Hearn hits back

Federal fish minister Loyola Hearn delivered a luncheon speech on Friday in which he took a few strips off the provincial government, in return for the strips Premier Danny Williams took off Hearn's hide a few days ago.

Hearn, seen at right at a function some months ago, seemed to be either pointing fingers at the Premier or, perhaps, inviting the feisty Mr. Williams to see what happens when he pulled Hearn's finger.

There is nothing uglier than a fight within a family.

Regular Bond readers will recall the cat fight last year, left [not exactly as illustrated], over Premier's scheme to install Andy Wells as head of the offshore regulatory board. That, too, had all the earmarks of a fight a la Crystal and Alexis.

Incidentally, Hearn's remarks as quoted by the CBC story kinked above as well as other reports on the speech, will seem familiar to Bond Papers' readers. Several federal departments are regular Bond readers but that is likely nothing more than a coincidence.

One thing is certain from today: John Crosbie had some good advice for both Williams and Hearn. Premier Williams should consider Mr. Hearn a potential asset in trying to deal with the current dispute on a diplomatic level. Crosbie knows exactly how much can be accomplished by a federal regional minister on behalf of the province.

He's done it before throughout disputes between St. John's and Ottawa during both the Brian Peckford and Clyde Wells administrations. The relationship between a premier and a regional minister doesn't always have to be amicable.

Heavens knows that Wells and Crosbie often had a few choice words for each other both publicly and - to tell tales out of school - in private. Let's just say that soundproof doors aren't quite so soundproof when two strong-willed politicians are involved in what can euphemistically be termed a difference of opinion. Through it all, though, they still met and they still took each others' telephone calls.

Can the same be said of the current situation?

Maybe Crosbie has another clue to a fundamental change that needs to happen.

If not, then Hearn's comment today on fighting it out in an election might be the only way to resolve matters. Perhaps Mr. Williams would consider running as an independent Progressive Conservative in the next federal election, potentially leading - as did Lucien Bouchard - a nationalist bloquiste party.

Williams could even take Hearn on directly, that is if Hearn will be running next time out. As much as your humble e-scribbler would not like to see that blood letting on his own front lawn, that contest might just get all the testosterone out of the air and let people start building productive relationships again.

No need for Canadian Tire to stock up on mounds of absorbent pads just yet, though. Current word from Ottawa is that there won't be an election until sometime in 2008.

In the meantime, Newfoundlanders and Labradorians are likely to hear the family next door in a knock-down, drag-out on the front lawn for months to come.

*sigh*

-30-

Your serial government at work

There's a northern "strategic plan" for Labrador.

Labrador is north, so that bit is redundant.

Well, unless the plan is for northern Labrador.

Anyway...

As the news release notes, this "plan" fulfils a commitment from the 2005 throne speech. That means it has taken two full years to generate this document.

That's a pretty long time, especially considering that things like a wind power project and Lower Churchill development have already started in the case of the latter, or been postponed (the former) while this plan was being developed.

So what's the thrust of the document? Well, there is the obligatory commitment to sweeping goals of making things "better". There is plenty of cash committed here and that likely is the real purpose of the document: spending in an election year.

Other than that, most of the initiatives in the plan are already in train or are the sorts of things that one might expect, like building schools where needed and improving access to health care.

There is a curious one under natural resource development:

Support Newfoundland and Labrador Hydro to conduct an ACOA funded assessment of technical options for natural gas developments off Labrador...

If Newfoundland and Labrador Hydro is going to get into oil and gas development, then that could be a good thing. It could be - conditional language - since we don't know what Hydro's role will look like or what the financial implications are.

In this specific case, the technical options for developing gas offshore Labrador could be explored and likely would be explored - if they have not been explored already - by the license holders.

It is curious that the Hydro corporation will be studying these options. But it is even more curious that studying the options requires federal funding through the Atlantic Canada Opportunities Agency (ACOA). Surely Hydro has enough retained earnings to fund the study.

Beyond that, though and aside from all the good things to happen in Labrador, this document bears all the marks of something completed over two years ago. Note the number of phrases which project ore shipments and employments levels...for 2006. In early 2007, those projections should be easy since the year is past. Hindsight is always more accurate than foresight.

This is your serial government at work.

Not only does it take two years to complete a "strategy", but the strategy contains no concrete measurable goals to judge success. Major strategic decisions on everything from a new hydroelectric project, delay of a wind power project and decisions on new mine developments in western Labrador are all taken before the "strategy" is in place. On top of that, document is actually held up through the bureaucratic process to the point where it is announced fully two years after it started.

Surely it would have been nice to develop an actual strategy, one that lays out the guiding principles for its various components like health care and resource development.

Surely it would have been nice to have those principles before decisions are made.

-30-

The Imperial Prime Minister

Apparently requires a psychic, luggage-carrying dresser.

Steve joins Tsarina Alexander, Nancy Reagan, Marie Antoinette and others not actually holding power yet spending public money on nonsense.

Let them eat cake, indeed.

Did Danny consent?

Over at Offal News, Simon Lono has another take on the implications of the federal government's Equalization changes.

Lono makes the point that by changing the Atlantic Accord (1985), the current federal administration has raised troubling questions about any agreement between a provincial and the Government of Canada.

He's right.

