31 January 2009

Equalization flips, flops and fumbles

Danny Williams once scorned the O’Brien formula that counted only 50% of the province’s oil and mineral revenues saying that the concept had “Ralph Goodale’s fingerprints” all over it.

Premier Danny Williams called the report "some kind of joke - otherwise it was just a bad dream."

He said the idea unfairly penalizes Newfoundland and Labrador, and is essentially the same plan that led him to storm out of first ministers' meetings in the fall of 2004.

"It's got (former Liberal finance minister) Ralph Goodale written all over it," Williams told reporters at Confederation Building.  [Rob Antle and Jamie Baker, “Report would erase Accord gains”, Telegram, 6 June 2006]

Instead, Williams wanted a formula that didn’t count any of the province’s non-renewable resource revenues.  Danny Williams wanted that 100% exclusion so badly he went to war with Stephen Harper hurling every name imaginable at the Conservative leader for not living up to the campaign promise in two elections.

dec05 Never mind that in letters to the federal party leaders in December 2005 Williams stated that the provincial government wanted to see the 100% inclusion of non-renewable resource revenues.

Now, that 100% exclusion isn’t the good deal after all.

Now the one with Ralph’s fingerprints all over it is the right one.

And Danny Williams wants it.

The fingerprints one.

Not the no-greater-shame-than-a-promise-unkept one.

He wants it so badly he’s prepared to go to war to undo a slight targeted directly and deliberately at Newfoundland and Labrador.

Well, maybe not war, exactly he said a couple of days after launching the latest Equalization jihad.

Maybe a one year delay.

Still keeping track?

The tale of Danny Williams’ positions on Equalization since 2003 has more twists and turns in it than a road along Newfoundland’s rugged coastline, and the feisty Premier has followed every one doubling back on himself countless times in five short years.

Actually, the O’Brien 50% formula is good this time only because it apparently allows the 1985 Atlantic Accord – the real Atlantic Accord – to unlock more cash for the provincial coffers.

But Danny wasn’t always in love with the 1985 Accord.

Shortly after coming to office, Danny Williams launched the first of his now trademark hyperbolic assaults on a deal he said was robbing Newfoundland and Labrador of its offshore oil revenues and sending them off to Ottawa.

Nothing could have been further from the truth and those of us who dared say so publicly at the time suffered either scorn or curious pity for daring to doubt the Premier’s judgment.

When Williams snagged a $2.0 billion cheque from Paul Martin and Ralph Goodale in January 2005 as part of a new offshore transfer deal, the first thing he had to admit was that nothing had been further from the truth than the line he’d been spinning:

Newfoundland and Labrador already receives and will continue to receive 100 per cent of offshore resource revenues as if these resources were on land…

What’s more, a Telegram story from late January 2005 by Rob Antle contained this nugget of truth:

Because of quirks in the system - Accord offsets are tied to previous-year equalization drops - Newfoundland actually got back slightly more than 100 per cent between 1999 and March 2004.

The province took in $429 million in offshore revenues, a senior federal official said, while receiving total offset payments of $466 million.

Senior provincial officials had no beef with those figures, acknowledging that contention sounded accurate.

In effect, up to March 2004, the so-called clawback had no claws.

It never did.

And that 2005 deal?

Well, the public heard all sorts of predictions  - at the time - that the deal was worth $2.6 billion up front (even though the cheque was for $2.0 billion) and maybe even more later on.

Jack Harris, then the provincial New Democratic Party leader predicted $4.9 billion.  Wade Locke, destined to become the Premier’s favourite economist, predicted $5.2 billion over the first eight years of the deal.

Of course, at the time, projections (including one by Wade Locke) had the province going off Equalization within five years – just as it did – even without the insanely high oil prices that turned up.  The odds of getting more cash was in doubt from the beginning.

Nonetheless they persisted.

In fact, at least one of them got annoyed when someone point out that his math skills were suspect.

As it turned out, the deal was never worth more than the first cheque.

The provincial government doesn’t qualify for Equalization any more and as such can’t earn any more credits against the cash advance.  There is more than $1.1 billion sitting  in the credit column, according to the latest audited public accounts for the province  and odds are it will never be drawn down let alone generate double as the politicians originally predicted.

This pattern of flips, flops and alarums on the big issues isn’t the only aspect of the annual Equalization tirade.

In December 2007, former finance minister Tom Marshall announcing the government had opted for the O’Brien formula in late 2007, kicking the crap out of the 1985 Accord offset formula and former premier Brian Peckford along the way.  Four months later, Marshall announced the provincial government would be sticking with the old Equalization formula and the 1985 offset in his spring budget.  All the while, Marshall fell over himself trying to explain offsets and the virtues of O’Brien versus 1985.

Note at the time that Marshall indicated sticking with the old formula would offer the best cash return over the following five years.

Then there was the Great Cap. Wade Locke’s initial assessment [full article here] of the 2007 federal budget led him to recommend switch to O’Brien/50% in 2009 to maximize revenues.  He then sparked a controversy when he discovered caps on the province’s offset deals the feds hadn’t previously disclosed.  Locke’s analysis served as fuel for the provincial government’s attack on the federal government.  It produced no assessments of its own but relied exclusively on Locke’s public analysis.

Locke then produced a new analysis that still excluded an assessment of 100% exclusion but which found that  - get this -  the old fixed formula delivered a better deal than O’Brien/50%.

Incidentally, Danny Williams told a CBC Radio audience on March 26, 2007 that the provincial government planned to flip to O’Brien in 2009 to maximize its cash take.

Then, most recently, Wade Locke told NTV News on January 28 that the net loss to the province would be $500 million or less from the most recent federal budget.  Less than a day later, he revised his projections after speaking with provincial finance officials.

A proviso on his estimate prepared for the Atlantic Provinces Economic Council  released January 29  suggests more information is needed.   Nevertheless, Locke’s new assessment – prepared and released less than a day after his first assessment  - now backs the provincial version.

Oddly, Locke’s new observations do not appear to include an assessment of O’Brien/100%. It’s even more odd considering that his 2007 analysis suggested 100% exclusion was the best.  Now it is supposedly not good at all.


That’s not surprising.

Confusion appears to be the order of the day when it comes to Newfoundland and Labrador and fiscal issues.

Makes you wonder, though, with all this flipping, flopping and general policy confusion, why would anyone – including reporters and politicians  - accept anything these guys say without evidence.