08 December 2009

To Have and Have Not

Listening to Tom Marshall blame the current provincial government budget deficit on the federal government’s changes to Equalization last winter brought to mind an old story which hasn’t been properly told.

You may recall that in November 2008, Premier Danny Williams called a surprise news conference one Monday evening to proudly announce that the provincial government no longer qualified for Equalization.

Everyone cheered.

Williams himself used the news as a key part of a party fund-raiser a few days later.

Some people made a video of the speech.

The whole thing made the national news.

Then in January there was the great meltdown on top of all the other Equalization meltdowns.

What didn’t make the news was that the provincial government had actually been working a plan – all along – that would have kept the provincial government receiving Equalization in 2008 and 2009. There’s nothing new in that.  Successive provincial governments have ensured that Equalization decisions worked to bring the provincial coffers the most cash.

The start of the tale is the 2007-2008 mid-year fiscal update, issued in December 2007.  The document has mysteriously disappeared from the provincial finance department’s website, but as BP quoted it when the update first appeared:

…the province can optimize cash revenues in 2007-08 by electing to move from the fixed framework Equalization formula to the new formula [O’Brien] this year…

The provincial government made a decision on the formula in March 2008 but by that time, they’d changed position:

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. … Provincial analysis indicates that, based on the legislation as amended, we would expect to receive an overall positive impact on the Newfoundland and Labrador treasury of over $300 million for the five-year period ending 2011-12…

That’s actually consistent with something the Premier told Jeff Gilhooley in March 2007.  Danny Williams said the provincial government planned to flip to O’Brien in 2009 in order to maximise revenues. And Williams noted the same decision in his November 2008 scrum.

How lucrative that plan could have been only came to light in January 2009 when the federal government unveiled a budget originally readied on a contingency basis the previous December.

equalization numbersA one-page analysis released by the provincial finance department in early 2009 shows the provincial government’s plan would have delivered almost $900 million in Equalization in 2008 through a combination of the O’Brien formula and the 1985 Atlantic Accord Equalization offsets clause.

The number marked with a red exclamation point in the picture at right is next to a line labelled “EQ[ualization] previous year (Actual FF or pre-cap OB)”.

“Previous year” would mean 2008.

That means that in making the calculation for 2009 to show how much was being lost, the finance officials actually showed how much the provincial government had been hoping to collect in 2008, the year the Premier had already declared the provincial government would no longer receive any Equalization.

And just to reinforce the point, that newser took place the better part of a year after the provincial cabinet decided to delay switching to O’Brien in order to maximise its Equalization cash.

Now in November, the Premier answered a direct question from a reporter directly. He said the decision had not yet been made. And that was strictly true. Of course that was after saying the province would no longer qualify for Equalization, supposedly under any circumstances.

In the event, the provincial government made an election in early 2009 and received $116 million in Equalization.

That’s right.  In the year the provincial government supposedly no longer qualified to receive it.