But there's a couple of curious things about the Atlantic Accord (1985) Lono did touch on.

Let's add those in right now.

Under s. 64 of the agreement, the province may request that the entire deal be entrenched in the Constitution.

64. The Government of Canada agrees that should the Government of Newfoundland and Labrador achieve the requisite support among the other provinces for the constitutional entrenchment of the Accord that it would introduce a mutually agreeable resolution into Parliament.

No provincial administration has made such a request. Frankly, there's no public indication any provincial government ever tried to secure such entrenchment.

That simply reinforces Lono's content on the importance of the Accord. It isn't just any other piece of legislation that can be amended easily by one or the other party. The Atlantic Accord (1985) is about as close to a constitutional document as you can get and either party would tamper with it at its peril.

Beyond at though, there's another clause that bears on the current issue Lono raises.

60. Except by mutual consent, neither government will introduce amendments to the legislation or regulations implementing the Accord.

That sentence makes it pretty clear that if the federal government is altering the offset provisions of the 1985 agreement, they would need provincial consent to do so.

So did Premier Danny Williams consent?

If the Government of Newfoundland and Labrador agreed to the changes contained in Bill C-52, then the Premier's current public posture is sheer crap. He could not have been misled since the provincial government would have been fully aware of the proposed amendments and would have had to agree to them before they were tabled in the House of Commons.

Assuming - and that's dangerous with this administration given the Hibernia South experience - that they exercised appropriate due diligence, government officials and any external consultants they hired would have assessed the implications of the changes.

Now in his scrum, Williams was clear to accuse the feds of misleading his government, but he focused the bulk of his comments on misleading a private citizen. He spent considerable time accusing the finance department of misleading the public and Wade Locke.

Now if Williams misspoke in saying he had been misled, and instead meant to focus on what happened with the public, then Williams may well have consented to the changes. He just failed to us that. If that's the case then Danny Williams is as guilty of misleading the public as anyone else.

The feds are right in that scenario: Danny is just looking for a headline. He's looking to manufacture a crisis for what many are now speculating is coming: a referendum on separation. His confrontational approach to federal-provincial relations would certainly be consistent with that interpretation. It would also fit if the same guy giving him long-term strategic advice is the same political putz who thought it was a great idea to rip down Canadian flags. Overall, it fits with Williams' record of vicious anti-Ottawa rhetoric.

Now if the feds didn't tell anyone what was going on, then Williams has a legal case to overturn at least one set of changes to C-52. Then Williams is right.

But something says that if he had such an unequivocal case, Williams would be launching a lawsuit pretty freakin' quick. In that context, C-52 is such an incontrovertible breach of such an important agreement that every court in the land would smack Harper and Flaherty between the eyes in unequivocal terms.

All someone has to do is ask the feds and the province.

Oh yes, and ask for any documents demonstrating whichever scenario is correct. Danny Williams told us all the provincial premier's supported his 2005 deal. We still haven't seen any proof of that.

-30-

Two degrees of separation

Fox News brunette Coulter-wannabe, Rachel Marsden.

Check out the links on the left of her bio page.

Yep. Fight the Seal Hunt.

Look up though and find a link to Canada Free Press. CFP is an eclectic collection of commentary from across a wide spectrum.

One of CFP's regular contributors is this guy, from Newfoundland and Labrador. One of his recent columns was this piece on the failure of the seal hunt protestors' restaurant boycott.

There's absolutely no connection between the two of these people except that by some coincidence that has nothing to do with anything but fluke, some Fox News entertainer with anti-seal hunt inclinations winds up promoting to her American audience a Canadian site with at least one writer who has some pretty strong views in another direction.

There is the Internet in a nutshell.

Brown and browned off

Give credit for the title to CBC television's supperhour news and the banter between the anchors after a segment on Premier Danny Williams' comments on Wednesday about the ongoing racket with Ottawa about Equalization and offsets.

Williams was back in the province today after spending a couple of weeks someplace sunny.

Brown he is, thanks to a tan.

Browned off?

Well, that's a local expression for being annoyed or upset.

In a scrum with reporters on Wednesday, Williams called for finance minister Jim Flaherty to resign. Williams also tore strips off federal fish minister Loyola Hearn - the regional minister for Newfoundland and Labrador - as well as Conservative members of parliament Fabian Manning and Norm Doyle.

One of the consistent problems for anyone trying to figure out the whole issue is what the federal government has actually done. Skim through the initial budget documents and one would have a hard time finding any reference to a cap being applied to both the 1985 Atlantic Accord and to the 2005 offset agreement. What you will find is the following reference to Equalization:

A fiscal capacity cap to ensure that Equalization payments do not unfairly bring a receiving province’s overall fiscal capacity to a level higher than that of any non-receiving province.

Many people in Newfoundland and Labrador - your humble e-scribbler included - took this to mean that the existing offset agreements, both of which are tied to Equalization and are limited in duration, would still operate until such time as Newfoundland and Labrador exceeded the national per capita fiscal capacity as determined by whatever Equalization formula is in effect.

