Ontario Premier Dalton McGuinty said Friday he's ready to wage a strong campaign against the federal government over equalization payments.

McGuinty says the recent offshore energy deal between Ottawa, Nova Scotia, and Newfoundland and Labrador has changed the country's fiscal arrangement and shortchanged his province.

Ontario Premier Dalton McGuinty (CP file)
Ontario Premier Dalton McGuinty (CP file)

He questions why Ontario taxpayers should continue to supplement two provinces that will rake in oil and gas royalties while continuing to pocket federal equalization payments.

"Fair is fair," he told reporters following a caucus meeting.

"I'm very happy for the people of Newfoundland and Labrador, and Nova Scotia. My concern is for the people of Ontario."

The premier's main criticism is that Ontario, which is struggling to whittle down a multibillion-dollar budget deficit, is essentially subsidizing the Atlantic pact.

"We're happy to support the country," McGuinty said earlier this week. "But you know what? We're running a deficit and we need to put more money into our health-care system."

"What it essentially means is that... through our contributions to equalization, we're going to end up providing funding to the people of Newfoundland and Nova Scotia that will enable them to exceed their wealth on a per capita basis, beyond that of Ontarians," he added.

Ontario isn't the only province questioning the equalization system, said McGuinty. He says Saskatchewan also wants a new agreement on resource revenues.

Ontario contributes $23 billion a year to the system, yet it and Alberta are the only two provinces that won't get equalization payments in the 2004-05 fiscal year.

Newfoundland and Labrador, and Nova Scotia recently reached a landmark settlement with Ottawa that will pay them billions of dollars in oil revenues over the next eight years.

The federal equalization payments redistribute federal tax revenues to have-not provinces.