Government of Canada Reaches Offshore Agreement

Prime Minister Paul Martin announced today that the Government of Canada has reached an agreement in principle with Newfoundland and Labrador that ensures the people of the province will continue to be the primary beneficiaries of offshore resource revenues.

“I am pleased to report that Premier Williams and I agree that the arrangements we have worked out today fully meet my commitment to address the province’s concerns about offshore resource revenues triggering reductions in Equalization payments,” stated the Prime Minister.

“This agreement delivers 100 per cent of the offshore revenues and 100 per cent protection of equalization. This deal is worth an estimated $2.6 billion to Newfoundland and Labrador between now and 2012, including an advance payment of $2.0 billion,” added John Efford, Minister of Natural Resources and Regional Minister for Newfoundland and Labrador.

Minister of Finance Ralph Goodale added, “I am delighted these intense negotiations have resulted in an arrangement that addresses the unique economic situation of Newfoundland and Labrador while being fair to all Canadians.”

No amendments to the Canada-Newfoundland Atlantic Accord or Equalization legislation will be required.

Payments under the offshore revenue agreement will be made separately from these accordss and the new Equalization-Territorial Formula Financing framework.

Details are provided in the attached backgrounder.

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Backgrounder

Elements of the Agreement on Offshore Revenues between the Government of Canada and Newfoundland and Labrador

This agreement provides the following benefits to Newfoundland and Labrador.

100 per cent protection from equalization reductions or “clawbacks” for eight years – one year longer than the life of the offset provisions of the existing Atlantic Accord – as long as the province receives equalization payments;

***An up-front payment of $2.0 billion to provide the province with immediate flexibility to address its unique fiscal challenges.
This amount equals about three-quarters of the agreed-upon estimate of potential benefits from this agreement between now and 2012.

This payment will serve as a pre-payment of the new 100 per cent protection.

The existing offset provisions of the Atlantic Accord will be retained unaltered;

In addition, this agreement provides for a further eight-year extension as long as the province receives equalization in 2010-11 or 2011-12, and that its per capita debt servicing costs have not become lower than that of at least four other provinces;

During the second eight-year period, if the province no longer qualifies for equalization, it will receive transitional payments for two years: In the first year, the transitional payment would equal two-thirds of the offset payments it received the previous year. In the second year, the transitional payment would equal one-third of the offset payments the province was entitled to the last year it received equalization.

If Efford is an obstacle, Loyola, what would Crosbie be?

Check out Paul Wells' blog today - Inkless Wells.

He summarizes John Crosbie's position on the Atlantic Accord from 15 years ago. Surprisingly, Mr. Crosbie viewed the whole affair differently when he was the Mulroney government's chief representative in Newfoundland and Labrador.

Here's how the whole blog posting winds up, beginning with a quote from Crosbie:

""It's a mean-spirited, politically inspired attempt to regurgitate. They can't have this deal and then try to vomit the deal out at the same time."

I swear to you I am not making these astonishing quotations up. Two things are worth pointing out.

• I've been rather famously critical of Paul Martin's government. But I can guarantee you this much. Any minister in Martin's government who took this kind of hateful tone with any provincial official would be fired so fast his head would spin.

• The Martin government has twice offered deals that, in the minimal case, would be worth hundreds of millions of dollars more for Newfoundland and Labrador. Danny Williams argues that's not enough. Fine. Sure. Whatever. But can you begin to imagine the firestorm in Newfoundland and Labrador if Martin had simply refused to entertain any request at all?

Danny Williams should thank God, in other words, that nobody in Ottawa today has John Crosbie's attitude toward Newfoundland and Labrador.""

Paul Wells is no fan of Paul Martin, as he readily admits so another post slags the Pm on another matter. But hey. Everyone is entitled to their opinion. Some people even change them merely to suit the current fashion.

Roland Martin: Stop making things up!

Following is the text of a letter to the editor submitted to The Globe and Mail in response to a commentary by Roland Martin on the Atlantic Accord.

Mr. Martin is a former deputy minister of finance in Newfoundland and Labrador. He did not serve on the Newfoundland and Labrador negotiating team on the Atlantic Accord in 1984/85.

Text Begins

Dear Editor:

Roland Martin does a tremendous disservice to readers of the Globe and Mail with his repeated misstatements of fact related to the current discussions between the Government of Canada and the Government of Newfoundland and Labrador on the Atlantic Accord. (27 Jan, 05, p. A19, “Drum roll: a solution”)

First, Mr. Martin should be well aware that what Premier Williams proposed to the federal government almost one year ago is substantively different from the current provincial position. One year ago, Premier Williams merely asked that the existing Accord Equalization offset provisions be replaced by a new arrangement. Implicitly this would last until 2012, when the Accord offset arrangements expire. There is no evidence that he sought Equalization offsets lasting for the life of offshore oil production and irrespective of the province’s Equalization status until June 10 and afterward. Therefore, it is clear, and blatantly contrary to Mr. Martin’s assertion, that the federal government position is closer to the original Williams proposal rather than the current one.

Second, at no time has the Government of Newfoundland and Labrador ever publicly indicated that it sought a 16 year Equalization offset. This is a matter of public record.

Third, Mr. Martin persists in the completely false assertion that the principle beneficiary provisions of the offshore Accords relate solely to provincial government revenues. In the Atlantic Accord, it is clear from public comments by Prime Minister Mulroney and Premier Peckford at the time the Accord was signed that “principle beneficiary” included the province government’s right to set and collect provincial revenues as if the resources were on land (it does not specify a quantum), the provincial government’s right to co-manage development of the offshore resources, and the province’s right to have a guaranteed level of local industrial and other benefits.

Fourth, by his use of the “clawback’ argument, Mr. Martin leaves the impression that neither Nova Scotia nor Newfoundland and Labrador retains its offshore revenue. In fact, both provinces receive all the revenues to which they are entitled, in their entirety without reduction of any kind.

Fifth, Mr. Martin’s proposed solution actually conforms in general terms to the federal government’s December offer. What Mr. Martin does not state is that the Government of Newfoundland and Labrador has, to date, insisted on receiving Equalization offsets from the Government of Canada irrespective of its fiscal capacity. In other words, the Government of Newfoundland and Labrador wishes to continue receiving double its oil and gas revenues from offshore oil long after it might have passed the “sustainability” indicators Mr. Martin proposes.

Sixth, Mr. Martin invents provisions of the Atlantic Accord that do not exist when he claims that the Accord was designed to have updated revenue sharing arrangements. Such is not the case and there is no public statement of any kind to support his contention. To the contrary, the statement of revenue-sharing principles in the Accord explicitly provides that Newfoundland and Labrador would be treated the same as all other oil producing provinces; not better, not worse, but the same. There would be no need to revisit the Accord revenue-sharing provisions since they are inherently flexible. Since Mr. Martin did not serve on the provincial negotiating team in 1985, one is puzzled at the basis for his claim.

Seventh and flowing from this, Mr. Martin persists in the contention that the current discussion is about revenue sharing. It is not. It is about Equalization, which is treated consistently and separately from revenues in the original Mulroney letter of 14 June 1984, the Atlantic Accord itself and in the implementation legislation. This is only about revenue sharing for those who contend that Government of Newfoundland and Labrador should retain not only 100% of provincial government revenues, as it does already, but also a portion of federal government revenues through Equalization, contrary to the revenue sharing provisions of the Accord itself.

A successful solution to the current offshore Accord impasse is possible. It merely requires that individuals like Mr. Martin refrain from their penchant for stating as facts things which are demonstrably and irrefutably false.

Text Ends

A deal may actually be possible

Following is the text of an extraordinary statement issued today by Premier Williams in response to comments reported today in The Telegram to the effect that a deal was unlikely on Friday in the meeting between the Premier and the Prime Minister. I have dropped some comments into the text, clearly marked in italics.

