Between high commodity prices, a beefier dollar, and its own weakening economy, Ontario is on track to become a recipient of equalization payments by 2010, according to a new report from TD Economics.

TD Economics says that based on its economic and revenue projections for 2008 and 2009, Ontario will ultimately qualify for an entitlement under the new federal equalization formula that was announced in last year’s federal budget. “We calculate that the province stands to collect as much as $400 million in fiscal 2010-11 and $1.3 billion in fiscal 2011-12,” it adds.

Current data do not suggest Ontario would qualify for a payment in 2009-10, TD notes, but that could easily change. “In our calculations Ontario is sitting on the edge for 2009-10 and much of the data driving payments that year are still to come,” it says.

The bank says that the change in Ontario’s equalization status is essentially a story of soaring commodity prices. “Strong commodity prices have raised revenues in other provinces, principally those in the west,” it says, and the changing equalization formula looks set to render Ontario a laggard among the provinces.

“High commodity prices also explain much of Ontario’s economic malaise,” TD notes. “As a commodity-importing province its economic performance is directly hurt. Then it is indirectly hit through the exchange rate as soaring commodity prices are the primary catalyst for the rise in the Canadian dollar that has hurt export-oriented manufacturers.”