29 December 2016

The Tibb's Eve Accord #nlpoli

Health minister John Haggie said that the health deal signed with Ottawa on Tibb's Eve was the best deal that could be got.

Haggie's probably right.  At least, the deal contains a clause that if another province gets a better deal, we can opt for that one instead.

It's been so very long since we've seen federal-provincial rackets over money that most people in Canada seem to have forgotten what they look like.  Stephen Harper didn't run federal-provincial fiscal relations like other prime ministers so the provinces stopped squabbling publicly.  Even Paul Martin was basically about handing out cash so, aside from premiers who postured entirely for the show of it, there was never really much of the sort of disagreement and negotiation that Des Sullivan reminded us all about on Monday past.

The Way we Were

Des does a wonderful job of reminding everyone of the way provinces got on with one another 20-odd years and more ago.  New Brunswick politicians routinely gave up their virtue for a whiff of paving tar and when Richard Hatfield wasn't at it, then his immediate successor was.

Things don't work that way anymore, or at least they have not been that way in a long time.  Ottawa has money to give away and the provinces are all quite willing to take what they can get. The federal government is not that susceptible to political pressure, especially one like the current government that is flying high in the polls.

The provinces do not worry so much about the intrusion of the federal government into areas of exclusive provincial jurisdiction, as they once did.  In fact, with health care, they are desperate to have the cash. Three of the four Atlantic provinces were quick to cut a deal with Ottawa. There isn't a province in the country that would turn up  their nose at a few federal bucks. The only difference between Ontario and New Brunswick is that the Ontarians may hold out for a slightly better arrangement or at least the appearance of putting up a good fight before, reluctantly, accepting the federal cash.

The Way We Weren't

As much as people like to imagine something different, that's the way things have been in the country since the turn of the century. In 2004, for example, the federal government figured out in the spring how they would deal with transfers generally and with the demands from the two Atlantic provinces over the offshore.  They told the provinces.  Danny Williams, fancying himself a great deal-maker, fiddled around in thew spring and started an ever-louder shouting match in the fall.  Nothing fundamentally changed in the federal position.  Williams walked out the door in January 2005 with the same deal he had rejected the previous May.

The variations from what Ottawa had decided in its 2004 budget work-ups were entirely cosmetic. The amount of cash involved in the final deal went up slightly thanks to the use of a different value for a barrel of oil than used for the estimate in October.  And on some of the provisions for a second eight-year stretch,  Williams managed to harass himself out of any real chance at a longer deal. The feds made the deal more restrictive tha one Williams had rejected in October.

The Nova Scotians had played along with Williams until Christmas.  When Williams decided to rip down Canadian flags as part of his negotiating tactic, the Nova Scotians left him standing alone.  By early January, when Williams realised he'd buggered things badly, the Nova Scotians were well on their way to a deal of their own. Williams desperately tried to re-start talks.  He made a panicked phone call to the prime minister from his condo in Florida, offering to get finance minister Loyola Sullivan on a plane overnight if need be.  It didn't matter.  After a few weeks of chattering back and forth, Williams settled for far less than he'd demanded but left it to his publicity machine to turn an undoubted defeat into an entirely fictitious triumph.

The Tibb's Eve Accord

We still don't have all the details of the agreement although it seems the three Atlantic provinces - Prince Edward Island is holding out - have accepted the same deal.  A Nova Scotia source told the National Post that money for home care and mental health cannot be spent on wages and benefits.  The money seems to be tied to growth in the value of goods and services in the province.

That's why a provincial spokesperson in Newfoundland and Labrador could say the money would grow in third, fourth, and fifth year. The transfers for health and social services are indexed to gross domestic product. The provincial economy is forecast to be stagnant and to decline this year and the next two years.  RBC Economics projects real GDP at zero growth in 2016,  negative 2.2% in 2017 and negative zero point five percent in 2018.  The provincial Dfinance department forecasts 4.5% decline in real GDP in 2017, with declines in each of the next four years.

According to the CBC story linked above, "Haggie says the deal contains provisions that means Newfoundland and Labrador will see more money than it otherwise would have because of its aging population."  That seems to be a reference to the GDP clause.  The problem in figuring out the real impact is that the transfers are apparently still made on the basis of population.

The mental health and home care transfer apparently doesn't give Newfoundland and Labrador any benefit for having a GDP likely to grow sharply at points in the life of the deal.  New Brunswick, with a population only slightly larger than Newfoundland and Labrador, got more money over 10 years for health care extras:  $230 million.  Newfoundland and Labrador will get $160 million.

As for population, the official government projections are all bad.  The low scenario puts population decline at eight percent over the next decade.  Even in the high scenario,  population will decline 3.5% in the government's own projections.  That means that the provincial government could actually see less money in real terms from the transfer, even with the likely anticipated increase (3.5%) in the amount of money from the federal government's plan.

The Prisoner's Dilemma

You'll see and hear plenty of comments to the effect that the provinces must hang together when dealing with the federal government in order to wrench more from it.  Inevitably, as in Des Sullivan's commentary on Monday,  the ones that break ranks get scolded for caving in.  There might be something to the notion but, historically, it has been very hard to get co-operation among nine different governments even if there is some rational reason why they would be better off co-operating. Provinces have competing interests, sometimes and, as even more recent events have shown, some premiers have their own personal agendas that they are willing to push even at the expense of their own province.

Even if they could co-operate it is hard to imagine what leverage the provinces could bring on the federal government.  They have no legal say in how much the federal government spends or, indeed, how it spends the money. They have no political clout either at the federal level. The provinces could all refuse to accept money but then, that only hurts them. You see, the federal government has the upper hand in any talks by virtue of the fact it has something the provinces want.

So when John Haggie says the deal he signed is the best one available, he's probably telling the truth. It might be a hard truth to swallow, but it is a truth.  And if there is a clause that allows the province to get more if someone else gets more, then the deal they accepted will always be the best one. Odds are the federal government won't cut a better deal with another province for that very reason:  when you are shelling out $73 billion dollars, with more than half of it going to Ontario and Quebec (the most populous provinces in the country) it is hard to imagine how the federal government could cut a better deal with Newfoundland and Labrador.  Ontario and Quebec would always get dramatically more and that runs the risk the federal transfers to provinces would cause financial problems for the federal government. That's the reason the federal government capped Equalization in 2007-08. Once Ontario started qualifying, the federal government needed a way to limit how much money they'd wind up transferring to the provinces.