By ANTONELLA ARTUSO AND BILL KAUFMANN, SUN MEDIA

TORONTO — Ontario is on track to become a “have-not” province within two to three years, says federal Finance Minister Jim Flaherty, prompting his Alberta counterpart to vow she’ll be closely eyeing any redrawing of the country’s equalization formula.

And Flaherty’s suggestion that any needed reform of transfer payments to the provinces to help Ontario would be “disruptive,” will also be watched keenly by Alberta, said the province’s new Finance Minister Iris Evans.

Alberta is expected to receive $3.2 billion in transfer payments from Ottawa for such things as advanced education and health care, or about 8.5% of total provincial spending.

Flaherty said the prospect of Canada’s two largest provinces, Quebec and Ontario, becoming “have-not” provinces would be “unprecedented,” and could heighten pressures on other jurisdictions.

“You can imagine the concerns that will raise in the provinces that are above the bar,” he said.

Evans noted Alberta taxpayers pay into the equalization pot under a set formula and those in the province already ante up generously.

“Good fortune has translated into paying a greater share of equalization - we are already giving more than what we’re receiving, and I don’t think we’ll quarrel with that … we’ll monitor with interest the implications,” said Evans.

She added she hopes Alberta will get more back in the future.

Flaherty said he’s greatly concerned about the consequences of a weakening Ontario economy and said Premier Dalton McGuinty would secure a dubious place in history.

“It will be Premier (Dalton) McGuinty’s legacy that he, in two terms, took Ontario from being the strongest economic province in the federation to a ‘have-not’ province.”

A blunt-talking Flaherty told a Sun Media editorial board yesterday that the federal government would have to “rethink” the federal equalization program should that happen.

“If Ontario becomes entitled to those kinds of things, then that will distort the system dramatically and will bring strains into Confederation,” Flaherty said.

The architects of the equalization formula never envisioned a scenario in which Ontario and Quebec, home to 21 million of the country’s 34 million residents, would both be recipients, he said.

Flaherty is continuing to call on the McGuinty government to lower business taxes in its provincial budget next week to create a friendlier climate for investment.

In the Ontario legislature yesterday, provincial Conservatives urged the McGuinty government to respond to the deepening manufacturing job losses with reductions in business taxes and regulations. “Alberta has a track record of monitoring that very closely,” said Evans.

“We’ve got agreements in place, we’re living by the agreements and we’d expect others to do so.”

Equalization is an important national formula through which tax dollars from wealthier provinces, mainly Ontario and Alberta, flow to less well-off provinces to ensure all Canadians have comparable levels of public service.

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