Text begins:

NLIS 9 January 26, 2005 (Executive Council)

The following statement was issued today by Premier Danny Williams:

At the beginning of this week, I made a decision that we, as a government, would not be speaking publicly leading up to the meeting with the Prime Minister on Friday. I made this decision because our absolute focus this week has been on working towards a successful conclusion to the discussions with the federal government on the Atlantic Accord.

We want to proceed in good faith which is why I have not spoken with the media this week and, in fact, even today will not speak directly to the issues of the ongoing discussions. I do, however, find myself this afternoon in the position of having to make a brief statement.

I was concerned this morning to read in our local paper a story which quoted an unnamed source at the Federal Liberal Caucus retreat out of Fredericton. That unnamed source essentially said that I, as premier of this province, was intentionally dragging my feet and that I was not interested in concluding this deal.

The story further indicated that I was stalling on the agreement because I was not interested in concluding a deal before our province brings down our Budget this spring. These statements are absolutely false, and I do not believe that they reflect the views of the Prime Minister.

Obviously, I do not know who this federal source is; however, I can assure you that I have been working very hard this week to finalize this agreement. Our officials have been working vigorously with federal officials to work out the details.

Additionally, contrary to what was reported, we have been extremely willing as a province to discuss compromises and to offer creative solutions that work to the satisfaction of both levels of government. I categorically deny dragging my feet or stalling this process. It is untrue and comments such as these do absolutely nothing to aid this process.

[Note: To date, the Premier has been adamant that there were no discussions or negotiations and that no compromises were either necessary or possible. Premier Williams insisted that the Prime Minister's commitment was simple and all that was required was for Ottawa to live up to that commitment, as stated in the Premier's letter of June 10. This statement today represents a radical and very public departure from the Premier's rhetoric of past six months.]

I can state also, unequivocally, that we are not impeding or stalling this process so as to avoid a deal ahead of our provincial spring Budget.

Quite the contrary, our government and the people of the province recognize the serious and urgent need for these additional financial resources. To suggest otherwise is simply wrong.

I sincerely believe that Prime Minister Martin joins me in hoping for a successful conclusion to this file. Our respective governments have spent an extraordinary amount of time working on the file so that a deal can be concluded as soon as possible - a deal that gives the people of Newfoundland and Labrador what they have asked for and what they expect.

Let me be very, very, clear. It is my fervent hope that the outcome of the meeting between myself and the Prime Minister is that this arrangement is concluded to the satisfaction of both levels of government. The people of the province have waited patiently, and we all hope for a successful conclusion on Friday.

[Note: Again, unlike previous meetings the Premier has not placed an ultimatum on this meeting nor has he deliberately heightened expectations. His comments in this statement are relatively modest - relatively.]

2005 01 26 3:15 p.m.

: Text ends

Of cliches, stereotypes and the Accord

Online at Macleans this week, you won't find the feature article on Newfoundland and Labrador, but you will find a column by Macleans editor Anthony Wilson-Smith. It's titled Beyond the old cliches.

Wilson-Smith notes, and I whole-heartedly agree, that "[t]he clicheés, in short, of Newfoundland as a poverty stricken, hardscrabble place from which all the best people rush to escape are now well past their expiry dates." Anyone who has been around this place over the past 20 years can't help but notice the changes, especially in St. John's. But the changes, economic, social and attitudinal, are also found in most of the major centres across the island and in Labrador.

A good sign that the cliches are stale is the reaction to Mary Walsh's latest television comedy. Back in the Codco days, the days of the infamous "newfie" joke books, the sort of stereotypes of Newfoundlanders seen in the Hatching pilot - hard-drinking to be sure, but variously scheming or lazy - were commonplace. They became, for the artistically challenged, a sort of low-rent local Punch and Judy show, filled with stock types to be trotted out for easy laughs. The humour was in their outrageous accents and for local audiences, there were "inside" jokes that only some would get. To make the entire spectacle of the 70s and 80s Newfoundland "nationalism" complete, at social gatherings, someone would inevitably don rain gear, and wield a codfish and rum bottle, like orb and sceptre, to bestow honorary "Newfie" status on mainlanders during "screech-in" ceremonies. The provincial government, under Brian Peckford, used to print up elaborate certificates for these little minstrel shows and give them a semi-official blessing in the process.

I may be exaggerating just a bit, but to be honest, as someone who grew up in that period in the 70s, I resented greatly what amounted to rendering down the varied local cultures across the province to a series of caricatures. To add to the injury, the caricatures were generated by townies, inevitably not by the people being parodied. Newfoundland and being a Newfoundlander was limited to what was presented by these Professional Baymen, with their "Lard t'underin' Dynamite" accent and colloquialisms buried behind a tongue-defying local "dialect".

What it seems many people have missed is that the place has changed. For most Newfoundlanders and Labradorians, their pride and self-respect is not found in these overt and exaggerated displays of their unique dialect. It is in the individual and collective successes. It comes from rejecting the sort of make-work schemes and grandiose megaproject failures of the old days in favour of sound planning and good financial management of government other provinces might envy.

Those who view the Accord money as our "last chance" are just bringing back yet another old cliche from Peckford and the League of Professional Newfoundlanders. Paul Wells tossed that "last chance" one at me, and as I said to him, if extra oil money really is our "last chance", then boys, it's just as well we plan to shut the place down now. The "last chancers" have given up on Newfoundland and Labrador. They have a cliche of the place locked in their heads and, like Peckford [circa 1979], they likely plan to spend the extra oil money on propping up their out-of-touch vision of our province and its people. They likely will wind up subsidizing industrial development ideas that make no economic sense, like the Stunnel - like we have done before - or otherwise fritter away a windfall. In the meantime, substantive changes to the fishery, encouraging new industries, decentralizing government and fostering individual initiative and entrepreneurship will all be ignored. Those are the things that would actually give this place a secure future, and ensure that there is never a "last chance" when it comes to make Newfoundland and Labrador a prosperous place.

In that sense, Wilson-Smith's view of Danny Williams is part of a cliche. Williams is supposedly fighting to preserve rural Newfoundland and Labrador. Wilson-Smith claims that "what's really at issue is the survival of rural Newfoundland, which is 'the crucible and cradle of its poetry, its songs, its stories, its tragedies, its passions, its beauties.' " The second part of the quote, about poetry and such, is from Richard Gwyn.

This cliche, that "rural" Newfoundland is the heart of the place is completely false; it is no more true than the idea that the Professional Bayman of the 1970s represented a genuine Newfoundlander. It may fit conveniently with some people's image of the place but it neither represents a deeper truth, as some cliches do, nor does it represent the face of this place now or in the future. It is, at best, one aspect of Newfoundland and Labrador but rural, i.e. cod fishing, is no more the defining characteristic of who "we" are than "wheat" or "oil" or "maple syrup" defines some part of the country. It is significant, it may even be a major part, but it is not all.

In a broader sense, the discussion over the Atlantic Accord has become little more than a series of old sayings. Premier Williams repeats the "masters of our destiny" line from Peckford or the "Newfoundlanders as victims" theme. The Premier becomes the latest embodiment of yet another cliche, "the fighting Newfoundlander". He trots out the Upper Churchill, yet again. His interview with Macleans last year was, as I have written elsewhere, something that could have been written from some reporters 1970s notebooks.

What gets lost in the process is a great deal, not the least of which is the substance embodied in the Premier personally and in the Blue Print. It is that loss, it is that sense that the Premier is reduced or is being reduced to a caricature of someone else, that fuels my own personal disappointment at the current Accord dispute.

There is so much more to my Newfoundland and Labrador than any cliche could ever express.

There is so much greater potential here, in the people and in the place itself, than is embodied in the stereotypes on which much public comment has been based, and to which we have been limited.

Nutty, nutty, nutbar

Paul Wells is a well known national journalist, now writing for Macleans. You remember Macleans, the staple of every coffee table in the land. Pretty to look at. Maybe read, if the Sears catalogue had had the print rubbed off its pages by endless flipping.

