You really do have to wonder how anyone could be expected to keep things straight when the people they rely on to help them understand keep changing their statements.
Take, for example, the fight between the provincial Conservative administration in Newfoundland and Labrador a decade ago over offshore oil royalties and Equalization.
A decade ago, the offshore regulatory board reduced its estimate of the recoverable reserves in the Terra Nova field from 405 million barrels to 354 million barrels.
Danny Williams was trying to squeeze additional transfer payments out of the federal government in the guise of getting provincial oil royalties that the federal government supposedly took back.
The whole thing was a fraud of the first magnitude but hundreds of thousands of people in Newfoundland and Labrador fell for it.
The premier’s excuses for not participating in talks on a European trade deal just get more bizarre as time goes by.
First there was the whole idea that Stephen Harper can’t be trusted to look after Newfoundland and Labrador’s interests so the best solution – according to Danny Williams’ logic – is to let Stephen Harper look after Newfoundland and Labrador’s interests.
Then there was the whole idea of a side deal which, of course is impossible constitutionally, not to mention practically. As a European Union spokesperson put it:
"The Government of Canada is the only government with the authority to conclude international treaties under the Canadian constitution, so our interlocutor and negotiating partner will be the government of Canada,"…
The spokesperson indicated she’d apparently met with Our man in a Blue Line Cab to talk about seals.
But apparently, nothing else.
Then there was the whole go-it-alone thing, which consisted of nothing more grand than sending Tom Hedderson off to talk to a few ambassadors in a hastily arranged series of meetings on seals.
Now there’s this little gem, from Question period in the House of Assembly on Monday:
So there are other bigger issues. There is also the whole issue of the Atlantic Accord and what is going to happen when European countries do business in Newfoundland and Labrador.
What issue is he talking about?
Or more accurately, which Atlantic Accord?
The 2005 one – the only one he usually talks about – doesn’t have anything to do with Europeans or trade.
The 1985 one – the real one – establishes a local preference policy for Newfoundland and Labrador companies doing business offshore. The only way to get rid of that would be for the federal and provincial governments to agree to eliminate it. That’s because the deal can’t be amended unilaterally.
Well, it isn’t supposed to be amended unilaterally.
Under section 60 of the 1985 Accord, neither party could amend the enabling legislation unilaterally. Until 2007, no one thought they might. Then Stephen Harper amended the offset provisions in a rather sneaky way.
But the really odd thing is that the provincial government did not raise a single objection - beyond some generalised gum-flapping about Equalization - to the amendment of the 1985 deal.
Not a one.
No letters of protest.
Nada.
To the contrary, when they opted for O’Brien 50 this past winter – and pocketed Equalization cash in the process – they accepted the federal Conservative’s 2007 amendment as part of the deal. In fact, as the premier has indicated recently, the provincial government decided at least as long ago as early 2008 to flip to O’Brien/50 in early 2009 in hopes of pocketing Equalization cash. Heck, they might have even signalled that privately at the time to the federal government.
So maybe the real reason the Premier is in a snit is because he’s worried that through all of this he’ll just be hoist by his own clever Equalization petard. Rather than see the local preference rules of the 1985 deal preserved to the benefit of local companies, we’ll see them disappear.
That would go a long way to explaining the sudden about face the provincial government did on this deal back in February. Maybe the feds made it clear that the local preference provisions of the 1985 deal were up for consideration and one of the things the feds could throw back in the Premier’s face was his own acceptance of the unilateral changes to the 1985 Atlantic Accord. You can almost imagine the conversation: “Danny, it doesn’t matter if you show up or not. We can change the thing by ourselves if we have to – you just told us we could when you accepted the changes from 2007.”
Still, though, it doesn’t explain why he would sit on the sidelines rather than become personally involved. After all, as he told the legislature: :[w]e are going to do what we have to do here to protect the interests of Newfoundlanders and Labradorians, and I could not care less what the rest of them do, I have to be quite honest with you.”
Well, to be quite honest with you, if the provincial government was really hell-bent on protecting Newfoundland and Labrador interests, the place to do that is at the table, inside the Canadian negotiating team.
Seal-bashing just doesn’t seem like a reason enough to turn down the invitation to sit on the team. And like we’ve said before, if custodial management and shrimp tariffs are so important – and they are – the place to deal with those is at the negotiating table.
And look, if you really want to get a sense of how much is at stake for the province just look at what the Premier said himself in the legislature:
There are also a lot of very big, multinational, European companies that want to do business in Newfoundland and Labrador, because of our minerals, because of our oil and gas, because of our fishery, and we have to take the abuse from these hypocrites basically saying that we act in an inhumane and a barbarian manner, when they chase bulls through the streets in Spain, and matadors pierce bulls in a Roman type atmosphere, and we are out trying to earn a living.