It appears that Memorial University economist Wade Locke worked on the same assumption for his initial analysis, even after extensive discussions with federal officials. Danny Williams certainly appears to have taken that meaning from the federal budget. He told a CBC radio audience on March 26 that the province would likely opt for the O'Brien formula by 2009. That would be consistent with Locke's assessment, made public two weeks after Williams made those comments

It seems as well that federal fisheries minister Loyola Hearn had a similar impression. He assured Newfoundlanders and Labradorians that once they saw the details, their initial fears would be allayed. That was what he said on March 22. As recently as last Friday, he said much the same thing. Hearn is a smart old politician and he is just too smart to fall into the sort of trap that his predecessor John Efford built for himself and then jumped into.

That perspective on the offset agreements changed on Monday with Jim Flaherty's admission that in fact the federal government would be unilaterally applying caps to the agreements. Of course, in the process, Flaherty had to savage a few facts, but that seems to be a common feature of public life these days.

Taken altogether, it's easy to understand Danny Williams' latest anger. He's right, by the way: Flaherty jerked everybody around. The federal finance leprechaun has been too cute by half. Williams hasn't pointed it out - and he likely won't, but the changes to the 1985 Atlantic Accord have far more serious implications than anything else.

That deal is not just a simple piece of legislation to be changed at a whim. It represents the basis on which Newfoundland and Labrador derives all its oil and gas benefits. The federal legislation enables a landmark agreement in federal-provincial relations and the offset benefits - temporary and declining are a part of the package of financial benefits it contains. The Equalization offsets were intended to provide additional cash to Newfoundland and Labrador on a temporary basis to allow for economic infrastructure development that, frankly, hasn't really been possible until recently.

Williams winds up with a few of problems as he looks at the current federal-provincial mess.

Biggest among them is that he simply has absolutely no means of communicating seriously with the federal government. His last potential allies - the three Conservative MPs - are all dirt under his feet. Williams started the whole mess with Harper at least last October in Gander, and as much as he insists he did the right thing, kicking the Prime Minister in the crotch - publicly - isn't designed to win any friends.

And friends are needed in politics. Even if people aren't friends, you at least need them to not be enemies. Politics is about the art of the deal, about maximizing gains inside a realistic set of options. It's not about Mr. Right, to steal a phrase. Sometimes it's about Mr. Right for Now. Perfect isn't ever possible, but there are plenty of really good possibilities short of perfection. you can cut those deals - good, beneficial deals - on a range of issues if your head is screwed on properly.

But if all you do is set fire to their underwear, the odds of winning people over is slim. When you take to their Stanfield's with a flamethrower, well don't be surprised if they don't invite you over to dinner to meet the kids and the rest of the family. Be surprised if they don't look for a restraining order.

On another level, though, Williams' fundamental argument isn't designed to win converts from among the non-converts. We've said it before. For the federal government and for mainlanders generally, we need to explaining what is in it for them. The Premier hasn't been able to do that, at all.

The weakness of the whole Equalization argument about clawbacks - as fraudulent as it is - takes away the one selling point: we make money; you make money. Instead, them making money becomes a crime. They - the undifferentiated foreign exploiting demons - take what is ours and, according to Williams, by God he will get it back by force if necessary. Any wonder people have tuned out?

Of course, it really doesn't help when your finance minister rejects deficit and debt fighting all the while you are holding out a big debt as one of the big reasons you need federal hand-outs.

Danny Williams lamented recently that mainlanders don't seem to understand how prosperity here benefits there, wherever there is.

Well, the real test of his abilities as a Great Negotiator and a politician will be in how he tackles that challenge.

It's his job to explain the point. He can do it.

The question is will he.

Doing an endless repetition of one of his first interviews - three freakin' years later - just isn't cutting it so far.

Spend 'em if ya got 'em

At a time when the provincial government is screaming that it needs federal handouts to deal with a huge public debt, finance minister Tom Marshall defends fiscally irresponsible budgeting.

The Offal News take.

The North-South connexion

From Walrus magazine, a four-pager on growing economic ties between Canadian provinces and American states.

All three of these transnational political groupings represent a new chapter in North American governance, with both Canada and the blue states bringing powerful assets to the partnership. Canada’s vast energy reserves (including hydro, natural gas, oil from the Alberta tar sands, and, potentially, Newfoundland’s offshore reserves, as well as wind power across the Prairies) provide the kind of energy security that is essential to make transnational political regions semi-autonomous.

-30-

Conoco Canada boss looking at expanded presence

ConocoPhillip's new chief executive officer in Canada is interested in developing the company's Canadian assets.

Of the Newfoundland and Labrador offshore, Kevin Meyers said:

"There are a multitude of options out there [to reduce greenhouse gas emissions]. A lot of them will require technologies to be developed, so we are looking for greenhouse gas policies that are cognizant of this." Newfoundland: The company wants to explore in the Laurentian Basin off Newfoundland, but won't move forward until the province sets fiscal terms for natural gas production, likely in conjunction of Premier Danny Williams' long-awaited energy policy, expected this spring. "Do we want to drill? Yes. It is difficult for us to come forward with any public plans about drilling exploration wells in the Laurentian Basin until we have an understanding of what the fiscal regime is going to be," Mr. Meyers said.

Meyers told the National Post that Canada is an attractive investment prospect since its stable political and fiscal climate offsets many of the challenges of developing oil and gas fields which, as Meyers describes it "can be marginal in nature. They are always in the cutting edge of cost and service or supply, but that stability of fiscal regime helps offset that.

Meyers warned though: "You do worry when government starts to take away that advantage it has."