He spent the better part of last week In St. John's talking to just about anyone and everyone he could. He managed to land a one-on-one interview with Premier Williams all in aid of giving Macleans readers a better understanding of "what Danny wants".

There's no telling what the local reaction will be to his piece; I, for one am looking forward to it when it hits the newsstand here, likely on Wednesday.

In the meantime, check out his blog under the title "Inkless Wells". Todays' installment, is called "Danny Williams impeccable timing". Aside from pointing out that a raft of other issues are dominating the national agenda these days, Wells does take one of the Premier's pet issues and challenges it head on. Premier Williams (and his supporters like Rex Murphy) is fond of claiming that our grievances here in The Happy Province are ignored nationally.

Wells quotes the Premier from a Board of Trade speech:

"The big question we have to ask ourselves here is, why are we waiting so long to get our promise fulfilled? If this were Quebec or Ontario or any other province, this wouldn't be happening. We're now into our eighth month battling away at this. And it's been a battle. And it shouldn't be.”

Wells notes:

"This quote sums up the very strong sense of many Newfoundlanders that they are uniquely put upon in Confederation. It's also nutty-nutty-nutbar. You really have to have been in St. John's for the last couple of decades to believe that Newfoundland and Labrador's demands are the only ones that go unanswered." He then gives a listing.

My personal favourite is this one. Apparently the Premier complained that money given to the 2010 vancouver-Whistler Olympics represents a case of other provinces being treated better than Newfoundland and Labrador. Those of us who live here day in and day out are familiar with the Premier's rather ... ummm..... ahhhhh... unique view of the world in which we all live. He sees conspiracies everywhere. He thinks that it is great that Ottawa saves billions in Equalization because Quebec gains hundreds of millions from Churchill Falls, while it is apparently the greatest injustice since Versailles when the same thing happens here.

Oh yeah, Paul suffered through an evening chatting with me and a bunch of others and yes, he does give this blog a nice word and a link. So I am returning the favour.

The Persuasion Business

A buddy of mine used to be a lawyer; he's a judge now. But he said something once that really made me think. "Ed," he told me after sitting through one of my workshops on public relations, "you and I are in the same business, the persuasion business."

It took me a while to think that over and realize he was right. Public relations people like me and lawyers both try to persuade people of the case we are making. We present evidence, discuss what the evidence means , make an argument and then look to people to make a decision. In his business, his audience might be a judge or it might be a jury of 12 people, many of whom have never heard anything about his case before.

In my business, the judge and jury are the people interested in a particular company project and issue. They might know something about it. They might know a lot. They might know nothing at all. Basically, though, we have the same job.

In both a court room and the court of public opinion, you don't win any points for spin - that is, you don't get any points for being cute or trying to fill in with misrepresentation what you can't demonstrate with facts. Lawyers, judges and even juries are usually pretty good at spotting bull. The danger for politicians and others who like to "spin" is that while they might win a particular case, in the long run their deceptions will catch up with them.

That's because, fundamentally, people in Newfoundland and Labrador, like people all across the country, have some common characteristics. They hate being lied to, especially if the lie winds up costing them something. They have a belief in fairness. They want to hear all sides and points of view before making up their minds. They have a willingness to give people the benefit of a doubt and by and large they are pretty generous with their time, their money and , as we have seen during things like 9/11, they are amazingly open and welcoming to people in a hard spot. There is a also a profound sense of right and wrong and the reason they reject spin, when they discover it, is because spin is basically none of those things. At its heart, spin, takes away the power of ordinary people to make judgments about issues that affect them or their neighbours. They are democrats at heart in that they know that ultimately decisions made by government affect them personally and they want to have as much control over their lives as possible.

Some of the comments in a couple of my earlier posts might mislead you into believing that I think the people who submit material to the Fair Deal site aren't in that category of fair-minded people I just described. If I left that impression, then let me correct it now, then let me correct that now. The people I have come across there, like the people I come across every day in St. John's have every quality I described above. The ones who have made up their minds and back the Premier to the hilt are doing so out of a firm belief that something unfair is happening. They may be right, although I'd disagree. Their actions are motivated by a desire to right a wrong, to make fair what they feel is unfair. And there should be no doubt that, with one or two exceptions they are actually clamouring for more information on this whole Atlantic Accord thing. Most, I would venture, would even be willing to make some adjustments to their opinions based on solid evidence. They might even change their minds entirely.

That brings me to the provincial and federal governments.

The provincial government started this whole business back last year. Therefore, it has really been up to them to make a strong case for changing the Atlantic Accord. To date, they haven't done it. They have kept details and information on revenues to themselves or distorted what they have released. They have completed misrepresented the Atlantic Accord provisions and, in the latest version of the Premier's "offsets" they continue to reinvent plain English words in a way that seems designed to sow more confusion rather than state a simple case.

All that doesn't mean they don't have a good case to make. I just think they have buried the reality under mounds of distortions. Much of what has happened, like the flag flap, was also the result of one or another off-the-cuff decision by the Premier. In other cases, there has been a calculated effort to ramp up public expectations - the Premier is the only one who talked of deadlines and make-or-break meetings - and then slam the federal government when expectations weren't met.

On the federal government side, there really isn't much excuse either for the complete lack of information flowing from Ottawa. People have no idea what the federal position is. The federal government has made only half-hearted efforts to tell people about the Atlantic Accord and I would venture there are a raft of people who haven't seen the Prime Minister's letter to the Premier. Heck, they might not even know there was one.

What I have been looking for here is not the grandiose rhetoric we have been getting. Rather, a good example of what I have in mind came in the mid 1970s. As part of laying out its claim to the offshore, the provincial government sent every household a glossy brochure that laid out the case. History. A bit of law. The basic principals of the case. There was an active effort to engage public support, to persuade the public of the rightness of the provincial case and to win their support. Compare that to today.

The reason I'd expect some solid information from both sides is that I expect them to try and persuade me and others. I don't expect to be taken for granted, which is exactly what the provincial government in particular is doing.

I want them to try and persuade me. Only then will i know for sure that both governments get a fundamental point that has been mssing from this discussion to date: the money they are fighting over isn't theirs. It's mine.

And it's my call as to who to gets to spend it.

Equalization links

While Equalization remains at the heart of the current dispute between Ottawa and St. John's over changes to the Atlantic Accord, there is still a lot of misinformation about the federal government program out there.

Following are a few links to sites/documents on Equalization and recent issues. Personally, anything even vaguely like accounting bores me to death and there is no surer way to confusion than to listen to some "expert" explain Equaliation. These links are a mix of plain language and technical discussions but they all give a set of differing perspectives.

Government of Canada, Department of Finance. This is the start of the page on federal transfers to the provinces. Tables of data, summaries, definitons and links to more information.

Maple Leaf Web. A good site with lots of information in plain English. Good links.

Atlantic Institute for Market Studies. This Halifax-based group has produced a number of detailed research papers on Equalization and the Atlantic Canadian economies. Considerably more technical than other papers, the site has links to .pdf versions of some of the AIMS papers.

Background paper on Equalization. This is a web page prepared by CBC. It is not specifically about offshore oil and gas revenue issues, but there are some links to related CBC News stories.

An Open Letter on Equalization. Courtesy of the federal government, this open letter is a news release issued in July 2001. it describes the Equalization program and gives some responses to provincial government positions taken at the time on reforming the program.

Response to John Crosbie. John has been on his crusade for some time to re-write completely the history of the Atlantic Accord. This is a short, plain-language rebuttal to his major contentions. One starts to wonder if John Crosbie was actually there for any of the discussions in 1984 or 1985. The date on this is October 2001!!

Canadian Fiscal Arrangements conference, May 16-17, 2002, Winnipeg. Institute for Intergovernmental Relations, Queen's University, Kingston, ON. There's an excellent paper here by Jim Feehan from Memorial University.

