The story of the 2004 war with Ottawa is the story of disconnects, mismatches, incongruities, of things that just didn't add up.
October 2004 is a good example. In the middle of the month, Loyola Sullivan, the provincial lead negotiator, went to Ottawa for a meeting with federal finance minister, Ralph Goodale. he headed the negotiations for the federal government in the effort to find a draft agreement.
Sullivan told reporters the chances of a deal looked good. The two governments were talking about something that would last eight years and bring the provincial government between $1.4 and $2.0 billion depending on the price of oil.
At exactly the same time, Premier Danny Williams was telling reporters the provincial position had not changed. "There are no movements from the government of Newfoundland and Labrador,” Williams told Rob Antle of the Telegram on October 16. “There's no doubt about.that. We have no intention of moving.”
The provincial position that Williams insisted had not changed called for a deal that had no fixed end-date. What Sullivan was talking about had a very specific limit. The two things did not match. On October 21st, Sullivan was in the Telegram again talking of the eight year deal with upwards of $2.0 billion in cash. And then two days later, Sullivan was slamming the same deal, claiming it was nothing more than a “shell game.”
The provincial position itself didn’t add up. The provincial government wanted all of the oil royalties that it received, in total, and without any reduction. On top of that, the provincial government wanted all of its Equalization hand-outs from Ottawa as if the oil didn’t exist.
Yet both Sullivan and Williams frequently described the demand as being for 100% of provincial oil revenues. Many people in the province, including reporters and editorial writers, thought the provincial position would end the practice of provincial money going to Ottawa.. They were wrong: no provincial money went to the federal government in the first place.
Mr. Williams Goes to Ottawa
None of that mattered. Williams and Sullivan headed to Ottawa. They didn’t go for the meeting, but for the media coverage they’d get for their boycott.
The media who covered the start of the meeting found plenty of drama Williams changing the deal he’d agreed to in June because oil prices had changed. According to Williams, Martin wanted some of the oil cash. None of what Williams said was true, on any level.
''Our pride cannot be bought,” Williams told reporters. “We won't say yes to less.'' His jaw muscle clenched and unclenched so visibly as he fumed that news networks used a shot of his pulsing face during cut-aways.
With the media show in Ottawa over, Williams and Sullivan flew back to St. John’s for another media event on October 27. “Yesterday, I made a difficult decision in Ottawa,” Williams said at the beginning of his prepared remarks, “when I decided not to attend the First Ministers’ Meeting on equalization.” That wasn’t true, of course. The reporters didn’t know that Williams had already decided the week before to boycott the meeting based on the federal offer he already knew about, in detail. .
Williams summarised the situation that – he claimed – led him to his decision: What Williams had demand and Paul Martin had accepted “did not include a cap or a reference to fiscal capacity. It did not include any linkage to the fiscal capacity of other provinces. And, it did not include a time frame. In fact, it specifically excluded it.”
That much was true. But Williams conveniently ignored – and none of the reporters apparently asked – why he and his finance minister had been discussing an eight-year deal for the past two months.
Instead, they repeated what Williams had said. CBC, for example, reported that Williams and Sullivan had “said they would lose about $617 million in the 2006-07 fiscal year alone if they accepted Ottawa's version of the deal, and between $2.6 billion and $4.1 billion over the 21-year production life of the Hibernia, Terra Nova and White Rose offshore oilfields.”
"We are not prepared to give away potentially billions of dollars in revenue to contribute to an already bloated fiscal surplus in Ottawa," Williams said.
Williams released a chart with three coloured lines on it. One represented the value of the payment as Williams envisaged it. A second line referred to a federal offer of October 14. A green line purported to show the impact of the fiscal capacity cap in the latest version of the federal proposal.
The chart itself, like the entire news conference, was a perfect example of the other-worldly nature of the war Williams and Sullivan had started. The pair would present blatantly false or misleading information. People repeated the falsehoods as if they were true, even when, in some cases, they had the truth in front of them.
The reporters in the room knew that both the October 14 offer and the proposal dated October 22 lasted only eight years. In the chart, though, both deals continued until 2022, another decade. They couldn’t continue if they lasted only eight years. The chart couldn’t include the 1985 offsets on those as they stopped in 2012 as well.
Then there is the matter of what the charts show. Sullivan had already described the October 14 offer as providing the top of Equalization payments Williams was looking for. The line for October 14 should have been exactly the same as the provincial demand line. If it wasn’t, there was yet another reason to wonder why Williams and Sullivan had been talking up an offer that - supposedly - fell so far short of their demands.