So - if we try and follow the Premier’s own logic – a vote by the European parliament that affects maybe a few million dollars that comes to the province from seal-bashing is way more important than billions in new economic development throughout Newfoundland and Labrador that would come from participating in the trade deal negotiations.
Okay.
That makes sense.
Not.
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The crew that put together's CBC's usually fine "Reality Check" can be forgiven if they missed a few points by a country mile in a summary of the Family Feud.
Forgiveness is easy since the issues involved are complex and - at least on the provincial side since 2003 - there has never been a clear statement of what was going on. Regular Bond Papers readers will be familiar with that. For others, just flip back to the archives for 2005 and the story is laid out there.
Let's see if we can sort through some of the high points here.
With its fragile economy, Newfoundland and Labrador has always depended on money from the federal government. When they struck oil off the coast, the federal government concluded it would not have to continue shelling out as much money to the provincial treasury. N.L.'s oil would save Ottawa money.
Not really.
Newfoundland and Labrador is no different from most provinces in the country, at least as far as Equalization goes. Since 1957 - when the current Equalization program started - the provincial government has received that particular form of federal transfer. So have all the others, at various times, except Ontario. Quebec remains one of the biggest recipients of Equalization cash, if not on a per capita basis than on a total basis. Economic "fragility" has nothing to do with receiving Equalization.
In the dispute over jurisdiction over the offshore, there was never much of a dispute as far as Equalization fundamentally works.
Had Brian Peckford's view prevailed in 1983/1984, Equalization would have worked just as it always has. As soon as the province's own source revenues went beyond the national average, the Equalization transfers would have stopped.
Period.
That didn't work out. Both the Supreme Court of Newfoundland (as it then was called) and in the Supreme Court of Canada, both courts found that jurisdiction over the offshore rested solely with the Government of Canada. All the royalties went with it.
In the 1985 Atlantic Accord, the Brian Mulroney and Brian Peckford governments worked out a joint management deal. Under that agreement - the one that is most important for Newfoundland and Labrador - the provincial government sets and collects royalties as if the oil and gas were on land.
And here's the big thing: the provincial government keeps every single penny. It always has and always will, as long as the 1985 Accord is in force.
As far as Equalization is concerned, both governments agreed that Equalization would work as it always had. When a provincial government makes more money on its own than the national average, the Equalization cash stops.
But...they agreed that for a limited period of time, the provincial government would get a special transfer, based on Equalization that would offset the drop in Equalization that came as oil revenues grew. Not only was the extra cash limited in time, it would also decline such that 12 years after the first oil, there'd be no extra payment.
If the province didn't qualify for Equalization at that point, then that's all there was. If it still fell under the average, then it would get whatever Equalization it was entitled to under the program at the time.
The CBC reality check leaves a huge gap as far as that goes, making it seem as though the whole thing came down to an argument between Danny Williams and Paul Martin and then Danny and Stephen Harper.
Nothing could be further from the truth, to use an overworked phrase.
During negotiations on the Hibernia project, the provincial government realized the formula wouldn't work out as intended. Rather than leave the provincial government with some extra cash, the 1985 deal would actually function just like there was no offset clause. For every dollar of new cash in from oil, the Equalization system would drop Newfoundland's entitlement by 97 cents, net.
The first efforts to raise this issue - by Clyde Wells and energy minister Rex Gibbons in 1990 - were rebuffed by the Mulroney Conservatives. They didn't pussy foot around. John Crosbie accused the provincial government of biting the hand that fed it and of wanting to eat its cake and "vomit it up" as well.
It wasn't until the Liberal victory in 1993 that the first efforts were made to address the problem. Prime Jean Chretien and finance minister Paul Martin amended the Equalization formula to give the provincial government an option of shielding up to 30% of its oil revenue from Equalization calculations. That option wasn't time limited and for the 12 years in which the 1985 deal allowed for offsets the provincial government could always have the chance to pick the option that gave the most cash. It only picked the wrong option once.
The Equalization issue remained a cause celebre, especially for those who had been involved in the original negotiations. It resurfaced in the a 2003 provincial government royal commission study which introduced the idea of a clawback into the vocabulary. The presentation in the commission reported grossly distorted the reality and the history involved. Some charts that purported to show the financial issues bordered on fraud.
Danny Williams took up the issue in 2004 with the Martin administration and fought a pitched battle - largely in public - over the issue. He gave a taste of his anti-Ottawa rhetoric in a 2001 speech to Nova Scotia Tories. Little in the way of formal correspondence appears to have been exchanged throughout the early part of 2004. Up to the fall of 2004 - when detailed discussions started - the provincial government offered three different versions of what it was looking for. None matched the final agreement.