Recent Issues in Equalization Payments as They Pertain to Atlantic Canada by David Murrell, University of New Brunswick. " Over the past three years a number of issues have cropped up, concerning equalization payments as they pertain to Atlantic Canada. This paper discusses the policy issues using confidential documents from the Department of Finance Canada under the federal Access-to-Information Act. These issues include: Premier John Hamm’s Campaign for Fairness and the treatment of off-shore royalties, the imposition of the equalization ceiling in 2000-01, sources of revisions to equalization payments, forecasts of equalization transfers to 2005-06, and the implications of the recent downward revisions in population, in the 2001 Census, on future payments. " August 19, 2002

What Danny wants, the condensed version

It is indeed amazing how many variations there are out there of the provincial government's Atlantic Accord position. That's why I originally posted a longer essay on this subject.

Well, here's the condensed version, again based entirely on official documents:

Danny Williams, Blue Print, October 2003

1. No mention of Accord changes.
2. Remove all non-renewable resources from Equalization formula.
3. Sign a written commitment, “if necessary”, to invest the new money in debt reduction and economic infrastructure

Danny Williams, January –June 5, 2004

1. A new offset mechanism that provides the provincial government an amount equal to 100% of direct revenues in addition to direct revenues. (Williams to Martin, Jan 6, 04)

2. Direct revenues are defined as royalties and corporate income tax. [Note that under the Atlantic Accord, provincial government direct revenues comprise six separate types, including royalties and corporate income tax. There is no explanation for this apparent mistake on the part of the provincial government.] (Slide presentation to John Efford, Feb 27, 04)

3. The money would be used for debt reduction and infrastructure development. (Letter, Jan 06, letter May 26 04)

4. The time frame is unclear, at best. The slide presentation to Efford can be read as meaning seven years (replacing the existing offset) since the time frames match and the doubling up of revenues replaces the Accord's original offset with a concept that "benefits over a longer period" (12 years total of full offset versus four years in original Accord).



Danny Williams, June 5-June 9, 2004 (Hansard, June 7, 2004)

[Note: In the agreement of June 5, (Cell Phone Accord), the PM and the Premier agreed to something. The only public description of it was by the Premier in the House of Assembly on June 7]

“$700 million commitment for the next four years with ongoing additional monies available as this goes on into the future and as new fields come on.”

This could mean literally anythign since the existing Accord gives ongoing additional monies. It may mean that they agreed to have spearate offset arrangements for each new discovery, based on the conditions at the time. It doesn’t matter since, on June 10, the Premier changed his original proposal dramatically.

Danny Williams, June 10 to current

“The proposal my government made to you and your Minister of Natural Resources provides for 100% of direct provincial revenues generated by petroleum resources in Newfoundland and Labrador Offshore Area [sic], to accrue to the government of Newfoundland and Labrador and be sheltered from the clawback provisions of the Equalization formula, (currently at 70%). Direct provincial revenues include royalties, provincial corporate income tax, and fees, forfeitures and bonuses. Our proposal is for the current time limited and declining offset provisions in the Atlantic Accord to be replaced by a new offset provision continuing over the life of the offshore petroleum production which would provide a payment equal to 100% of the amount of the annual direct provincial revenues which are clawed back by the equalization program.” [Williams to Martin, June 10, 2004]

This may be summarized as follows, with the changes being obvious:

1. The offset is in addition to provincial direct revenues, as previously proposed.

2. Direct revenues are defined more accurately.

3. The commitment to direct the added revenues to specific purposes has been removed.

4. The duration of the offset is clearly stated as being for the life of production. [In fact, the Equalization offset ceases to be an Equalization offset according to some statements by Premier Williams]

In simplest terms the current position is that the provincial government should receive 100% of direct rvenues, as it currently does, plus another transfer from the federal government of an equal amount (+ 100%) for as long as oil and gas is produced offshore. [100% + 100% = 200%] This would not be affected by Equalization in any way.

Outside the Box - "Experience counts"

When Greg Locke was editing The Independent, I wound up writing a column there for a few months. It was a rich time with the change of government and the early steps of a new administration.

Margaret Wente's column stuck me in a bunch of ways, not the least being a recollection that her comments sounded all too familiar. On a snowy Saturday morning, I have found the comments - at least a description of the original - in a column I did for The old Indy. Maybe now you'll understand why I chuckled a bit at Danny Williams "defence" after Margaret's little diatribe. There is a karma in politics and those with experience understand it. Your actions today will influence what happens later.

For those of you who can't recall, this Macleans fiasco came right in the middle of Danny's pitch on the offshore last February/March.

Here's the whole piece:

Experience counts

For those who don’t know, I have been in the public relations business for the past 15 years. That includes seven years in politics and another eight in the public and private sectors. It’s an interesting field, if for no other reason than you keep running into people who think that because they read the papers, listen to the radio and watch television, they can do a PR job easily.

Sadly for those people, the news is filled each day with stories a buddy of mine used to call Homer Simpson moments – you see the story and the only thing to say is “D’Oh!” because the gaffs are easy to spot. They were predictable. They are damaging. They were avoidable.

Danny Williams’ interview with Macleans this week was a big Homer Simpson moment. The drunk comment came in response to a leading question from someone who hasn’t worked in the province since the scotch-soaked salad days of Frank Moores. The premier fell into an old trap and joked that now the House is completely drunk. D’oh!

Understand that the editor’s question came after the Premier volunteered the opinion that the House of Assembly was “unproductive” and joked that if he had his way he would probably never call it in session. D’oh! That question came after the Macleans crowd asked the Premier why the provincial deficit was so big. His response was mismanagement over the past 10 years. There was a lengthy bit about the Stunnel; two sentences on the fishery. D’oh! The last question had the Premier calling for a seal cull. D’oh! The Premier made some misstatements of fact, for good measure (D’oh!) and a couple of big ideas got a handful of words, without explanation. D’oh! Take the whole interview and you have a bunch of poor, laughing drunks, complaining about having no money, who apparently can’t manage their own affairs, and yet who want to build grandiose megaprojects and kill seals.

That interpretation is a bit facetious, but it fits rather nicely with the condescending view some central Canadian editors hold of Newfoundland and Labrador. What was missing from the interview? Overall, the premier needed to put our issues into terms that would be meaningful to his audience. There could have been a frank explanation of how developing the Lower Churchill benefits the whole country. The Premier could have talked at length about the local companies competing successfully around the globe in the energy, manufacturing and high tech sectors. For another, he could talk about how diversifying the provincial economy gets us off the equalization rolls. The Premier could have showed how offshore oil and gas can provide Canadians with a secure supply of vital energy and give Newfoundland and Labrador economic benefits like those in Alberta. That’s the Blue Book, Danny’s supposed plan.

Talk that way and you get a feature article, at least, not a cheesy question and answer session following a reporter’s agenda. You might even get the cover. Instead, readers got a piece that Michael Benedict, the 70s cub reporter and now Macleans executive editor, could have written from his old notes. Danny made the front page of the National Post, alright, but only because someone took offence at his jokes. D’oh!

Since the interview was so far off the Blue Book, this all happened for one of two reasons. Either Danny Williams’ advisors, the people he derisively referred to as handlers, are not doing their jobs or, taking his own advice, Danny is ignoring them because he feels they are trying to turn him into something he is not. If they aren’t doing their jobs or giving dumb advice, then Danny needs new advisors ASAP. If Danny is ignoring their good advice, then he needs to take a look in the mirror.

Public relations is not a job anyone can do. It takes skill and experience. Good advisors don’t change people into flavourless mush. They knock off the rough edges and help focus thinking so someone like the premier gets his point across. They are crucial to success. In PR, like in law, the guy who acts as his own counsel has a fool for a client.

By the way, who made the cover of Macleans last week? Rick Mercer – a Newfoundlander who gets paid to be funny.

Link to "Which is to be master?"

As I noted when I started this blog, in July I released a research paper on the Williams administration proposal which discusses the Atlantic Accord, what had been discussed in public to that time and suggested another way of structuring the province's proposal that might work.