For good measure, Williams even invoked the spectre of another fiasco like the 1969 power contract: “The only group to benefit from that [fiscal capacity cap] would be the federal government. This is exactly the same scenario we have with Quebec in relation to the Upper Churchill and the absence of an escalator which has cost this province hundreds of millions of dollars.”
“Simply put,” Williams summed up, “our proposal on the Atlantic Accord protects us from the pitfalls of another Upper Churchill deal.”
On the 21st of October, Williams and Sullivan were staring at criticism from some prominent people in the province. Vic Young, whose Blame Canada commission had laid the foundation for Williams’ victory in 2003, thought the deal Sullivan was praising fell short of the numbers his people had come up with. .
Less than a week later, Young said that every person in the province stood behind Williams, just as he did. Federal politicians from the province fell in line with Williams. Some of them, like Gerry Byrne and George Baker, were names Bill Rowe and had given to Williams in a telephone conversation on October 22 as William looked for allies. Another, Bill Matthews, was only a Liberal of convenience. An old friend of Williams, Matthews had no problem wearing a Liberal jersey but – in effect – playing for another team.
Even future politicians got in on the action. Ryan Cleary was editor of a weekly newspaper called the Independent. In October 2004, his paper had run a poorly researched series that purported to show that Newfoundland and Labrador was getting the shit end of the stick from Confederation.
A Global television news crew filed a story with local reaction to Williams’ decision to boycott the meeting and reject the federal offer. They included Cleary, who started off with the Williams-inspired change to the name of the province that was temporarily fashionable in certain circles in 2004:
“Newfoundland Labrador didn't have to join Canada,” said Cleary, the future New Democratic Party member of parliament. “Ottawa wouldn't have these moneys coming into the treasury. So we want a better deal. That's what it comes down to.” The separatist talk also ramped up very quickly. Global included in its report some clips from local open line show callers who said it was time for the province to leave Canada.
The Talks Resume
For all the media noise over the next four weeks, the two governments kept talking. The negotiations got back to details on November 22, a month after Williams and Sullivan had launched their war. This time, though, Williams pushed Sullivan aside and took control of the talks himself. On the federal side, Prime Minister Paul Martin kept Ralph Goodale as the lead on the file. but added clerk of the privy council Alex Himelfarb to the mix.
Williams told reporters the talks were “perhaps the most important battle ever waged in this province since Confederation.” A month later – to the day - the federal government produced a draft agreement for Williams.
Building on the general outline of the October offer, the new draft agreement offered the province an extra payment to cover losses in federal transfers through the Equalization program. It would last for eight years, beginning with two years in which the payments were specifically defined.
The draft agreement also included an explicit commitment to renew the deal for eight more years provided the provincial government either balanced its annual spending estimates or qualified for Equalization. If the provincial government became a “have” province at any point during the life of the deal, the whole thing would stop. The draft agreement also included a new condition that would allow for eight years of additional offsets specifically for the Hebron project. The last of the four major projects had yet to reach the development agreement stage.
In order for the agreement to continue beyond the first eight years, the provincial government would have to meet three conditions. First, the government would have to balance the budget annually. Second, the province would have to qualify for Equalization in that year or the preceding year. Third, the province’s debt-to-GDP ratio could not become lower than that of one of the provinces other than Nova Scotia.
Those conditions stuck in Williams’ throat, however, they were consistent with what the provincial government had been saying all along about the province’s financial state and about its own plans to deal with it. The federal cash was supposed to help get the provincial government out of a mess. Williams’ letter to Martin in December 2003 had specifically committed the provincial government to use the extra cash from Ottawa in order to to modernize public infrastructure and to reduce public debt. In essence, Williams was left to argue against his own stated intention.
The prospect of renewing the agreement for a second eight year term was a major improvement over the earlier proposal. If he looked closely, Williams would have noticed that the provincial government only had to meet one of two conditions in order to renew the payments for a further eight years.
Balancing the books was an attainable goal given the extra cash forecast to flow from the offshore. The other trigger – having a debt-to-GDP ratio lower than that of any other province except Nova Scotia – was almost impossible given the size of the public debt even in relation to the oil economy.
Williams rejected the new offer offer as a Machiavellian insult. “It's also quite apparent to me,” Williams told reporters, “that we were dragged to Manitoba in order to punish us, quite frankly, to try to embarrass us, to bring us out there to get no deal and send us back with our tail between our legs.”
In four weeks, Williams had gone from telling the world he had every confidence – once again – in the Prime Minister’s word to accusing the federal government of yet more conspiracies and plots. In October, he’d suggested that the federal government was organizing the provinces against Newfoundland and Labrador.
