add a new province that would qualify for equalization payments and would dilute the current status of their veto over constitutional change.   

Finally and most importantly, such a change would need a large-scale show of public support and action among northerners and the evidence to date is that the demand for a new province does not enjoy support beyond the level of coffee-table discussion. The attempt at forming a northern party in the 1970s generated an initial burst of interest and euphoria which then dissipated when it came time to convert talk into votes. For these reasons, any dream of a province of northern Ontario will remain a dream for some time to come.