Like in Newfoundland and Labrador, one wonders.

Meyers should understand the political climate on Canada's Eastern Front. His last post was running Conoco's operations in Russia under Vladimir Putin.

-30-

The future of rural Newfoundland

Craig Westcott's latest commentary for CBC radio [ram file] and Merv Wiseman's reaction. [ram file].

Westcott was his usual bold self. He called for government to stop paying lip service to problems, to stop "conning people" into believing that some bureaucratic plan built on a theatre festival will save things.

He notes that the salvation of rural Newfoundland would be creating a pool of skilled workers. Out of those educated young people will come the source of new ideas or people who can change and adapt more readily than their forebears.

Wiseman is an excellent proponent of the reactionary approach, rooted in the old rural development movement that infiltrated the economic development boards and turned them, in too many cases, from producers of results based on local opportunities to producers of government grant applications for further studies into the magical properties of another blueberry festival or golf course.

Wiseman essentially spouts buzzwords like innovation as if throwing up a few whalebones and calling it a museum actually gets at the core of the issue. He misses entirely the educational and demographic challenges that are already here in many parts of the province.

A clue to his headspace? Wiseman refers to the consequences of Newfoundland dieing, not rural Newfoundland but Newfoundland, as if what was in the mythical idyllic past is all that ever was and ever can be.

His major thrust was that Westcott was being too negative. That's it. Too negative. As if smiling and denying would suffice for anything except convincing people that you were in need of therapy.

There was nothing in Wiseman's comments to deal with the substance of the issue, namely the changes that will come - some inevitably - in the mythical entity Wiseman and Westcott call rural Newfoundland.

At least Westcott did that with his comments on education. Rather than seeking to hang on to as much of what was and is, Westcott talked about the simple foundation for adaptability. He pointed correctly to the value of education in building successful economies - and societies - in a host of places from Iceland to Asia.

Education was a key idea component in development ideas 15 years ago. More scholar for the dollar, as then education minister Phil Warren called it. Education reform in the early 1990s was about giving our young people the tools they need to build their own lives and with that their province and the future.

By the late 1990s though, and continuing today, education decisions were often about keeping schools in communities with fewer an fewer children as a symbol of the community's future. Keeping more and more teachers teaching fewer and fewer children with resource spread around such that the overall quality of education stayed about the same.

More dollar. Less scholar.

And Merv Wiseman? Well, he never really had any concrete, positive actions to show what is going on.

If they are out there and Wiseman had talked about them, he'd have been far more convincing than accusing Westcott of patronizing people.

Patronizing them is what the old rural development crowd do all the time with their talk. And if that's all they have, then Newfoundland and Labrador generally, not just the rural bits, is doomed.

Facts do matter

Except to this man, apparently.

From federal finance minister Jim Flaherty's latest Equalization news release:

To do so [not to alter two federal-provincial agreements unilaterally] would give Newfoundland and Labrador access to Equalization payments above all the other Equalization provinces even though its fiscal capacity is higher than Ontario's and British Columbia's, which receive no Equalization payments.

If Newfoundland and Labrador's own-source fiscal capacity exceeds the national standard for Equalization, then the province doesn't qualify for either Equalization or for Equalization offsets contained in the 2005 agreement between Prime Minister Paul Martin and Premier Danny Williams:

5. If in any fiscal year in the period 2006-07 to 2011-12 the province does not qualify for receipt of an Equalization payment, no additional offset payment in respect of clause 4 will be made for that fiscal year beyond the payment specified in the existing Atlantic Accord.

The federal Equalization formula currently used and the O'Brien formula contained in Flaherty's 2007 budget set the standard used to determine if a province qualifies for Equalization.

That standard in both cases is below the fiscal capacity of Ontario (the lowest non-recipient province) by several hundred dollars per person.

Yes, facts do matter, Jim.

They just don't matter to the current federal administration.

Obviously.

That was then. This is now.

Then, federal foreign affairs minister Peter MacKay said:

"It is important to note that if Nova Scotia opts for the new system, it doesn't have to give up its Accord–in fact, the Accord will be fully respected and continue to provide benefits to Nova Scotia," said Minister MacKay. The Accord provided Nova Scotia with $830 million immediately upon signing.

Then - a mere few days ago - federal fish minister Loyola Hearn told reporters much the same thing:

Hearn insists the Atlantic Accord, which the province and Nova Scotia negotiated with the former Liberal government in 2005, is safe.

"Are we going to get screwed? The answer is no, we're not," Hearn told reporters Friday.

"Are we going to be disadvantaged … by a billion dollars or by a dollar? The answer to that is no, because the government of Canada committed that we would not be disadvantaged."

Then, Prime Minister Stephen Harper told the House of Commons:

"The Premier of Newfoundland and Labrador asked repeatedly that this government reject the recommendation of the O'Brien commission that would have put a cap on the equalization benefits of the Atlantic accord," Harper said to the House.

"The Atlantic Accord is preserved in this budget and is preserved due to the good work of the minister of fisheries and oceans and of course other members of our Newfoundland and Labrador caucus. Promise made and promise kept."