Mr. Williams Goes to Hell
Back in St. John’s, Williams ordered provincial government officials to remove the Canadian flag from provincial government buildings. They would not go back, he sneered, until the federal government caved in and delivered Williams’ original demand. “I'm not willing to fly that flag anymore in the province.” Williams spat out the phrase “that flag” as if it was poison.
Angry letters and e-mails poured into Williams office denouncing his political use of the national symbol. Williams went to his stock line and claimed the whole thing was the result of a massive Liberal conspiracy. Coming back to work after the Christmas break, Williams vowed to undertake a national speaking tour to make the case against the federal government. It didn’t go well. After a lengthy meeting with the editorial board of the Globe and Mail, the newspaper publicly told the Premier to take the deal in front of him.
A poll Williams commissioned confirmed that the flag stunt was a mistake. The poll put five questions in front of audience of Canadians outside Newfoundland and Labrador. Part way through the poll, Williams’ office added a poll of Newfoundlanders and Labradorians in order to see how the flag flap was playing at home.
Nationally, 72% of respondents agreed with the idea the federal government should honour its commitment. Fully 96% of Newfoundlanders agreed, along with 72% of Westerners, 68% of Ontarians, 73% of Quebeckers and 84% of Maritimers. Even with the polls margins of error - 2.83% nationally, almost five percent in Newfoundland and almost 8% in the other regions, the figures were unmistakable.
Williams got the same kind of responses on three of the other questions. That isn;t surprising since the questions were worded in such a way as to lead people toward the strongest positive response possible.
The fifth question was simple and tied Williams’ decision to the federal commitment: "To what extent do you support Newfoundland's Premier Danny Williams' decision to remove Canadian flags from Newfoundland's government buildings [sic] to protest Prime Minister Martin and the Government of Canada not living up to the commitment to allow Newfoundland and Labrador to keep 100% of provincial oil revenues?"
Despite the leading nature of the question, despite having heard the same rationale about commitments and revenues in two previous questions, and despite the skewed nature of the responses, 60% of respondents nationally picked the sole, extreme negative choice.
The view was as clear in the regions across the country, even allowing for the poll's margins of error.
Respondents strongly opposed the flag move in every region except Quebec and Newfoundland. Even 63% of Maritimers were not supportive at all. In Quebec, where flag flaps were old news, the figure was 45% not supportive at all, the single largest response category by more than two to one. In Newfoundland and Labrador, only 38% were completely supportive, while 29% were not supportive at all.
The poll numbers must have come to Williams as a shock. The flag stunt had been a calculated move. modelled on a similar ploy by a Parti Quebecois administration.. Nationalist sentiment, even separatist sentiment, appeared to have been growing in the province since October.
Interestingly, Williams admitted to reporters on January 7 that the flag issue had cost him support. it seems he had some of the poll results at that point. Even at home, as Williams knew from his own polling, his flag flap was a loser at worst, a distraction at best.
The national polling ended on January 9. On January 10, Williams met reporters to announce the long-delayed call for expressions of interest in development of the Lower Churchill. Before he got to that announcement, though, Williams unexpectedly told reporters the flags were going back up that very minute. Then he carried on with the announcement about his pet project.
On January 3, - in the midst of the flag controversy, and before he started polling - Williams wrote Martin. He released the letter and a summary of the provincial position on January 5. The letter ran through all the details of the provincial position. Williams detailed seven problems with the December draft agreement, all of which had to do with limiting the offset payments beyond a set period.
In characteristic fashion, Williams blamed Goodale and Efford personally for the failure of talks thus far. The deal had been cut between the two leaders. The underlings had intervened and failed. If Martin was serious about meeting his commitment from June, Williams concluded, Williams was prepared meet with Martin, Nova Scotia premier John Hamm, and Himelfarb. Williams emphatically refused to meet any more with federal finance department officials.
Things turned from bad to worse for Williams as he retreated from his flag folly. News broke that the federal government was close to a deal with Nova Scotia. After December 22, the two provinces had split and the news from Halifax meant that Williams would be left isolated.
In a desperate move that reflected his collapsing position, Williams called Martin from his vacation in Florida on Thursday, January 13. The two agreed that the finance officials would meet for more talks. As Williams was out of the country, he offered to have Sullivan in Ottawa on Friday. Martin was unavailable to meet Williams, though, until after January 28, when he returned from a trip out of the country.
Before the telephone call, Martin’s office had already prepared a response to Williams. They sent it on January 14. The tone and content of the letter made it clear that Williams had gone too far. Martin rejected Williams’ characterization of the discussions up to that point and what the two had agreed in June.