It can be found on Greg Locke's blog. Greg is a local photographer and journalist - he's more than just the word photojournalist suggests. Greg and I disagree on the Accord and a bunch of other things but he did post this paper when it first came out. Follow the link and click on the paperclip marking an attachment and you'll be able to download the original paper. Since the hits on my blog have shot up in the past few days, I thought it would be a good idea to remind people of the original research paper.

Which is to be master? (http://blog.greglocke.com/blog/_archives/2004/7)

Since July I have been able to obtain what seems to be the complete set of official correspondence to and from the Prime Minister, including both copies of the slide presentations made in February and March. Those documents make for interesting reading and are the basis of my recent posts, including the description of the three different versions of what Premier Williams has been seeking. There is actually a fourth version - a sort of Williams 2.1 - described very generally by the Premier in answer to a question in the House of Assembly on 7 June 2004. That version is what was agreed to on June 5 in the Saturday Cell Phone Accord and that seems to be different from both the pre-June 5 provincial position and the June 10 position. If I had more detail on what it contained, I'd give it to you.

Something tells Danny wouldn't return my phone call or answer my mail.

Meanwhile on the "Blame Canada" website...

it has been interesting exchanging some views on the "Fair Deal" website with some people who seem to support Danny Williams more than his own family does. For the past couple of days, the site owner hasn't had to update since the entire site has been focused on a discussion related to some of my posts.

True to form, in some cases the responses to my points have largely been little more than name calling - "s*** disturber" - but that surely pales compared to "wimp capitalist petty bourgeois suburbanite" for inventiveness. Some others have pointed out my work background and political affiliation as if that had any bearing on the matter except in the truly most narrow and seemingly non-functioning of minds. Again, sadly true to form, those sorts of irrelevant points come from people who use only their first name to post or hide behind a pseudonym. Too bad they can't Marshall the courage to stand behind their convictions.

A few have tried to toss some "facts" on the table, usually the ones put forward by the provincial government. My rejoinders have earned the previously mentioned responses.

As a final effort, a couple of the posts have suggested that I must be afraid of Danny Williams' succeeding. This is a curious idea for a number of reasons, not the least of which is that I have actually been afraid that because of his amateurish approach and histrionic tactics, the Premier keeps making it harder to negotiate properly. I am also afraid that by raising public expectations so high in pursuit of a virtually impossible objective (200% forever), Premier Williams could end up walking away from a good deal for no legitimate reason other than to claim a moral victory.

Show me a moral victor and I'll show you a loser. Unfortunately, the loser in this case won't be the Premier. Look in the mirror to find the answer.

Perhaps my most favourite comment came from a chap named "cyril" - that's all he posted as a handle- who advised that I should leave the negotiating to Danny and Loyola because they were doing a good job. I should learn from his succinctness. His comment is curious since much of the irk on the Fair Deal page centres on the Upper Churchill. We got that contract because nobody questioned the Premier of the day who was "the only one fighting for Newfoundland". We never questioned him because, as Ambrose Peddle said, "it wasn't fashionable". cyril's attitude is a time honoured one.

Unfortunately, it is the same one that keeps costing us money over and over again and it is the same one we pursue often being left to wonder how we possibly could be still broke.

The answer that always leaps to mind is that it was the Mainlanders fault. That answer is usually associated with the next "only" Premier to ever fight for "us".

Just visit the "Fair Deal" site. Too bad there wasn't a public internet in 1982 or I could link you back to old Brian Peckford sites.

Res ipsa loquitur

Is there anyone here who understands English?

In a media scrum today, Danny Williams commented on the Prime Minister's recent letter.

One of the Premier's remarks just leaped through the radio speakers as CBC Radio's On the Go played a clip of his response to a question from a local reporter.

The Atlantic Accord offsets, according to Danny Williams, apparently have nothing to do with Equalization. They are outside Equalization, says Danny Williams, since they are under the Atlantic Accord.

There's no need to get into a long-winded rebuttal. Following are excerpts from the Atlantic Accord and the provincial government's own documents issued since last January. It's pretty clear that the Premier knows full well that what he said today isn't what he used to say.

Exhibit A. Atlantic Accord, February 1985:

EQUALIZATION OFFSET PAYMENTS

39. The two governments recognize that there should not be a dollar for dollar loss of equalization payments as a result of offshore revenues flowing to the Province. To achieve this, the Government of Canada shall establish equalization offset payments.

Exhibit B. Danny Williams to John Efford, March 5, 2004, Attachment - Proposal for a New Atlantic Accord Offset Mechanism [dated 27 February 2004]

Slide 9

- Replace existing offset mechanisms [Emphasis added]

Slide 10

- Federal equalization savings would equal the cost of the revised offset payments [Emphasis added]

Exhibit C. Danny Williams to Paul Martin, June 10, 2004.

"The proposal...provides for 100% of direct provincial revenues... to accrue to the government of Newfoundland and Labrador and be sheltered from the clawback provisions of the equalization [sic] formula..." (p.1)

Exhibit D. Danny Williams to Paul Martin, August 5, 2004

"This letter is further to our telephone conversation of 10 July 2004, during which we reaffirmed our agreement that Newfoundland and Labrador would retain 100% of the benefit of the offshore petroleum revenues it receives, notwithstanding the treatment of those revenues under the equalization program." [p.1]

Exhibit E. Loyola Sullivan to John Efford, August 24, 2004

"The position advanced by the Province,... calls for replacement of the existing offset mechanism with a new offset mechanism that would provide the province with an amount equal to the equalization loss it incurs as a result of its provincial offshore petroleum revenues being included in the calculation of its equalization entitlement." [p. 2]

In courtrooms around the western world, lawyers usually rely on a simple Latin phrase to describe this kind of evidence. In fact, the phrase covers an awful lot of things Premier Williams utters about the Atlantic Accord.

That phrase is res ipsa loquitur. The thing speaks for itself.

With all due respect, Premier Williams, it has always been about Equalization, as you well know.

Struggling against reality

FRANCES: It is symbolic of our struggle against oppression.

REG: It's symbolic of his struggle against reality.

In Monty Python's The Life of Brian, one of the numerous Judean independence groups gets locked into a pointless discussion about how Stan should have the right to want to bear children even if he obviously can't. The two comments quoted above end the scene.

It's funny stuff.

The editorial in today's Globe and Mail puts the Upper Churchill contract into a proper historical context. Local "nationalists" will likely find in the editorial further cause for grievance against our supposed Canadian "oppressors", but then again, what topic can they not turn into further evidence of the conspiracy to crush our province? It will likely be funny watching them exercising their irk yet again.

The Globe leaves out the financial aspects but it is a useful and factual rejoinder to the ludicrous drivel being foisted on editorial boards across the country by the likes of John Crosbie. Too bad a great many people in this province will not see the editorial.

Had the Globe included the financial information, they would have gone a long way to correcting much of the misinformation about the contract being spread most recently by Premier Danny Williams and The Independent.

In its "balance sheet" series, the Indy staff claimed the cumulative benefit to Quebec of the Upper Churchill contract has been $23 billion or more. I'll let an economist tackle that one in detail, but on the face of it there is no basis to claim, as they do, that one megawatt of power produces one job.

Last October, the Premier told CBC's Carol MacNeil that Hydro Quebec makes about $800 million a year from the Upper Churchill and that as a result the federal government saves billions in Equalization. Curiously, that same situation - Equalization goes down as a province's own revenues climb - is a bonus in Quebec but here it is a travesty.

Last year Hydro Quebec earned about $1.9 billion in net revenues. It has about 33, 000 megawatts of generating capacity of which Churchill falls represents about 14%. At current market prices, that means Churchill Falls power was worth about $275 million to Hydro Quebec - that's only one third of what the Premier claimed. Newfoundland and Labrador Hydro earned $65 million. That's disproportionate but it isn't extortionate and it is a heck of a lot less than the local aggrieved claim.

For the sake of argument, let's assume that the total value of Upper Churchill power was $300 million last year and has hovered around that level for the last 10 years. Let's also assume that the revenue was split evenly between Quebec and this province; after all both province's own the Churchill Falls company though their respect Crown energy companies. There are a couple of conclusions you can draw.