Now, finance minister Jim Flaherty admits that his budget caps Equalization offset payments in both the 1985 Atlantic Accord and a supplementary deal in 2005:

The province will also have the right to opt permanently into the new, improved, Canada-wide Equalization system. This choice provides the province with flexibility for the future and improves Newfoundland and Labrador's chance of qualifying for an extension beyond the existing system. If the province chooses the new Equalization system, it is only fair that the whole package would apply, including the fiscal capacity cap, to ensure fairness. In this case, it would not be just to other provinces if only Newfoundland and Labrador is allowed to double-dip or cherry-pick only those parts of the new Equalization program that will benefit the province.

To do so would give Newfoundland and Labrador access to Equalization payments above all the other Equalization provinces even though its fiscal capacity is higher than Ontario's and British Columbia's, which receive no Equalization payments. [Emphasis added]

To apply the cap, the Government of Canada is unilaterally amending both the 1985 Atlantic Accord signed by Prime Minister Brian Mulroney and Premier Brian Peckford and the 2005 deal between Prime Minister Paul Martin and Premier Danny Williams.

Forget a broken election promise.

Harper and his cabinet can't even stick to the same commitment over the course of four weeks.

To see the full impact of this latest revelation, compare Wade Locke's original analysis and the one based on capping what they said wasn't capped.

If the provincial government had waited until the evidence was amassed, the impact of this Conservative perfidy would hav been plain for all to see.

-30-

Connies write off three NL ridings

A news release like this one virtually guarantees the seven seats in Newfoundland and Labrador will represented by someone other than a Conservative after the next federal election.

It confirms that federal government will be altering the 1985 and 2005 offshore agreements if and when the Newfoundland and Labrador government adopts the new Equalization program, something they never mentioned until caught at it last week.

How many times have the federal Conservatives said there were or would be no caps on the Atlantic Accord?

Surprise.

It isn't a cap.

It's a hood.

Around Bond Papers, we've been callin' 'em Connies for a couple of years.

Seems they are Connies.

Trying to con people into giving them votes.

Danny Williams must be especially rotted, seeing as he threw his lot in with these guys, even though it was painfully obvious at the time what the result would be.

Danny Williams even attributed things to Harper that Harper never even said, all in an effort to get Harper a few seats.

Wow.

That's gotta hurt.

-30-

Update: Among the others like Danny Williams smarting at the latest Harper political shaft must be the local talk show maven who sometimes calls herself Hydroqueen.

She spent a lot of time shilling for Steve Harper and his local candidates during the last federal election.

She even invented bizarre political theories to bolster her argument. Hydroqueen was wrong in the theory and, as it turns out, in the practice as well.

Maybe we need to start a special Homer Simpson gallery of people who backed Harper in 2005, lambasted any Liberal in sight on a purely partisan basis, and who today are feeling just a wee bit used.

Update Update: Yet another person who fell for the Connie job. Well, "fell" doesn't accurately describe someone who actually reworked reality in an effort to back his cause, but let's be generous.

NL town suffers second major landslide

The first was last fall.

The second was this past weekend and it continues on Monday.

Odd that only last month, the provincial government stopped paying assistance to people thrown out of their homes by the last emergency. The province also refused any financial assistance to people who could not return to their homes because of safety concerns.

Lucky for them, their houses have now fallen into the ocean.

Jack Byrne, the provincial municipal affairs minister, is now talking about getting the feds to compensate the homeowners.

Goodale calls Harper move "betrayal" of NL and NS

From Canadian Press.

"The worst betrayal of all was the barefaced failure to tell the truth on the issue of equalization and the Atlantic accord," he told Liberal MP Geoff Regan's nomination meeting.

Vote early. Vote often

Angus Reid's on-line survey.

Sign up.

Get to vote on questions like "Is Andy Wells doing a good job as mayor?".

Watch the results currently answering that question in the negative, 55% to 45%.

Mario Dumont: a constitutional fantasyland

From ctv.ca:

Quebec's new Opposition leader says he's ready to begin major talks that would facilitate the signing of the 1982 Canadian Constitution.

Is Quebec now in some sort of constitutional limbo?

M. Dumont peddles the same old fantasies that others have tried before. It would seem his version of something he calls autonomism is just the same old stuff we have heard before the Parti Quebecois and others.

Perhaps we should call it automatonism since that is what the federal government would likely be reduced to, a mindless follower of the dictates of one or all the provincial premiers.

And purely for local automatonists, a flashback to Morningside and a 38 minute discussion during the last effort to foist on the country the mythology of Quebec being outside the constitution.

The change Locke found

In Wade Locke's original analysis, he used the assumption that Equalization offsets provided for in the 2005 offshore revenue agreement and enabled by the Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act, S.C. 2005, c. 30, c. 85, would continue as originally intended.

Under that Act as it currently stands, the additional offset is calculated based on the difference between what the provincial government received in Equalization under the formula in use at the time.

The Equalization changes contained in the 2007 budget gave the Government of Newfoundland and Labrador an option of which Equalization formula would apply.

However, s.84 of the budget implementation Act (C-52) makes a significant change to the 2005 implementation Act by imposing a definition of the Equalization system in use at the time to mean the O'Brien formula.

