14 April 2009

Manley ponders rot

Former federal fin min John Manley compared the recent provincial budgets in Ontario and Newfoundland and Labrador.

Ontario took full advantage of the anxious times in which we live, and with the help of Ottawa tackled some of the toughest structural problems in its tax system. At the same time, it made a virtue of necessity in announcing stimulus spending that will end the short succession of surplus budgets and lead to predicted deficits of $3.9-billion and $14.1-billion over the next two years.

Ontario's tone was in sharp contrast to that of Newfoundland and Labrador, which treated Canadians to another blast of icy rhetoric about how Ottawa was screwing the Province by "unilaterally" changing equalization. (Equalization is a federal program — decisions to alter it are enacted by Parliament alone, so of course it's unilateral.)

Too bad Manley didn’t look beyond the superficial rhetoric of the past several months to see some curious things that rest beneath. Like say the source of the faux outrage which was carefully orchestrated for the media effect.

Turns out the provincial government timed its switch to O’Brien 50 (50% of non-renewables counted) in an effort to maximise its cash take from the program.

They presented a budget in 2008 which showed the fixed formula calculation but – and this is the crucial bit for later – they knew full well that:

  • they had the option to switch to O’Brien retroactively; and,
  • they’d planned to switch to O’Brien and pocket as much as $800 million in cash.

As the Premier put it in one media interview, they’d even foregone $65 million extra the year before just to set the whole thing up. That was the year the finance minister originally predicted a switch and then switched back at budget time.

The language at the time of the switcheroo obscured what they were up to:

"We conducted a thorough review of this updated information, and determined that it was no longer in the long term financial interest of Newfoundland and Labrador to elect the new formula for 2007-08…"

The rest of the release rabbits on about the great screwing supposedly done to the province.

The truth only became clear this year.  In order to generate the magical sums expected in 2009 through a combination of O’Brien and the 1985 Accord, they would have had to take in about $800 million from O’Brien 50 in 2008.  That’s the sort of forecasting they were using in 2008 when they made the decision and set the 2008 budget plan.

Unfortunately for the little project, world oil prices shot through the roof.

That brought in so much cash that the projections went off. Now they still switched to O’Brien 50 for 2008 and pocketed $116 million for from Equalization for 2008 which they’d never even hinted at before.

But remember that in November 2008, the premier proclaimed the province was off Equalization at that point. At the time he had the calculations  - even if only from his own provincial officials - that showed cash flowing from O’Brien in 2008, even if it was less than they’d originally projected.

And, odds are that he already had a very good idea that the government would elected O’Brien 50.

Reporters and others who looked at the whole claim of a second Equalization screwing in January 2009 all assessed it based on a very limited set of numbers and a very short-term perspective.  They didn’t see the long term sequence.

Case in point:  federal officials always share budget projections with their provincial counterparts. If there is a major change coming, they typically pass that on as well. There’s no indication they didn’t share projections with all the provinces through November, especially considering that the federal government planned a major budget reform in early December 2008.

Everyone forgets that little aspect.

If the federal opposition parties hadn’t scuttled the original Harper plans, the Equalization changes brought down in January would have actually occurred in December.

But if all that weren’t enough, there’s no sign the provincial government went looking for figures they normally get.

That alone should have sparked some local questioning, but it didn’t.

Not a peep.

If you accept the provincial version of events, not only did the numbers not come from the feds – as they always, invariably  do – but the provincial government officials never went looking for them.  That seems like an awful (incredible) dereliction of duty on the part of the public servants and – even more startling – an opportunity missed by the snarliest provincial government in Canada to accuse the federal government of perfidy when there was time to maximise the political damage that could be done.

Imagine the uproar if Danny Williams had howled in late November or early December?

By January – when they supposedly discovered a shafting - there was no chance the “problem” would be fixed. There was lots of posturing but nothing of a sustained value.  As it turns out, and contrary to the interpretation we gave it here at the time, the provincial government knew they had cash in hand and nothing to really worry about financially in the short term.

New information changes everything.

The locals also seem to have forgotten that the whole “have” province thing morphed as time passed.  By the time the 2009 budget emerged, “have” status was from that point forward, not from November as originally presented.

Is there something rotten, as Manley suggests?

Not really.

There’s just some really skilful political manipulation, lots of information kept from the public whose money is in play, and a raft of people  - reporters and politicians alike - who simply don’t bother to ask simple, obvious questions like “what did you know” and “when did you know it”.

Part of that situation likely comes from not knowing what ought to happen. 

Part of it comes from not wanting to ask.

Part of it comes from people who are in on the whole thing or willing to play along for their own purposes and own reasons.

That’s not rotten.

That’s just politics.