19 January 2006

The promise of the coming Equalization War

Kudos to nottawa and The New Barrelman for bringing a core issue in federal-provincial relations back in the spotlight. [As an aside, here's a note on where Derek got the name for his blog.]

That issue is Equalization.

Stephen Harper plans to change the approach to Equalization so that non-renewable resource revenues are taken out when it comes time to calculate how much money a province makes from its own revenue sources and therefore how much it will get from the federal government to top that up to a national standard.

For some provinces, like Saskatchewan, such an approach means a doubling of its federal transfer. No surprise therefore that Dipper Premier Lorne Calvert is positively orgasmic at the thought. Saskatchewan has plenty of non-renewables in its revenue base.

For other provinces, like New Brunswick or even Quebec, changes to Equalization would mean a drop in their federal top-up payments. Lord-land doesn't have a lot of non-renewables in its base.

CBC New Brunswick seems to think the Conservative policy isn't clear. They're dead wrong.

It is absolutely clear and it has been consistent since 2004, at least.

Here's how Stephen Harper put it in a recent letter to Danny Williams:
We will remove non-renewable natural resource revenue from the equalization formula to encourage the development of economic growth in the non-renewable resource sectors across Canada. The Conservative government will ensure that no province is adversely affected from changes to the equalization formula. [Emphasis added]
That wording is taken directly from the Conservative's March policy statement.

Ken Boessenkool, one of Harper's closet associates, advocated just such a revamping of Equalization in several papers for the Atlantic Institute of Market Studies. In 1999/2000 when the oil revenues were tiny, removing non-renewables from Equalization would have lowered Newfoundland and Labrador's Equalization entitlement by around $3.0 million per year.

That might not be the case in the future. There are no public estimates of what the Conservative proposals for Equalization would mean for Newfoundland and Labrador in the near future in the time when oil revenues are highest.

No one has yet assessed the impact of significant new revenues from renewable resources in this province, like say the Lower Churchill.

And here's the last thing to bear in mind: no one has factored in the offshore deal signed just last year. My bet is that a new federal government committed to changing Equalization would look on that money as a bonus to count against future Equalization and Equalization type entitlements.

After all, the offshore deal wasn't actually about giving back to this province its own revenues. It was about increasing federal transfer payments in a deal no other province, except Nova Scotia, could get.



There's that word again.

Odd thing is that in this context it will be Conservative premiers like Bernard Lord and likely Danny Williams looking to maintain their entitlement to federal transfers.

Equalization reform of the type proposed by Stephen Harper has the potential to be the biggest problem in federal-provincial relations for a new Conservative government.

Just watch.