84. The definition “fiscal equalization payment” in section 18 of the Act is replaced by
the following:

“fiscal equalization payment” means (a) for the purposes of section 22, the fiscal equalization payment that would be received by the Province for a fiscal year if the amount of that payment were determined in accordance with section 3.2 of the Federal-Provincial Fiscal Arrangements Act, without regard to section 3.4 of that Act; and,

(b) for the purposes of sections 24 to 26, the fiscal equalization payment that would be received by the Province for a fiscal year under Part I of the Federal-Provincial Fiscal Arrangements Act if the Province’s total per capita fiscal capacity were the amount determined by the formula

A + B + (C / F)

where

A, B, C and F have the same meaning as in the definition "total per capita fiscal capacity" in subsection 3.5(1) of that Act.

As a result, even in a year in which the province used the existing Equalization system (100% of resource revenues included), the additional offsets would be reduced since the O'Brien formula already offsets half of resource revenues.

Additionally, the use of the O'Brien formula, which includes a cap on payments, the proposed changes in the budget implementation legislation would change the meaning of s. 22 of the 2005 implementation Act. Under the current meaning of that legislation, no additional offset payment would be received if the provincial government did not receive an Equalization payment.

In the operation of the Equalization system and the offsets agreements as currently in effect, no payment would be paid if the province did not qualify for Equalization. However, under the O'Brien formula, the province may qualify for Equalization, but receive no payment in years where a combination of all revenues (own source plus Equalization plus Equalization offsets) exceeds the per capita fiscal capacity of the lowest non-recipient province.

Given the amendments contained in Bill C-52, Newfoundland and Labrador would actually receive no offsets at all in any year where its Equalization payment were reduced to zero as a result of the O'Brien cap.

There is no obvious reason for making this change. If the federal government wanted to give effect to both the 2005 agreement and the 2007 budget - allowing for choices - Bill C-52 would necessitate only modest changes, if any, to the implementation acts for 1985 Atlantic Accord and the 2005 agreement.

National Poetry month

A few suggestions:

1. The Poems of Ewan McTeagle.

2. Wilfred Owen

3. Celia, Celia, by Adrian Mitchell:

When I am sad and weary
When I think all hope has gone
When I walk along High Holborn
I think of you with nothing on

4. Healy Willan, Canadian composer, organist and devoted limerick afficionado:

There once was a man from East Sheen
Whose musical ear was not keen.
He said, "It is odd,
But I cannot tell 'God
Save the Weasel' from 'Pop! Goes the Queen'"

Soldiering on

An unidentified soldier salutes the remains of two comrades as they are loaded on Canadian Forces aircraft bringing them back to Canada.

The soldier is from an unspecified community in Conception Bay, Newfoundland.

Evolution's bitch

Scientists have discovered similarities between Tyrannosaurus Rex DNA and that of a modern chicken.

From world-dominating predator to a lunch meat for kids all in a few million years.

T. Rex: Darwin's bitch.

Darwin's other bitches?

Guys who fancy themselves the next Mike Holmes just because they saw it on television.

Upping rates better than less for longer

A panel reviewing parental and maternity benefits is recommending that the claim period be extended.

How about just changing the amount paid instead?

Currently parental and maternity benefits under the Employment Insurance program are pegged at the same rate as EI, that is 55% of previous salary.

The panel also recommended changing the rates. Good for them.

That's a simple initiative most parents would readily accept, even if the benefit period remained limited to one year.

Premature gasket-blowing

From Tom Marshall, minister of finance:

The Honourable Tom Marshall, Minister of Finance and President of Treasury Board, today confirmed that the federal government has misled the Provincial Government and the people of Newfoundland and Labrador regarding the true implications of the new equalization program as outlined in its 2007 Budget.

However, as Simon Lono points out at Offal News, there is something odd about Marshall's release in that it provides no provincial government calculations. Indeed, the provincial government has thus far provided not a shred of information or analysis to back its original contentions on Equalization. Ditto for the federal government, represented in this case by federal fish minister Loyola Hearn.

As Offal puts it:

You would think the Hearn would release numbers of his own to defend the federal position. He does not. Instead he's reduced to a weak claim that no province will be harmed.

But does he actually have any real idea whether the province will be harmed? Apparently not.

As for Marshall, he's definitely on the warpath now. And you can expect the Premier to be leading the barbarians at the federal gate as soon as he gets home.

But didn't Marshall already know that Locke's numbers were off in the first place?

Apparently not.

Wade Locke's latest analysis is interesting for two reasons.

First, it suggests that there is an interpretation of eligibility for Equalization offsets which is different from the one used in his original presentation. More will follow on that in a separate post.

Specifically, Locke quotes this section of an e-mail from an unnamed senior federal finance official:

In effect, NL would be eligible to receive Equalization and offsets as long as long its own-source per capita fiscal capacity (including non-resource yields and 100% of resource revenues) is not equal to or greater than the own-source per capita fiscal capacity of the non-receiving province with the lowest per capita fiscal capacity. [Italics in original]

On the face of it, this section does not contradict what appears to be the intention of the 2005 offshore deal or the 2007 federal budget as announced.

What Locke has done here is identified a potential issue. It is far from proven conclusively. As well, the provincial government appears to have blown a gasket before conducting its own review. Tom Marshall stated in a number of interviews that his officials were still seeking clarification on the issue, he had endeavoured to have the issue clarified with his federal counterpart and that provincial justice officials were reviewing the federal legislation. In one interview it appeared that Marshall was entirely unaware of this issue until Locke brought it to his attention sometime before Locke's news release today.

