On the face of it, it sounds like Wade did a fine job of situating the estimate, instead of estimating the situation. Or to put it in the terms of an old joke about an economist, 'First, we assume a can opener". In this case it seems to be more a case of "first, we assume this is a splendiferous deal". I'll explain my observations in a couple of posts, and to make sure everyone understands this - while Locke may be a fine economist, I think he seriously distorts the ups and downs of different proposals. He grossly overestimates the "monumental" nature of the January deal because of his assumptions or omissions.
Following is my comparison between the federal draft agreement in principle from December and what appears to be the agreement that was accepted by the Government of Newfoundland and Labrador in Ottawa on 28 January 2005. The bits in italics illustrate the changes to the basic structure of December deal that turn it into the January one.
Draft Agreement in Principle between the Government of Canada and the Government of Newfoundland and Labrador and the Government of Nova Scotia
(December 2004) with January adjustments (italics)
1. [Note: This clause would remain unchanged] This agreement reflects an understanding between the Government of Canada and the Government of Newfoundland and Labrador and the Government of Nova Scotia that:
· both provinces already are collecting and will continue to collect 100 percent of offshore resource revenues as if these resources were on land;
· the Government of Canada has agreed to provide additional offset payments to these provinces in respect of offshore-related Equalization reductions.
2. [No change] The Government of Canada intends to execute its commitments under this agreement through legislation that will authorize additional payments to provide100 per cent offset against reductions in Equalization payments resulting from offshore revenues.
3. [No change] For the fiscal year 2004-05, the value of the additional offset payments will be:
a. For Newfoundland and Labrador: $133.6 million;
b. For Nova Scotia: $30.5 million.
4. For the fiscal year 2005-06, the value of the additional offset payments will be:
a. For Newfoundland and Labrador: $188.7 million;
b. For Nova Scotia: $26.6 million.
5. [No change] Commencing in 2006-07, the annual offset payment for each province shall be equal to 100 per cent of any reductions in Equalization payments resulting from offshore revenues. The amount of additional offset payment shall be calculated as the difference between the Equalization payment to be received by the province under the Equalization formula as it exists at that time if the province received no offshore petroleum resource revenues in that year, and the Equalization payment for that province in that year under the Equalization formula as it exists at the time, net of any payments made with respect to existing accords or Equalization offset provisions.
6. [No change] For 2006-07 to 2011-12, in any fiscal year, if either province no longer qualifies for receipt of an Equalization payment, no additional offset payments will be made to that province, beyond payments specified in existing accords.
7. This arrangement will be in effect until March 31, 2012. No later than March 31, 2011, Canada and each province will, on a bilateral basis, begin discussions to determine whether a successor arrangement with each province should be put into place for an additional 8-year period beyond 2012. There will be no further arrangements for a province beyond March 31, 2012, if the province's net per capita debt servicing costs becomes lower than that of four other provinces not party to this agreement and ["and" replaces "or" in the original] the province has not qualified for Equalization payments in 2010-11 or ["or" replaces "and" in the original] 2011-12. [Note: This is changed from the requirement to have a balanced budget or be receiving Equalization. There is now a double requirement to qualify for the second eight-year phase. See the provincial backgrounder on this point from Monday.]
8. Any successor arrangement with a province would be in effect for the period 2012-13 to 2019-20. [Note: the previous conditions for continuing in the second phases appear to have been replaced by the sole requirement that the province must continue to qualify for Equalization. The new clause would contain a provision that once the province ceases to qualify for Equalization in the second phase, there is an immediate transfer to two years of declining offsets with no prospect for reinstating the offset payments should the province qualify for Equalization again before 2020.]
9. [Deleted] The Government of Canada commits to providing new offset payments for an additional 8-year period, starting with the first fiscal year of offshore commercial production, if any, from the Deep Panuke project in Nova Scotia or the Hebron project in Newfoundland and Labrador. Any such additional offset payments shall be limited to the revenues from these projects.
10. [No change] The Government of Canada agrees that if, in the future, it enters into an arrangement with another province or territory concerning offshore petroleum resource revenues, then either province may elect to enter into discussions with the Government of Canada to amend this agreement.
11. [New clause, words to the effect that] The Government of Canada will transfer to the Government of Newfoundland and Labrador the sum of $2.0 billion representing an advance on payments under this agreement. No further payments will be remitted to Newfoundland and Labrador under this agreement unless the provincial government qualifies for such payments under this agreement and the cumulative offset entitlement exceeds $2.0 billion.]
12. [New clause, words to the effect that] If the Government of Newfoundland and Labrador disagrees with the Government of Canada on how the offset payments have been calculated starting in 2006-07, the province can request that the federal calculations be audited to ensure they are consistent with the 100 per cent principle.
13. [New clause, with wording to the effect that] The Government of Canada and the Government of Newfoundland and Labrador agree that no later than the beginning of the sixteenth year of the agreement, the two orders of government will jointly enter into a review of the agreement.