The CBC "Reality Check" describes the 2005 agreement this way:
The agreement was that the calculation of equalization payments to Newfoundland and Labrador would not include oil revenue. As the saying goes, oil revenues would not be clawed back. Martin agreed and then-opposition leader Harper also agreed.
Simply put, that's dead wrong.
The 2005 deal provided for another type of transfer to Newfoundland and Labrador from Ottawa on top of the 1985 offset payment. The Equalization program was not changed in any way. Until the substantive changes to Equalization under Stephen Harper 100% of oil revenues was included to calculate Equalization entitlements. That's exactly what Danny Williams stated as provincial government policy in January 2006, incidentally. The Harper changes hid 50% of all non-renewable resource revenues from Equalization (oil and mining) and imposed a cap on total transfers.
As for the revenues being "clawed back", one of the key terms of the 2005 deal is that the whole thing operates based on the Equalization formula that is in place at any given time. Oil revenues are treated like gas taxes, income tax, sales tax, motor vehicle registration and any other type of provincial own-source revenue, just like they have been as long as Equalization has been around.
What the federal Conservatives proposed in 2004 and 2006 as a part of their campaign platform - not just in a letter to Danny Williams - was to let all provinces hide their revenues from oil, gas and other non-renewable resources from the Equalization calculations. The offer didn't apply just to one province. Had it been implemented, it would have applied to all.
That was clear enough until the Harper government produced its budget 18 months ago. What was clear on budget day became a bit murky a few days later when Wade Locke of Memorial University of Newfoundland began to take a hard look at the numbers.
Again, that's pretty much dead wrong.
It became clear shortly after Harper took office in 2006 that the 100% exclusion idea from the 2004 and 2006 campaigns would be abandoned in favour of something else. There was nothing murky about it at all. So plain was the problem that at least one local newspaper reported on a fracas at the Provincial Conservative convention in October 2006 supposedly involving the Premier's brother and the Conservative party's national president. That's when the Family Feud started.
As for the 2007 budget bills which amended both the 1985 and 2005 agreements between Ottawa and St. John's, there's a serious question as to whether the provincial government actually consented to the amendments as required under the 1985 Atlantic Accord.
The story about Equalization is a long one and the Family Feud - a.k.a the ABC campaign - has a complex history. There's no shame in missing some points. It's just so unusual that CBC's "Reality Check" was so widely off base.
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Newfoundland and Labrador's new oil company - doing work offshore as partner on the multi-billion dollar Hebron and White Rose projects - will be paying more corporate taxes to the federal government under a New Democrat federal government.
According to the Telegram, Layton hit one of those points during a campaign stop in St. John's on Friday:
Layton said one promise he is making is a rollback on corporate tax cuts to banks and oil companies, which he says both the Conservatives and Liberals have supported.
Layton used the example of Exxon, but evidently he didn't realise the provincial government under Premier Danny Williams is now one of the oil companies he plans to tax more heavily.
In a separate campaign appearance, Layton pledged to "honour the Atlantic Accord", apparently in reference to the 2005 federal transfer side deal between the federal and provincial governments.
But his blanket pledge also included the real Accord, the 1985 deal signed by Brian Mulroney and Brian Peckford that establishes joint management of the offshore between St. John's and Ottawa and which sees the provincial government collect 100% of royalties from the offshore as if the resources were on land.
Under clause 41 of the 1985 Atlantic Accord, provincial or federal Crown corporations are taxed like all other companies:
Crown corporations and agencies involved in oil and gas resource activities in the offshore area
shall be subject to all taxes, royalties and levies.
OilCo, the oil subsidiary of the province's still unnamed energy corporation, is incorporated like all other corporations in the private sector, even though its shares are owned 100% by the Crown. The company also isn't a Crown agent.
While in St. John's, Layton also pledged to transfer federally-owned shares in the Hibernia project to Newfoundland and Labrador "over a period of time" [Telegram story on Layton at Memorial University, not online. CP story here.]
Those shares, representing 8.5% of the project, would also be handled by the province's energy corporation. They would also be subject to the NDP's increased taxation.
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Jack Layton's promise to "honour the Atlantic Accord" doesn't meet one of Danny Williams key ABC demands and would deliver nothing in new federal transfers to Newfoundland and Labrador under the 2005 Williams deal with Paul Martin.
Williams is seeking to have the province's revenues from offshore oil and onshore minerals - likely $2.0 billion this year - left out of the formula used to calculate Equalization transfers from Ottawa to the provinces.
