11 February 2010

Government smears landmark agreement with false statements

The provincial government has tarnished the 25th anniversary of the Atlantic Accord by issuing a news release which contains false information:

In 2005, the Williams Government improved upon the benefits in the original Atlantic Accord by negotiating a new deal that retained a greater share of offshore revenues for the province. The new revenue-sharing arrangement reached between Premier Danny Williams and then Prime Minister Paul Martin resulted in Newfoundland and Labrador receiving 100 per cent of its offshore revenues for the first time, free from any clawbacks while an equalization-receiving province. he 2005 Accord enabled Newfoundland and Labrador to truly be the “principal beneficiary” of the petroleum resources off its shores. …[Emphasis added]

“The original Atlantic Accord has greatly assisted in the pursuit of long-term economic prosperity and self-reliance for Newfoundland and Labrador, and these benefits were secured and improved in 2005 when Premier Williams succeeded in convincing the Federal Government of the inequity Newfoundland and Labrador had endured for years in not receiving the full benefit of the exploitation of its offshore resources,” said Acting Premier Dunderdale.

All of that is completely false.

Provincial government officials should know it is utterly untrue false because they link to the text of the 2005 deal in the news release.  Here’s what the 2005 agreement says in plain English:

2. This document reflects an understanding between the Government of Canada and the Government of Newfoundland and Labrador that:

  • Newfoundland and Labrador already receives and will continue to receive 100 per cent of offshore resource revenues as if these resources were on land; [Emphasis added]

There were no changes to revenue-sharing spelled out in the 1985 Accord. Under the 1985 agreement the provincial government alone sets and receives all offshore oil government royalties. The federal government collects only what it would from any other industry in the way of business and personal taxes.  

Despite ludicrous claims at the time it was signed, the 2005 agreement delivered nothing more than a single $2.0 billion payment to the provincial government. 

That’s it.

The Equalization formula continued to work as it is supposed to work.  As forecast in 2005, the provincial stopped qualifying for Equalization payments in 2009. 

When that happened, the “clawback” described in today’s news release didn’t hit zero. Rather it became a full  - 100% - clawback of all offshore revenues.

The 2005 made no changes to any of the provisions of the 1985 agreement.

The 1985 Accord alone forms the basis for the current offshore oil industry and for current provincial prosperity. 

Here’s the way your humble e-scribbler laid it out in 2004/2005:

First, [under what became the 1985 Accord] the provincial government would gain the right to manage the offshore jointly with the federal government, particularly with respect to setting the mode of production. This had significant implications for local benefits, as evident from construction of the gravity-based system (GBS) for Hibernia.

Second, the provincial government gained the right to collect revenues from the resources as if they were on land. This established that the provincial government would determine its own revenues to be collected from offshore oil and gas development and production just as a province like Alberta is able to do. These revenues would, de facto, be treated as “own source” revenues like income tax, sales tax and other similar levies.

Third, the province as a whole would benefit from the development of local jobs. Mulroney committed that oil-related infrastructure would be sited in the province, where possible. This was no small matter. Mulroney’s letter [Brian Mulroney to Brian Peckford, 1984] contains strong language and conveys a deliberate intent on the part of the future Prime Minister to provide this province with significant job and business benefits. “Local job creation and labour development would be of paramount concern.”

Fourth, the province would benefit since the provincial government would not see a dollar-for-dollar loss of Equalization payments that would naturally result from growth in the government’s own-source revenues. The Government of Newfoundland and Labrador would receive all of its own-source revenue, potentially a portion of any federal shares in the offshore, and as well, additional payments to offset any losses from Equalization.

The same general approach was taken by the Liberal administrations which preceded Mr. Mulroney. For example, the comprehensive proposal made by the Government of Canada in 1982 stated that “it is recognized that Newfoundland should enjoy the major share of the revenue that offshore resources are expected to generate…” and that “the people of the province would realize the greatest and the most direct benefits from the development of offshore oil and gas resources in terms of growth and income, jobs, opportunities for new businesses, and significant new provincial government revenues.”

The federal Liberal proposal on revenue sharing was linked inextricably to the overall performance of the provincial economy and hence may be taken as further evidence of the extent to which the federal government before 1984 viewed the benefits from the offshore to this province to be greater than just the sums flowing to the provincial government’s treasury.

While local job benefits merited two short paragraphs in the original Mulroney letter, both the Accord itself and the enabling legislation provide an elaborate structure aimed at managing local benefits. No one can underestimate the value of local industrial benefits to the province; nor can anyone easily dismiss the contention that the architects of the Atlantic Accord saw local industrial development as a significant factor in establishing this province as the principal beneficiary of offshore oil and gas development. [Paragraphing altered to improve readability]