First, that means the provincial hydro company would earn $150 million from Upper Churchill power. That's it. This year's oil revenues will be higher - closer to double that amount. Factor in the Equalization offsets under the existing Accord and you see that the Upper Churchill is more of a mythical cash cow.

Second, since Equalization would drop on a dollar-for-dollar basis, Upper Churchill revenue would never have amounted to any sort of windfall of cash. The provincial government would have had much the same amount of money, even if we "fixed" the shortcomings of the Upper Churchill deal, as it actually had anyway.

Therefore, the real solution to our financial problems is not likely to be found in getting excited about supposed past injustices. The energy we waste in getting irked would be better spent on managing our provincial budget in a smarter way and developing and diversifying the economy.

Everything else seems to be an ongoing struggle against reality.

Another take on Margaret Wente

While everyone has been getting pretty hot about Margaret Wente's column, I always suspected there were a few people out there like me, who found within her column some substance.

And cough cough, I guess she managed to find my blog for the bits on Crosbie.

Well, here's a link to Damien Penny, a blogger from Corner Brook. http://www.damianpenny.com/archived/003726.html This is the Wente column plus his comments and those of his readers.

I have never met the guy but his blog is an eclectic collection of comment on topics from the Middle East to local politics. Add it to your bookmarks and go back and check it out. I know I'll be doing that.

The Prime Minister responds to Premier Williams

Dear Premier:

I have read your letter of January 3, 2005, with respect to our discussions on the treatment of offshore revenues. This is an issue of great importance to me as it is to you as Premier of Newfoundland and Labrador. I want to take this opportunity to lay out the principles that guide the Government of Canada in these discussions.

I have been clear from the very beginning of our discussions that I fully acknowledge the importance of offshore revenues to Newfoundland and Labrador. This reflects my recognition of the province’s proud history and of the determination of its people to seize the offshore opportunity to enhance their economic and fiscal prosperity. The short-term gains are substantial, but the lasting and real reward for future generations is the opportunity for Newfoundland and Labrador to become a more prosperous province no longer dependent on Equalization. It was against this backdrop that I made the commitment last June and since then, through my Ministers, I tabled a federal offer which fully respects that undertaking.

We are both aware that the province already receives 100 per cent of the revenues flowing from offshore production. Existing provisions in the Atlantic Accord ensure that the province will receive all of these revenues over the full life of offshore petroleum production. In this respect, Newfoundland and Labrador’s offshore resources are already treated in the same way as if they were onshore. Our discussions have always been about the impacts of increased offshore revenues on Newfoundland and Labrador’s Equalization payments.

For other provinces, Equalization usually declines by one dollar for each dollar increase in own-source revenues, but this is not the case for Newfoundland and Labrador’s offshore revenues due to the Accord. However, the problem is that under the terms of the Accord, the protection Newfoundland and Labrador receives will decline to less than 100 per cent between now and the end of the offset provisions in the Atlantic Accord, that is up to 2011. This would mean a loss of revenues for Newfoundland and Labrador while the province is still in receipt of Equalization. That is the issue I wanted to tackle in our discussions in June. In short, my commitment was that as long as the province was in Equalization, and for the duration of the Accord’s offset provisions, your province would receive 100 per cent protection against declines in Equalization as a result of the province’s receipt of offshore resource revenues.

In this context, the offer the Government of Canada has put on the table delivers exactly what I committed to in June. It confirms the guarantee that Newfoundland and Labrador will receive 100 per cent of revenues from its offshore oil and gas production. It provides the new guarantee that as long as Newfoundland and Labrador is in Equalization, it will receive 100 per cent protection from declines in Equalization flowing from these revenues for the period of the offset provisions in the Accord. In addition, we are retaining all of the existing benefits of the Accord. This entirely honours my 100 per cent commitment and will provide considerable additional payments to the province. Indeed, based on your own price and production forecasts, it could represent an additional $2.6 billion between today and 2012 over the benefits you currently receive from the Accord. This is also over and above the significantly increased benefits of the new Equalization framework agreed to in October.

My approach to a new arrangement for the treatment of Newfoundland and Labrador’s offshore revenues has been guided by two fundamental principles. First, I am committed to providing needed financial support to Newfoundland and Labrador in recognition of the unique economic and fiscal challenges your province faces. Second, any arrangement worked out with Newfoundland and Labrador to provide new assistance with respect to the offshore has to be undertaken in the context of ensuring fairness for all Canadians. Since the Atlantic Accord was originally signed over 20 years ago, I am the first Prime Minister that has been willing to make such a commitment to your province and I have honoured it in the proposal that we have provided.

Since June, you have raised additional issues. One of them is that while the Accord’s offset provisions end in 2011, you want the clawback protection to continue. You expressed concern that the duration of the agreement would be too short to address the difficult fiscal situation that you face, a situation unique to Newfoundland and Labrador. This was not part of our agreement in June, but I have indicated that we are prepared to consider an extension of offset payments to 2020. You acknowledged in discussions with Minister Goodale that, in order for an extension to be fair to the rest of the country, continuation of offset payments should be linked to fiscal indicators. As our Deputy Minister of Finance stated to you in Winnipeg during the discussions, “we are open to consider indicators that work for Newfoundland and Labrador”.

You also raised the issue of enhanced protection if Newfoundland and Labrador went off Equalization within the next eight years. This was not something that we discussed last June. The fact is that the existing Accord already provides for unique and generous benefits even if the province no longer qualifies for Equalization, ensuring that the offset payments are at least 85 per cent of those in the previous year. The existing benefits under the Accord will thus provide for substantial payments well after the province is no longer eligible for Equalization. Therefore, any assertion that Newfoundland and Labrador would “fall off a cliff” once it becomes a “have” province is not correct.

This last issue has emerged as the fundamental point of difference in our discussions. 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” (G&M, A1, Nov. 18).

Let me close in saying that I have approached our discussions in good faith, as have my Ministers and officials. The proposal we put forward honours the commitment I made to the residents of Newfoundland and Labrador. We have consistently, over the past months, shown flexibility in our negotiations with you.

Of course, I am prepared to meet with you. Ministers Goodale and Efford will continue to lead discussions with your representatives. I have asked them to respond to the specific technical points raised in your letter.

I look forward to further discussions between the Governments of Canada and Newfoundland and Labrador to arrive at an agreement on new offshore arrangements.

-30-

When first ministers meet...

They sometimes come up with a deal.

Sometimes they don't.

Sometimes the deal they make is one they repudiate later. Does anyone remember the 1971 constitutional conference in Victoria?

Vic Young, former chair of the Royal Commission on renewing and strengthening our place in Canada writes in today's Globe and Mail that only a "summit" meeting of the Premier and the Prime Minister can now resolve this matter and get the Prime Minister to meet his commitment from June 5, 2004. Young takes up a familiar line that anonymous "federal bureaucrats" have been frustrating this process with their resistance.

Let us take this second proposition first. It is an old excuse for those, like Young, who have argued in the past that the federal government likes to keep this province in a cycle of dependence on federal handouts. There isn't much of substance to this argument; it is offered up as fact without a shred of proof other than that, as in this case, Newfoundland and Labrador isn't getting what it wants and/or deserves.

This argument assumes that this province or, more particularly, the provincial government is somehow cowed by its financial dependence on federal transfers into accepting federal dictation on issues. Any federal deputy minister over the past 55 years has the scars on his head, backside and undoubtedly other places from battles with the Newfoundland and Labrador government on everything from Equalization to the fishery to the Constitution. Cabinet ministers and Prime Ministers have bigger gouges in their hides. The ones not put there by Newfoundlanders and Labradorians have been put there by politicians from the other "have not", so-called dependent provinces.

