25 March 2011

No Equalization offsets for Quebec

The new offshore resource agreement between the federal government and Quebec is a significant step toward developing oil and natural gas in the Gulf of St. Lawrence.

As with the similar situation between Nova Scotia and Newfoundland and Labrador, another major step will be settling the interprovincial water boundary between Quebec and Newfoundland and Labrador.

What’s most interesting about the Laurentide Accord, though is the fact that it is modelled, generally, on the Atlantic Accord (1985) between Newfoundland and Labrador and the federal government or the similar Nova Scotia offshore accord.

The Quebec agreement doesn’t include a specific joint management board.  Instead, it describes a transitional period in which major decisions will be shared between the two governments. 

That period of equal management might actually last a long time. Section 4.1 of the agreement commits the governments to table legislation on joint management.  But that must happen only two years after someone finds a commercially viable discovery. In the meantime, everything will be run by a both governments equally.

That’s a pretty sharp contrast to Newfoundland and Labrador where the provincial government has significant control over offshore resources.

There’s also a sharp contrast on revenue sharing.  While both the Atlantic and Laurentide Accords give the provincial governments 100% of revenues from offshore resource development, Quebec won’t be getting any extra payments to offset drops in Equalization. in both Atlantic provinces, the provincial government set and collected all offshore revenues and in addition got 12 to 13 years of federal transfers to replace declines in Equalization.

If Quebec winds up with huge oil and gas money flowing in, you can watch its Equalization entitlements drop like the proverbial stone. That’s big news for the federal government. Quebec collects more in Equalization transfer from Ottawa than all the other provinces combined. Cut that out entirely or even cut it down significantly and the federal government will wind up with billions of extra cash in very short order.

- srbp -

6 comments:

Peter said...

To clarify, the provinces get 100 per cent of royalties. the feds still get revenue from corporate taxes and licensing.

Edward Hollett said...

Yes Peter and just to make sure it is absolutely clear Newfoundland and Labrador collected 100% of royalties and retained every penny from 1997 onward.

The argument made in 2004 in this province that claimed otherwise was a lie. It was a fraud.

Both the Laurentide and Atlantic Accords recognise the jurisdiction of both feds and prov to collect revenues as they otherwise would PLUS they give the province's the right to set revenues and collect them from offshore resources as if they were on land.

Brad Cabana said...

Ed, could be that Quebec won't receive off sets because equalization talks will be occuring by 2013. At that time I am almost positive that Alberta will insist all provinces either get exempted for non renewable resources or they do not. Not two sets of rules. The fact that Quebec can not possibly get any revenue from the off shore in this period would not require such an off set clause. That would make sense in the greater context of equalization, and non renewable resources.

Edward Hollett said...

The offsets clause could sit indefinitely until triggered. The fact it isn't there at all is interesting.

I doubt there's some kind of plan to deal with it another way. If Quebec wanted to make it an issue, the key is to get it here so that it is not subject to Equalization changes directly. Your version would still put Quebec at a relative disadvantage compared to NS and NL.

Besides, I'd expect the feds are more likely to go for a formula that reduces federal outlays not increases them. Since Eq comes straight from federal general revenues, I doubt they'd want to balloon their transfers.

Mark said...

"...the feds still get revenue from corporate taxes..."

To the barricades! The federal government should not get corporate taxes from corporations operating in our province! Shame!

(--sarcasm--)

WJM said...

the feds still get revenue from corporate taxes and licensing.

Are you saying that as if it's a bad thing?