Canadian Press gets it wrong:
Premier Danny Williams estimated the difference between the accord and the Tories' revised equalization plan was $10 billion - a sum he recently demanded Ottawa pay over 15 years.
The $10 billion number comes from the pledge made by both Stephen Harper in 2006 to drop non-renewables from Equalization. The estimated value to the province came from projections by a Memorial University economist. The actual value of the Harper 2006 promise Williams is looking for now would be considerably more given the current high prices for oil and minerals.
Harper didn't deliver in 2006. His government instead went with a revised Equalization formula based on recommendations from an expert panel. It's that failure that ignited Williams' anger at Harper.
In 2006, Layton promised only to deliver an Equalization formula with "A better measure of fiscal capacity."
Evidence of Layton's confusion between Williams' demand and the 2005 deal is in the estimated value of the new Layton "commitment, said by Canadian Press to be worth $400 million according to NDP researchers.
Under the 2005 deal Layton referred to on Friday, the Newfoundland and Labrador provincial government will receive extra federal transfers to offset declines in Equalization coming as a result of growing oil money. But the extra cash comes only as long as the province qualifies to receive Equalization in the first place.
The provincial government won't qualify for the federal transfer this year, hence it won't be entitled to cash under the 2005 deal.
Layton's commitment won't actually involve any new cash transfers either.
As part of the 2005 deal, Newfoundland and Labrador received an advance payment - essentially a credit against future earnings under the deal. That money won't be completely exhausted this year by the time the province goes off Equalization. The credit in the account is considerably more than $400 million.
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Ralph Goodale is in town for the annual federal liberal caucus meeting. The Telegram grabbed him for an interview. [Photo, left, The Telegram/Rhonda Hayward]Shortly after, Williams yanked down the Canadian flag from the front of government buildings across the province in a protest that, even now, Goodale finds distasteful.On the deal as a whole:
"I thought then — and I still think today — that approach, that tactic, was unfortunate. I don’t agree on any occasion with any premier, whatever the issue might be, taking that particular slant to it and pulling down the flag," he said.
"Do I think it was the right deal? Yes I do," he says without hesitation.Read the rest. it's an interesting counterpoint to the false information spread local during the discussions and since.
"The problem was real, there was justice behind the provinces’ position and, as difficult as the negotiation was and as colourful as some of the tactics were, we had to keep our eye on the ball and work our way through it."
The federal government has made two offers which were made public subsequent to their being presented. Following is the offer made in Winnipeg in late December 2004; as I understand it, there were some discussions that are not reflected in this proposal.
What follows is a straightforward presentation of the offer, with some commentary on its contents, particularly as it relates to the provincial government position. Undoubtedly more of the province's reaction will be released later today and I will update my comments accordingly.
Draft Agreement in Principle Between the Government of Canada and the Government of Newfoundland and Labrador and the Government of Nova Scotia
1. This agreement reflects an understanding between the Government of Canada and the Government of Newfoundland and Labrador and the Government of Nova Scotia that:
both provinces already are collecting and will continue to collect 100 per cent of offshore resource revenues as if these resources were on land;
the Government of Canada has agreed to provide additional offset payments to these provinces in respect of offshore-related Equalization reductions.
Comment: This clause is a simple statement that reflects the current situations with respect to Nova Scotia and Newfoundland and Labrador offshore revenues. The second bullet point describes the current agreement.
Based on Premier Williams post-June 10 position he could not accept either of these points. First, he has argued that the province currently does not receive 100% of revenues and therefore he could not endorse a comment that states otherwise. Second, the Premier has also claimed that the additional federal transfer is not an offset payment related to Equalization.
2. The Government of Canada intends to execute its commitments under this agreement through legislation that will authorize additional payments to provide 100 per cent offset against reductions in Equalization payments resulting from offshore revenues.
Comment: This is a further statement of the federal government's intent and the general nature of the agreement.
3. For the fiscal year 2004-05, the value of the additional offset payments will be:
a. For Newfoundland and Labrador: $133.6 million;
b. For Nova Scotia: $30.5 million.
4. For the fiscal year 2005-06, the value of the additional offset payments will be:
a. For Newfoundland and Labrador: $188.7 million;
b. For Nova Scotia: $26.6 million.
Comment: No explanation has been offered as to why the federal government proposed specific amounts for payments in the first two fiscal years of the agreement that differ from the rest of the agreement. In FY 2004, for example, the amount of $133.6 is approximately equal to projected offshore royalties used to prepare the FY 2004 budget. However, actual revenues as defined even by the pre-June 05 provincial position would be closer to $300 million based on current projections. Even allowing that this figure is intended to represent the 70% of revenues used to calculate Equalization, the figure is still slightly off.