The one thing that can be concluded from this entire episode over the past 24 hours is that federal-provincial relations are at an all time low state. Marshall's inflammatory news release, done with the full approval of the Premier presumably, will not help resolve this matter successfully.

Claiming to be misled is one thing, if you have evidence and can prove it. Flaming the federal government - or anyone, for that matter - without substantive evidence is grossly unprofessional.

Dr. Locke has provided an invaluable public service with his analysis. Would that the politicians acted with the same professionalism he has displayed.

Wade Locke's latest analysis

Wade Locke has graciously provided his latest news release, which is reproduced below in its entirety:

Updated Estimates of Newfoundland and Labrador Treasury Impacts for the Equalization Options Contained in Budget 2007

Table 1: Updated Estimates Based on Accord Eligibility Criterion Contained in the Budget Implementation Act for the Impacts of the Equalization Options on the NL Treasury from the 2007 Federal Budget - 2007/08 to 2019/20

	Status Quo	50% w Cap (original estimate)	50% w Cap (updated estimate)
Period 2007/08 – 2011/12
Oil Revenue	$7.30 B	$7.30 B	$7.30 B
Accord Payments	$2.51 B	$2.37 B	$1.72 B
Equalization	$0.59 B	$0.76 B	$0.76 B
Combined	$10.40 B	$10.43 B	$9.78 B
Period 2012/13 – 2019/20
Oil Revenue	$7.37 B	$7.37 B	$7.37 B
Accord Payments	$0.0 B	$4.96 B	$0.0 B
Equalization	$0.76 B	$0.0 B	$0.35 B
Combined	$8.13 B	$12.33 B	$7.72 B
Period 2007/08 – 2019/20
Oil Revenue	$14.67 B	$14.67 B	$14.67 B
Accord Payments	$2.51 B	$7.34 B	$1.72 B
Equalization	$1.35 B	$0.76 B	$1.11 B
Combined	$18.53 B	$22.76 B	$17.50 B

On Wednesday, April 4, 2007 at 7:00 pm a presentation was given by Dr. Wade Locke in St. John’s on the estimated impacts for the Newfoundland and Labrador treasury of the equalization options specified in Budget 2007 (Government of Canada). The purpose of this presentation was to provide an objective and unbiased assessment of the net revenue impacts (oil revenue, equalization payments and payments under the Atlantic Accords) for the Newfoundland and Labrador treasury. As well, it is important to appreciate that the intent of the presentation was to provide some clarity to a complicated issue and to facilitate a more focused and informed debate. Moreover, there was a conscious effort in the presentation, and since, to stay away from the politics of this sensitive issue and deal only with the numbers in a professional manner. Although I will continue to do deal with this in a professional, non-political manner, it is my intention that after explaining the contents of this press release to interested individuals, I will have nothing else to say on this particular issue nor will I be undertaking further analysis in this specific area. I will leave it to federal and provincial officials to inform the public.

Given the sensitivity and the emotion surrounding this particular issue, I feel it is important to document how things have evolved to this point. This should enable others to judge the credibility of the approach and the results derived there from.

In any empirical assessment, it is necessary to make assumptions about how elements of each province’s fiscal capacity are expected to evolve over time. The assumptions used in the Locke analysis are clearly specified in the original presentation and interested individuals are referred to www.arts.mun.ca/arts to view the original presentation. While different assumptions will yield different specific results, they are unlikely to change the basic finding listed in Table 1. However, I would encourage both officials in Finance Canada and the Department of Finance, Government of Newfoundland and Labrador to present their own simulations to test the robustness of the results presented above. If this provides more credible information that is appropriately explained and independently vetted, then the public should be in a better position to understand the specific impacts of each of the options on Newfoundland and Labrador. I would encourage both parties to release their own analyses and expose them to public scrutiny as I have done.

The crucial assumption utilized in the original presentation was the eligibility criterion for payments under the Atlantic Accord. Specifically, the original analysis assumed that, under the 50% option, Newfoundland and Labrador qualified for Accord payments so long as it qualified for equalization before the equalization cap was imposed. This assumption was based on the fact that it seemed reasonable to assume that pre-cap equalization was the eligibility criterion because pre-cap equalization was used to calculate the value of the Accord payments. But, more importantly, before finalizing my analysis, I consulted with provincial government officials who confirmed that the pre-cap equalization eligibility criterion was their assumption as well. In addition, I sent emails to two separate officials in Finance Canada on April 1, 2007 requesting clarification on the eligibility criterion to be used for the Accord. Based on the responses that I received from those officials on April 2, 2007, I finalized my assumption about the pre-cap equalization eligibility criterion. In particular, my reading of those emails in the context of the questions asked was that the pre-cap equalization was the appropriate criterion to employ in judging Newfoundland and Labrador’s eligibility for payments under the Atlantic Accord. Without attribution, I have reproduced both the questions and the responses to the emails to allow others to judge the reasonableness of my assumption on eligibility.

The specific questions asked and the responses received were:

Question #1: In calculating the accord under the new arrangement, is it the case that NL receives the accord if it qualifies for equalization on the new arrangement prior to the cap being imposed? In other words, while the cap can remove all equalization payments, but before that happens, the province could qualify to receive equalization pre-cap and as such be eligible to receive the accord. Is that correct?