Martin stated emphatically that his concern from the outset had been to ensure that the provincial government did not suffer a loss of revenue as a result the way the Equalization system and the Accord offset provisions operated, as long as the province qualified for Equalization. He insisted that the federal government had worked in good faith and that the entire federal proposal met his commitment since he and Williams had first spoken a year before.
When it came to the idea that the province should receive a federal payment even after it no longer qualified for Equalization, Martin was clear:
You now are asking the Government of Canada to make additional and continuing 100 per cent offset payments even if the province no longer qualifies for Equalization. This would mean that Newfoundland and Labrador would be out of Equalization because of the strength of its own revenues, thus meeting the key objective of the Accord, but continue to receive additional offset payments, in practice indistinguishable from Equalization payments, from the Government of Canada. This is inconsistent with your public statements, for instance “once we get to the equalization standard, we are saying we don’t want any more equalization. All we want after that, forever, is 100 per cent of our provincial revenues, no different to Alberta or anyone else” (Globe and Mail, A1, Nov. 18).
Martin stated his own willingness to meet but insisted that the technical aspects of Williams’ letter were subjects for Goodale and Efford.
Martin’s letter was as stern and complete a rebuke to Williams as he had likely ever received to that point. Martin systematically rejected Williams’ contentions. By quoting Williams’ own, often-contradictory comments back to him, Martin exposed the inherently contradictory nature of Williams’ own position. As he had done in November, Martin brushed aside Williams’ effort to give in to Williams’ effort to make the dispute personal. Goodale and Efford would continue to represent the federal government on the details of the agreement.
By January 26, Williams was reduced to issuing a news release denying that he was stalling a final agreement. The accusation came from an anonymous source reportedly inside the federal Liberal caucus. The ground had shifted under Williams in more ways than one.
The next day, he issued another news release to let everyone know that, since he would be meeting with the Prime Minister on January 28 to finalize a deal, “I have requested that my Cabinet colleagues clear their calendars and be readily available if required to meet on this very important matter.” There’d be no more stunts.
On the Friday night, Williams emerged from a meeting with Prime Minister Paul Martin to announce the deal was done. He returned home, triumphantly crying that “we got it!” His office issued a news release on Monday, January 31. It started by trumpeting the single payment of $2.0 billion that came with the agreement. Williams then turned to rewriting the entire history of the preceding 12 months.
“Our effort to secure a better deal on the Atlantic Accord was about more than money for the people of Newfoundland and Labrador. It was about integrity and dignity and honour, and it was about pride."
Saying Yes to much less
There is no mistaking the fact that Williams accepted a deal at the end of January that contained every single one of the points to which he had objected on January 3. In some areas, the deal Williams accepted on January 28 was demonstrably worse than either of the ones he had dismissed earlier. The final agreement, signed on February 14 in a ceremony in St. John’s, proved it.
The first clause confirmed that the federal government had to pass legislation to put the deal into effect. But in the second clause, Williams and Sullivan admitted that their claim about a loss of provincial revenues was a lie:
Newfoundland and Labrador already receives and will continue to receive 100 per cent of offshore resource revenues as if these resources were on land.
Rather than receiving a federal cheque equal to provincial offshore revenues, even after the province no longer qualified for Equalization, Williams accepted that the deal would be for eight years, with the possibility of extending the deal.
In any event, the deal would end in the year that the province stopped qualifying for Equalization, although the final agreement included a transitional period of two years of declining payments rather than an abrupt stop. While the December deal needed only one trigger to the renewal, the final agreement deal required that the provincial government hit two targets. That reduced the prospect of a renewal dramatically.
Williams had complained that the December draft agreement did not include offsets for the three existing projects beyond the term of the agreement. It actually would have included a new offset for Hebron whenever the project started production. The final agreement included no offsets outside the life of the existing agreement.
For three months, Williams and his caucus had waged a high intensity war with the federal government that gained national headlines. Williams’ personal popularity soared.
But the deal Williams signed in January 2005 was as far from his initial demand as one could get. What’s worse, the basic nature of the deal – how much money and for how long – was the same in January has it had been in October. Arguably, as Williams’ attacks grew more extreme, the federal position hardened accordingly.
Williams vowed that he would never say yes to less than what he had originally demanded. In the end, he agreed to far less. The gap between the two was so large that, in the end, Williams had to fill the gap with a redefined version of the goal. It had not been about money, Williams said. The fight had been about pride, integrity, dignity, and honour.
Williams could not declare an actual victory. He declared a moral one instead.