Nonetheless, there is nothing to suggest these figures could not have been revised upward to reflect actual performance or that the two fiscal years could not be brought under Clause 5.
5. Commencing in 2006-07, the annual offset payment for each province shall be equal to 100 per cent of any reductions in Equalization payments resulting from offshore revenues. The amount of additional offset payment shall be calculated as the difference between the Equalization payment to be received by the province under the Equalization formula as it exists at that time if the province received no offshore petroleum resource revenues in that year, and the Equalization payment for that province in that year under the Equalization formula as it exists at the time, net of any payments made with respect to existing accords or Equalization offset provisions.
Comment: This clause describes the formula for determining the amount of the additional transfer to be made by the Government of Canada. It is a robust description of the offset as being the difference between Equalization with oil revenues included and Equalization without oil revenues.
6. For 2006-07 to 2011-12, in any fiscal year, if either province no longer qualifies for receipt of an Equalization payment, no additional offset payments will be made to that province, beyond payments specified in existing accords.
Comment: This is the clause that would cause the provincial government the most concern. Under this clause, additional payments to the Government of Newfoundland and Labrador would cease in three to five years when the provincial government own source revenues exceed the national per capita average fiscal capacity to qualify for Equalization transfers. in other words, since the province has only three years to go before it achieves "have" status, the duration of the agreement is functionally limited. We are making too much money.
This clause would ensure Newfoundland and Labrador is treated consistently with other provinces across the country. It is also consistent with the principles established in the Atlantic Accord on revenue sharing and on Equalization. The clause also conforms to Premier Williams desire that offshore resources "from a revenue perspective be treated as if they were on land within this province". [Williams to Martin, May 21, 2004.]
7. This arrangement will be in effect until March 31, 2012. No later than March 31, 2011, Canada and each province will, on a bilateral basis, begin discussions to determine whether a successor arrangement with each province should be put into place for an additional 8-year period beyond 2012. There will be no further arrangements for a province beyond March 31, 2012, if that province has not attained budget balance in 2011-12 or has not qualified for Equalization payments in 2010-11 and 2011-12.
Comment: This clause provides conditions for triggering the second eight years of additional federal transfers. It requires that a province must either have balanced its budget on an accrual basis or be receiving Equalization in 2011-2012.
There are two obvious points for comment. First, Newfoundland and Labrador would not qualify for a second period of eight years if current projections hold and it becomes a "have" province within three to five years (2007 to 2009). Second, the Williams administration has already committed to balancing the province's budget on a cash basis by 2008 and on an accrual basis by 2011/2012. This stipulation should not cause significant concern for the provincial government since it conforms to their established policy commitment.
8. Any successor arrangement with a province would be in effect for the period 2012-13 to 2019-20. In any year in that period, offset payments would be subject to the following conditions: the province would have to maintain budget balance in that year, the province would need to have qualified for Equalization payments in that year or the preceding year, and the province's debt-to-GDP ratio (using a fully consolidated accrual basis of accounting) has not become lower than that of one of the provinces that is not a party to this agreement. The arrangement would expire once payments are terminated for any year.
Comment: This section establishes certain conditions for the second eight-year transfer period. It essentially reinforces the goal of having the additional federal transfer being applied to reduce provincial debt and deficit. As such, it conforms to the Williams administrations' election commitment.
9. The Government of Canada commits to providing new offset payments for an additional 8-year period, starting with the first fiscal year of offshore commercial production, if any, from the Deep Panuke project in Nova Scotia or the Hebron project in Newfoundland and Labrador. Any such additional offset payments shall be limited to the revenues from these projects.
Comment: This clause introduces a new concept, namely separate offset mechanisms for specific projects. It overcomes one of the flaws in the original Accord which was not sensitive to protracted development phases. Essentially, Newfoundland and Labrador's offset was triggered by Hibernia production alone. Had the other fields remained undeveloped for an extended period, the offsets would have applied solely to that field; once developed the provincial government would have only received 100% of revenues from the fields with no additional federal transfers.
Rather than causing concern, this clause should be viewed as a positive step forward in the development of talks between the provinces and the federal government. A relatively straightforward amendment could bring any future, and currently unforeseen, projects under a similar special offset provision.
10. The Government of Canada agrees that if, in the future, it enters into an arrangement with another province or territory concerning offshore petroleum resource revenues, then either province may elect to enter into discussions with the Government of Canada to amend this agreement.
Comment: This clause extends to Newfoundland and Labrador a protection already available to Nova Scotia through its offshore oil agreement with the federal government.
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