Response #1: Your assumption is correct; it is the pre-cap equalization amounts that are used in the Accord calculations.

Question #2: In calculating the accord under the new arrangement, it is my interpretation that the province is entitled to receive the accord so long as it qualifies for equalization before the cap is imposed, rather than after. Is that correct?

Response #2: The legislation before the House proposes that under the new arrangement, the test for determining whether or not NL qualifies for the 2005 Accord is whether or not it would receive Equalization payments under the base O’Brien formula – that is, 50% inclusion of resources plus the cap. If it receives EQ under that formula, then the next steps are taken to determine how much. In this case, the offsets are determined before the cap is applied.

On the afternoon of the presentation, at approximately 2:00 pm, I was contacted by telephone by officials from Finance Canada to explain that the eligibility criterion for the Atlantic Accord that was contained the Budget Implementation Act, 2007 was not pre-cap equalization as I had assumed in my presentation. As it turned out, the Budget Implementation Act, which contained relevant legislation on the eligibility criterion for the Accord, was tabled approximately one week prior to my presentation. As explained in a follow-up email at 4:40 pm on Wednesday afternoon, government policy, as outlined in the Budget Implementation Act, specified an eligibility criterion that was different than the pre-cap equalization criterion that was assumed in my presentation. The specific criterion that was identified in that email was:

In effect, NL would be eligible to receive Equalization and offsets as long as long its own-source per capita fiscal capacity (including non-resource yields and 100% of resource revenues) is not equal to or greater than the own-source per capita fiscal capacity of the non-receiving province with the lowest per capita fiscal capacity.

At that point, I had asked for the specific legislation so that I could review it myself. I received it the next day after my presentation and reviewed it on Easter weekend. However, between 4:40 pm (the time of the email) and 7:00 pm (the scheduled start of the presentation) it was impossible to re-analyze the data with the alternate eligibility assumption. Instead, I modified the original presentation to flag the crucial assumption about Accord eligibility. I, as well, indicated in the presentation that if the eligibility assumption was changed, then the estimates under the 50% option would have to be modified, not realizing the extent of the change that would be required.

After reviewing the legislation, it was clear that a new analysis was needed. This was completed on the weekend and sent with an accompanying email to Finance Canada officials on Monday at 5:00 pm NL time and followed-up on Wednesday with a conference call. It was in that call that all remaining technical issues were addressed as Finance Canada officials explained in great detail how the legislation worked. This enabled me to finalize the revised analysis on Thursday for release on Friday, April 12, 2007.

As is clear from Table 1, the impact on net revenues flowing to the provincial treasury, if the 50% option is invoked immediately, is $17.5 B. This is reduced from the $22.8 B estimated previously. The primary reason for the reduction in the estimated impact is that the Accord eligibility standard outlined in the Budget Implementation Act is more stringent than the pre-cap-equalization criterion utilized in the original analysis.

-30-

Economics: the dismal science

Wade Locke has adjusted his assumptions.

Now he says that what was originally a big gain for the province is in fact a loss.

Yes, the 50% exclusion now goes from being a six billion dollar gain for Newfoundland and Labrador over the status quo becomes a one billion net loss.

That's with a change in the assumptions, or more specifically, as CBC's David Cochrane described it, a reading of the budget implementation legislation. He referred to a "stricter" interpretation of what it would take for the province to qualify for Equalization in the future and there
fore how the offshore offsets deals would be affected.

Some quickie observations, before getting Locke's revised views:

1. Economics is a dismal science. After all, if adjusting some assumptions produces a variation of $7.0 billion - your entire Equalization and offsets work, incidentally - then you have some basic problems. Makes you wonder what it would take to have the Danny Williams option turn into a pig.

2. For all the big numbers, remove $14.7 billion. Locke includes offshore revenue in each of projections, for some inexplicable reason. Lop out that specific figure and you'll see the specific effects of Equalization changes and the offsets. That is assuming that Locke's assumptions on any given point are valid. That's not a sarcastic comment; it's a caveat.

3. The cap in the original 2005 deal obviously exists in one way or another. No matter how you look at it the cap built into the original deals - qualifying for Equalization or not - is still active. The real question Locke seems to be grappling with is when that cap cuts in.

4. Yes, there is a cap in the original deal. The offsets only flow as long as the province qualifies for the Equalization hand-out.

And for the record both for Mainland readers and the locals, Danny Williams' original goal in 2004 - not the one he settled for in January 2005 - was for a doubling of oil and gas revenues in perpetuity.

5. The original 2005 deal did not deliver as promised. Said it before. Say it again.

6. Wade Locke still hasn't assessed the other Harper option that still exists, i.e. 100% exclusion of non-renewables with a cap. Too bad Locke is apparently hauling ass out of the debate now that he's stirred it up. Maybe he got some angry phone calls from Florida or wherever the Premier is.

To be complete though, Locke should have assessed that variation since it is on the table.

And if 100% exclusion of non-renewables is such a good idea, then maybe applying the cap is better than what we have now.

At least according to the latest numbers, based on the latest assumptions.

7. Danny Williams had numbers like the ones Locke released initially. On March 26, Danny told CBC radio's Jeff Gilhooley that in all likelihood the province would shift to the 50% exclusion option within a year or two, i.e. by 2009, based on the government's analysis.