07 March 2006

Williams' offshore deal helped break Equalization system

Here's a story by Rob Antle from today's Telly that is being posted here for posterity.
"The equalization formula is a complete mess - it's broken," [federal intergovernmental affairs minister Michael] Chong told the Sun. "And it's a direct result of one-off, ad hoc deals, late- night negotiations, the high stakes poker game that (former prime minister Paul) Martin played in the dying days of his administration, whether that be with the one-off deals with the provinces in the east or with Ontario."
Forgive the chuckling but Newfoundlanders and Labradorians were told at the time and some still insist that Stevie Harper supported the Accord side-deals. Apparently his IGA minister has a different view about the value of those deals; maybe Chong's view is the real Conservative party view. Around here, the Bond Papers took Steve at his word: he would change the Equalization system, not make side deals.

On the second point from this story, Loyola Sullivan's insistance that Equalization offset deals in the Atlantic Accord and the January 05 side deal won't factor into the new discussions is just not sensible. There is no way that the province can have its oil revenues doubly hidden from Equalization.

While Chong claims he can't say how the side-deals will factor in, here's a good guess: they are dead. Deader than dead. The $2.0 billion that Sullivan just dropped on the pension liability is the last of the cash coming from the deals. At least, that's what will happen if Loyola Sullivan - who backs the Harper plan - gets his way.

If Danny Williams gets his way, then the deals will have their full impact plus the province will continue to collect Equalization.

There's a gap between the premier and Sullivan on this issue, but that's not what people here would like to talk about.


'A complete and utter mess'; Harper minister cites Accord deal among reasons for 'broken' equalization system

by Rob Antle
The Telegram
March 7, 2006
Page A1

Side deals like last year's new Atlantic Accord have resulted in "a complete and utter mess with regard to fiscal arrangements" between Ottawa and the provinces, federal Intergovernmental Affairs Minister Michael Chong says.

Chong made the comments in a weekend interview with the Ottawa bureau of Sun Media.

The story ran in Sun papers in Edmonton, Calgary, Toronto and Ottawa.

"The equalization formula is a complete mess - it's broken," Chong told the Sun. "And it's a direct result of one-off, ad hoc deals, late-night negotiations, the high stakes poker game that (former prime minister Paul) Martin played in the dying days of his administration, whether that be with the one-off deals with the provinces in the east or with Ontario."

Ottawa and the Williams administration reached a new offshore revenue-sharing arrangement last January, after months of hot-and-cold negotiations. The deal included a guaranteed, $2-billion upfront payment.

Nova Scotia reached a similar deal on its offshore resources.

Ontario later got its own separate multibillion-dollar arrangement with the Martin government to address the so-called "fiscal imbalance" between Ottawa and the province.

Chong reiterated to Sun Media the Conservative election pledge to remove non-renewable resources from the complex set of calculations that comprise the equalization program.

The Tories made the commitment to "put back the principle of equity into the equalization formula for all regions of the country," Chong told the Sun.

"I can't tell you exactly how that's going to happen or what form it's going to take. The prime minister's going to be taking the lead on this file."

Offshore oil is a non-renewable resource. That Conservative campaign promise would effectively enshrine the key principle of the Accord indefinitely. The Accord expires in 2012, with the possibility of renewal until 2020.

No one knows how the $2-billion upfront prepayment for enhanced Accord benefits would play into any such changes.

Last month, officials with the federal Department of Finance declined to answer such questions, calling them "hypothetical."

'That was the deal'

The Williams administration has insisted that the $2 billion should not be a factor at all.

"That was a deal, it was an up-front payment with no strings attached, as a minimum payment," Finance Minister Loyola Sullivan told The Telegram in late January.

"We can only go forward, we can't go back in the annals of history and do adjustments to the past."

The Newfoundland and Labrador government has since announced that it plans to dump the majority of the $2 billion into unfunded pension liabilities for teachers.

That will reduce the province's debt to $10 billion, and free up about $150 million in interest charges every year.

The province has welcomed the proposed Conservative changes to equalization, saying they will likely benefit the local treasury.

Though it may lack the cachet of other issues, equalization is of vital importance to the province.

The program is aimed at ensuring all provinces can provide a similar, baseline level of services.

Newfoundland and Labrador received $861 million in equalization from Ottawa this year, according to the province's 2005-06 mid-year fiscal update.

That's in addition to hundreds of millions in offshore royalties and new Accord benefits.

The provincial budget totals about $4.3 billion.

The federal Conservatives have pledged that no province will be "adversely affected from changes to the equalization formula," but have not provided any details.

Officials in the Privy Council Office, which oversees intergovernmental affairs, did not return The Telegram's calls Monday.