Yet, if one looks at the record, the Newfoundland and Labrador government has never slavishly followed federal diktats since Confederation. For all the rhetoric about our supposedly colonial status in Canada, there isn't a single case that rivals the pre-Confederation willingness of Newfoundland governments not only to accept British orders meekly but also to volunteer control over huge aspects of Newfoundland's interests to the British without so much as a whimper.

I am not talking about Commission government. I am referring to our international relations after the Great War, including our failure to act on the ability to direct our foreign relations granted by the Statute of Westminster, 1931.

That is not to say that some people haven't pushed a position here based on the fear of federal retribution. Those familiar with Meech Lake will recall the provincial politicians and prominent local business people who wanted the provincial government to sign that Accord out of the fear that the federal government would punish the province. But fear and action are two different things.

As for the first proposition, Young may well be right. It is possible that the first ministers can find an agreement by meeting face-to-face. After all, the Accord is a political deal and any changes have to be accepted by politicians.

Young is wrong, though, if he believes for one moment that what the Prime Minister accepted on June 5, 2004 was the version of the provincial proposal that emerged on June 10, 2004. That isn't even what Danny Williams accepted in the five-minute telephone chat with the Prime Minister that Saturday morning.

As the Premier told the House of Assembly on June 7, he accepted an agreement that would provide "$700 million commitment for the next four years with ongoing additional monies available as this goes on into the future and as new fields come on." That isn't what the province had proposed even in February, as evident from an earlier posting to this blog. What is clear, though, is that between that Saturday and June 10, 2004, the Premier withdrew his own agreement to the Saturday Cell Phone Accord.

That happens, but Mr. Young misleads the public if he claims something other than what the public record clearly shows.

One of the major problems facing both the provincial and federal government is the level to which public expectations have been raised about changes to the Accord. The expectations are based on a consistent, and likely deliberate, misrepresentation of the facts that began in the Young Royal Commission final report and which the current provincial government has transmogrified. The revenues being sought are not provincial government revenues and no measure of Dumpty-esque verbal gymnastics and Stalin-esque revision of history can make Young's claims in the Royal Commission valid ones. Myth is not fact and the upcoming meeting might come to resemble what happens when worlds collide.

The consequence of that pattern of misinformation, coupled with the Premier's commitment that he "will not say yes, to less" makes it almost impossible for the two leaders to achieve an agreement. To meet the current provincial position, the federal government would be forced to established a precedent it simply cannot afford. To accept what might well be an amazingly generous agreement that achieves Young's goals, the Premier would have to admit, even if it is an oblique admission, that his argument to date has been a fallacy. He would have to say yes to less and be convincing.

The price in both cases may well be too high. It may be beyond what two politicians can pay, as able and as well meaning as they might be.

"Summits" make great news, but they don't always produce meaningful results.

Equalization for beginners or why Loyola Sullivan gets $400 million from oil this year

Offsets. Clawbacks. Have. Have not.

Equalization is at the heart of the current Atlantic Accord dispute. Yet if you put a gun to the head of the average person at the nearest Tim Horton's, I doubt they could explain it.

Well, here is a simple explanation.

Every province in the country collects revenue (or income, if you prefer) from taxes and fees. We know them all too well - HST, personal income tax, corporate income tax, car licensing fees, park fees.

That money goes to pay for the services the provincial government provides, like health care, education, and provincial parks.

For just about as long as Canada has been a country, different provinces have raised different amounts of taxes on their own. It's pretty obvious that some provinces would be richer than others. In order to even that situation out, the federal government transferred some of its revenue to the provinces. The federal government established the current Equalization program in 1957 after years of debate and discussion with the provinces. The concept of Equalization was enshrined in the constitution in 1982.

Basically, Equalization is like a wage top-up scheme for provinces. The federal government figures out a national average amount of revenue each province should get per person. Fall below the average and the province gets a cheque from Ottawa. Meet or exceed the average and you get nothing. No province pays into the program; the money comes from federal government revenues. As it stands right now, Alberta and Ontario make more than the national average and get no Equalization. Saskatchewan will join them in the "have" category, as some call it, within the next year. All the other provinces get some amount of Equalization. Quebec gets as much as all the others combined because the money is paid out based on population.

In 1957, when the program started provinces were topped-up to the average of the top three provinces. Alberta received Equalization until 1964, but once its income went above the average it didn't get a penny in Equalization. In 1967, the average was based on all 10 provinces and since 1982 it has been based on five selected.

Over the years, some provinces like British Columbia and Saskatchewan have moved back and forth between the so-called "have" (no Equalization) and "have not" (get Equalization) categories.

Like any top-up scheme, as a province's own revenue goes up, the Equalization goes down. That's a pretty simple idea. A province doesn't really lose money; as its own income grows, the top-up is replaced by the growth in revenue.

Under the Atlantic Accord, Newfoundland and Labrador gets an extra payment so that as its oil income grows, Equalization doesn't drop as fast as it otherwise would. It was intended to last for 12 years to give the provincial government a chance to make some headway on its debt and infrastructure after years of hard times. There are current seven years left in the offset under the Accord.

In 1993, the Chretien government also gave Newfoundland and Labrador the chance to hide 30% of its oil income from Equalization each year until oil production ceases once the Accord offsets run out. It's called the generic solution because some other provinces can access it as well for other types of revenue.

The provincial government's proposal since June 10 would work this way. Instead of the offset or the generic solution, the federal government would give the province an amount equal to all of the province's direct oil income in a year, even if the province didn't qualify for Equalization. That's it in a nutshell.

The latest federal offer was to give the province an amount equal to the drop in Equalization from year to year caused by growth in oil revenues, until the province doesn't qualify for Equalization. After that, the province would only get 100% of its oil and gas revenues.

This gets confusing because the provincial government has been explaining the whole arrangement as those something was being taken away when actually it isn't.

Take an example from today with the Atlantic Accord, the generic solution and no new offshore deal. If the provincial government earns $100 million in oil revenues, Equalization would only use $70 million as the provinces oil income when it calculates the province's income.

If the province would have gotten $100 million in Equalization without that new oil revenue, Equalization doesn't drop by $ 100 million. Only $70 million of the oil money is used in the formula, so as far as Equalization is concerned the provincial government is entitled to $30 million.

The result? The province gets $100 in oil revenue PLUS $30 million in Equalization for a total of $130 million.

That's why Brian Peckford can say the Atlantic Accord delivers more money than oil revenues would alone. He's absolutely right.

In 2003, Newfoundland and Labrador earned a little over $123 million in oil royalties (taxes), but that does not include all direct income like corporate income tax. Under the Atlantic Accord the provincial government also received $178 million as an Equalization offset.

Newfoundland and Labrador 2003

Oil Royalties and Offsets

$123 million + $178 million = $301 million

Loyola Sullivan won't explain it to you that way, but those numbers are taken from the provincial government's own budget and the federal Department of Finance website.

This year, the provincial government will receive more than that in direct oil revenues alone. Including the existing offset or generic solution approaches, Newfoundland and Labrador's direct oil revenues in 2004 will likely be close to $400 million.

That's without any new deal.

With friends like Brian Peckford....

Danny Williams might well be sharing John Crosbie's palid view of Brian Peckford especially after the former premier's speech in Mount Pearl yesterday.

As The Telegram reported on Wednesday, Peckford's advice to Danny Williams was simple: leave the Atlantic Accord alone. The Accord already produces greater benefits for the province than Voisey's Bay or the Upper Churchill and, by implication, will continue to produce greater benefit as new fields are brought on stream or new discoveries made. In The Telegram and in other media interviews, Peckford has pointed to what is obvious to anyone familiar with the Accord: the Accord's Equalization offsets are already better than the situation available to any other province. Peckford pointed out, among other things, that the Accord has already provided the province with $500 million more than it would have received with Equalization alone.

Peckford should know since his government negotiated the Accord in the first place.

Peckford's position is the exact opposite of Danny Williams claim in June that, in the Accord, "Ottawa gave a bad deal to Newfoundland and Labrador."

