13 April 2007

Economics: the dismal science

Wade Locke has adjusted his assumptions.

Now he says that what was originally a big gain for the province is in fact a loss.

Yes, the 50% exclusion now goes from being a six billion dollar gain for Newfoundland and Labrador over the status quo becomes a one billion net loss.

That's with a change in the assumptions, or more specifically, as CBC's David Cochrane described it, a reading of the budget implementation legislation. He referred to a "stricter" interpretation of what it would take for the province to qualify for Equalization in the future and there
fore how the offshore offsets deals would be affected.

Some quickie observations, before getting Locke's revised views:

1. Economics is a dismal science. After all, if adjusting some assumptions produces a variation of $7.0 billion - your entire Equalization and offsets work, incidentally - then you have some basic problems. Makes you wonder what it would take to have the Danny Williams option turn into a pig.

2. For all the big numbers, remove $14.7 billion. Locke includes offshore revenue in each of projections, for some inexplicable reason. Lop out that specific figure and you'll see the specific effects of Equalization changes and the offsets. That is assuming that Locke's assumptions on any given point are valid. That's not a sarcastic comment; it's a caveat.

3. The cap in the original 2005 deal obviously exists in one way or another. No matter how you look at it the cap built into the original deals - qualifying for Equalization or not - is still active. The real question Locke seems to be grappling with is when that cap cuts in.

4. Yes, there is a cap in the original deal. The offsets only flow as long as the province qualifies for the Equalization hand-out.

And for the record both for Mainland readers and the locals, Danny Williams' original goal in 2004 - not the one he settled for in January 2005 - was for a doubling of oil and gas revenues in perpetuity.

5. The original 2005 deal did not deliver as promised. Said it before. Say it again.

6. Wade Locke still hasn't assessed the other Harper option that still exists, i.e. 100% exclusion of non-renewables with a cap. Too bad Locke is apparently hauling ass out of the debate now that he's stirred it up. Maybe he got some angry phone calls from Florida or wherever the Premier is.

To be complete though, Locke should have assessed that variation since it is on the table.

And if 100% exclusion of non-renewables is such a good idea, then maybe applying the cap is better than what we have now.

At least according to the latest numbers, based on the latest assumptions.

7. Danny Williams had numbers like the ones Locke released initially. On March 26, Danny told CBC radio's Jeff Gilhooley that in all likelihood the province would shift to the 50% exclusion option within a year or two, i.e. by 2009, based on the government's analysis.