Changes to the way federal transfers to provinces are calculated since the Harper government took power appear to have made Ontario a big loser under equalization programs and Alberta the big winner, according to Canada's budget watchdog.

Parliamentary budget officer (PBO) Jean-Denis Fréchette says total payments this year will see Ontario obtain $19.2 billion from Ottawa for everything from equalization to health and social transfers, but that is 3.2 per cent less than the $19.8 billion it received last year.

While the province gains under some transfers, it will lose $1.2 billion under the equalization program designed to give so-called "have-not" provinces the fiscal capacity to provide residents services roughly comparable to those in other provinces.

Until this year, Ontario would have received about $640 million from Ottawa under a program that protected provinces from seeing transfers drop in any one year — but that option was scrapped by then finance minister Jim Flaherty in December.

Meanwhile, Alberta — Canada's richest province — will see its total rise to $5.2 billion this year from $4.1 billion in 2013-14, a 26.8 per cent increase mostly due to Ottawa moving to a per capita funding formula under the Canada Health Transfer program.

Windfall for Alberta, Quebec

The only other province that comes close to Alberta's windfall is Quebec, which will see its total intake from Ottawa rise 9.9 per cent to $19.6 billion.

Speaking in Toronto, Finance Minister Joe Oliver said Canada has a "fair, balanced and generous" equalization system and that changes were needed to cap growth because it was becoming "unaffordable."

Oliver, who criticized Ontario last week for its budget deficit, defended the changes that resulted in Ontario getting less.

"The PBO didn't come to a negative conclusion, the PBO simply did the theoretical analysis based on a question posed by an MP [which was] what would have been the case had there not been changes," Oliver said.

"In fact there were changes and those changes were the result of some very needed responses to the fiscal situation ... In respect to the equalization program, that program, the way it had been previously constructed was becoming unaffordable and so we made a change to tie it to economic growth, to GDP, which it hadn't been before," he said.

Ontario was in favour of the changes when it was considered a have province prior to 2009, he said.

"The Liberal government was in favour when it was contributing to the payments, now that they are receiving equalization payments they may have a different view."

An official with Oliver's office said total transfer payments to Ontario had risen by more than $8 billion since the Harper Conservatives took office in 2006.

Charles Sousa critical of plan

But Ontario Finance Minister Charles Sousa said the PBO report confirms what he has been saying all along: "The current system of federal-provincial fiscal arrangements is working against, not for, the people of Ontario."

"Each year, the share of federal revenue raised in Ontario is higher than the share of federal spending in Ontario," he added. "This money could be used in Ontario to fund more hospitals, nurses or public transit."

The Liberal government of Ontario has been one of the staunchest critics of the changes. But the federal government responded that it was only applying the formula fairly.

Both are in a sense right, says Mostafa Askari, the assistant PBO, although he notes that the cumulative effect of changes to the system has been to de-emphasize the distributive element of transfers from rich to poor regions.

Have-nots get less

"The bottom line is the equalization program has moved away from being an equalization program to being another transfer program because, the way it is designed now, it does not equalize to any national standard," said Askari.

For have-not provinces, "their entitlement will be less, so obviously the larger have-not provinces (like Ontario) will be hit by a larger amount because of their size."

The PBO looked into the controversial program after a request from Liberal MP Judy Sgro.

Askari said there was little point in examining the bottom line numbers since they are published in the budget each year. Total transfers this year will rise to $62.6 billion from $60.5 billion last year.

But what may surprise many Canadians is how changes introduced by Ottawa have diminished the "progressivity" of the equalization system.

For instance, the equalization program was intended to do just that: give have-not provinces the capacity to offer services more or less available to residents of richer provinces. But several changes, including putting a cap on growth of the transfers, has diminished the program's capacity.

Move to per-capita funding

The move to straight per capita funding on health transfers this fiscal year, for instance, has had a major impact on Alberta. That province will see transfers under that program rise by 33.1 per cent. The Northwest Territories will see a 45.5 per cent increase.

Most other provinces also will get more — about 2.5 per cent — and Newfoundland will get slightly less.

Askari says the per capita funding change will be especially difficult for Ontario and Quebec, which tend to have older populations and are likely to experience higher per capita health costs.

Ontario was also incensed that Flaherty unilaterally dropped the transfer protection program in December, complaining that it would lose more than $600 million as a result. The PBO report notes that Ontario was the only province that would have benefited from the program this year as all others saw a net increase in total transfers.

Overall, the percentage change in total transfers for fiscal year 2014-15 are:

  • Newfoundland and Labrador (+0.5)
  • Prince Edward Island (+4.7)
  • Nova Scotia (+1.2)
  • New Brunswick (+5.0)
  • Quebec (+9.9)
  • Ontario (-3.2)
  • Manitoba (+0.2)
  • Saskatchewan (+4.2)
  • Alberta (+26.8)
  • B.C. (+1.0)
  • Yukon (+4.3)
  • Northwest Territories (+5.9)
  • Nunavut (+4.2)
With files from CBC News