Peckford's position is the exact opposite of the claim by Williams, Crosbie, Loyola Hearn and others that Ottawa takes money away from the province contrary to the Atlantic Accord.

Peckford's advice is to seek changes to the Equalization program itself. Ironically for Premier Williams, that is exactly what the Premier himself advocated in his election platform in October 2003. Peckford's idea of working for Equalization changes is exactly what Loyola Sullivan endorsed during the last federal election, despite Danny Williams insistence there was no way of judging the benefits of such an approach compared to the proposal for Accord changes originally made by Roger Grimes and the Vic Young Royal Commission.

"It's time now for substance, not style," The Telegram quotes Peckford as saying.

Peckford may be right; he may be wrong. Each of us will have to make that decision for himself or herself.

Certainly, Peckford does show that one can be an ardent supporter of Newfoundland and Labrador's cause, whatever that may actually be, and still disagree with the current provincial government.

Friends don't always tell you what you want to hear.

In that light, it might be wise for us all to go back and look more closely at Margaret Wente's column or the remarks by Professor Michael Bliss compared to Jeffrey Simpson. There may be substance beyond Ms. Wente's crude expression or Professor Bliss' modest proposal.

From one Ed to another

Just to set the record straight from the outset, I have known Ed Ring for the better part of 15 years. He is one of the finest people I have ever known and he has served his country with dignity, sensitivity and intelligence for most of his adult life.

On that basis, when he wrote a letter to the local newspaper and today is profiled in the Sunday Telegram on the issue of lowering Canadian flags, I paid attention to what he had to say.

I respect Ed Ring and I respect his opinion. But I disagree with him.

In the current dispute over the Atlantic Accord, the provincial government's objective should be to conclude the best possible agreement for the benefit of the province as a whole. It should work hard to make a strong case. The government should do everything reasonable within its power.

In order to reach an agreement, though, a couple of things are necessary. First, there needs to be a clear statement of objectives - people in the province have a right to know what the provincial government is trying to achieve; the federal government has to know as well.

So far, as readers of this blog will see, the provincial government position has changed very significantly between the time the Prime Minister accepted the original provincial proposal and June 10.

The problems this change creates should be obvious. If the new proposal, if the new demands, simply can't be met without causing greater difficulties within Confederation then the federal government can never agree. No federal government could. Politics is, after all, the art of the possible. If the demands are impossible to achieve then nothing will be resolved.

The other problem comes for the people of Newfoundland and Labrador who are called on to support the provincial government in its struggle. If we cannot know what is being sought and what has been offered, then there is no way to judge success or failure. There is no way to see if there is room for reasonable compromise that allows us to achieve what is possible.

No democratic government worthy of the name can ask its citizens to go to war - figuratively or literally - without their informed consent. Democracy thrives on information and consent. Thus far, the provincial government has been short on the former, although it enjoys much of the latter.

Second, in order to reach an agreement there has to be effective communication: we have to speak and be heard; we also have to listen. Any obstacle to effective communication is an obstacle to a peaceful settlement of any dispute, no matter how egregious, no matter how deeply felt, or no matter how long-standing the dispute may be.

Here's where I disagree with Ed Ring.

Pulling down flags, even with an attitude of respect, is not designed to open people's minds. It doesn't encourage them to open their ears. The visceral reaction of Canadians across the country was predictable. The result has been predictable too. Editorial opinion across the country has solidified against the Newfoundland and Labrador government's proposal. The Globe and Mail has changed its position from one of support to opposition.

In the same way, two columns this past weekend are also predictable. Margaret Wente may have been more crass than Michael Bliss in her statements but their conclusion is the same: put up or shut up, Newfoundland and Labrador. If you want to separate, don't let the door hit you on the way out. They have concluded that we are less valuable to the country than any other province, that Canadians from this place are not worth the bother of further discussion.

The local reaction has been predictably strong. Some claim we are more unified here than ever before, but none has dared to check and see what they think they are unified for. We know what they are against and that's more than a bit different. That's the easy bit.

Those statements about unity beg a simple question: is the provincial government any closer to achieving an agreement now that it was before the flags came down? Unequivocally, the answer is no. Even the Premier agrees with that conclusion, it has become so obvious.

So Ed, I agree the Premier only has so many tools in his tool box, as you put it. But Canadian experience in resolving international conflicts should point out the folly of pushing people apart through slights to cherished symbols. We know the value of one of the most powerful tools in even the skimpiest of tool chests. Thumbing your nose at the other guy just doesn't cut it.

The best tool any political figure has is the one needed most now, when two sides are polarized, when trenches are dug and no settlement seems likely. This has now become a time for leadership.

If Danny Williams hasn't done so already, I'd strongly recommend he give Ed Ring a call.

Leadership is what Ed is all about.

John Crosbie and hand biting

It's always curious when John Crosbie, one of the architects of the Atlantic Accord pops up in support of those who are now attacking his deal from all sides. It's curious because nothing has happened since 1985, when the deal was signed, that works to the detriment of Newfoundland and Labrador. Not a single thing.

It's also strange - actually more like incredible - when Crosbie lambastes a newspaper columnist who complains, among other things, about a premier biting the hand that supposedly feeds him. One wonders where the provincial government might be today were Crosbie still in his old position as Ottawa's representative in Newfoundland and Labrador.

Following is an extract from John Crosbie's 1997 political memoir, No holds barred, (Toronto: McClelland & Stewart, 1997), p.357:

"The accord had three principles. First, the principal beneficiary of the resources should be the province of Newfoundland and Labrador. Second, the resources should contribute to energy security for all Canadians. Third, producing provinces should be treated equally in revenue-sharing, whether the resource was on land or offshore. Peckford was ecstatic. 'There is no other document, including the Terms of Union, that will come as close to achieving economic and social equality for the people of Newfoundland and Labrador as this,' he said. '...To tell the truth, I didn't think we could get everything that is in that agreement...We've got a document that every single Newfoundlander who can read and write will consider the most important in the history of this rock.'

The reaction in Newfoundland was so positive that Peckford called a snap election. Our federal Tory government helped handsomely. We announced a $180 million highways agreement, with $112.5 million of the total to come from Ottawa, $3 million in funding for Memorial University, and $400, 000 towards construction of a new music school, among other worthy projects.

Peckford had no sooner won re-election with a comfortable majority, however, than he started biting the hand that had fed him so lavishly. When Finance minister Michael Wilson brought down the Mulroney government's first budget, it called for the partial de-indexing of tax brackets and social-welfare payments. Peckford promptly denounced these deficit-fighting measures as unacceptable. He and his Tories voted with the Liberal Opposition in the [House of] Assembly to pass a resolution condemning the federal government and our Budget. I felt that with friends like Peckford we'd never need enemies!"

A little later Crosbie relates a controversy over the Come-by-Chance oil refinery. (p.359)

"Both the Premier and his Finance minister, John Collins, accused the federal government of being insensitive to regional needs and of not paying attention to Newfoundland. At the time Ottawa was providing 50 per cent of the revenues of their government. I called a news conference to point out this interesting fact: 'Dr. Collins is suffering from at least two human failings,' I said. ' One appears to be greed, the other ingratitude. He seems to specialize in biting the hand that feeds him..."

Later in that same chapter, Crosbie relates yet another controversy, this time over a provincial demand for increased federal transfers. (p. 360)

"He [Peckford] told the press Newfoundland was facing fiscal chaos and would be in a 1930s-style financial disaster within two years unless Ottawa fundamentally redefined the province's place in Confederation. He demanded a new deal in regional development, equalization payments, established program funding, and fisheries jurisdiction. In Peckford's view, 'We've got, at the outside, two years and then it's 1933 all over again.' Peckford said he had informed Ottawa of the perilous situation in a document 'that would blow your mind.'

I held a press conference at St. John's a few days later, together with my caucus colleagues Morrisey Johnson and Joe Price. I pointed out that, if the province was facing financial chaos it was facing it despite the generous help of the government and the people of Canada."

Does any of that sound vaguely familiar to anyone?