Think tank says provinces shouldn’t be penalized for investing resource revenue

By Nathan White

HALIFAX – Canada’s premiers can’t seem to agree on how to change the country’s equalization program, but the Atlantic Institute for Market Studies is happy to provide some advice.

AIMS, a Halifax-based economic and social policy think tank, released the third part of its equalization commentary series Thursday, suggesting a new approach to how non-renewable resources are considered when calculating a province’s wealth.

The equalization program is a major bone of contention at the Council of the Federation meetings, which wrap up in St. John’s, N.L., today. The 13 provincial and territorial premiers agree the program, which is designed to allow provinces to provide similar services across the country through payments from the federal government, needs to change to fix the so-called “fiscal imbalance” between Ottawa and the provinces. They just can’t seem to agree how.

Resource revenue is included in the current formula and some provinces, such as New Brunswick, Quebec, Manitoba and P.E.I., want it to stay that way, arguing that a dollar is a dollar, no matter where it comes from.

“No one can convince me that the oil money in Alberta has no impact on how much they pay their nurses, doctors and other health professionals in Alberta. It does. And no one can convince me that the oil and gas revenues they have in Saskatchewan has no impact on how much they pay their teachers and their education workers. Of course it does,” New Brunswick Premier Bernard Lord said Wednesday.

But the AIMS report argues that a non-renewable resource is an asset, not a revenue from income or sales taxes or from renewable resources such as forestry or hydroelectric power.

“Non-renewable natural resource revenues come from the sale of finite resources,” argues the report. “When the oil and gas, or copper, or coal, or nickel are gone, they are gone. So, when we sell these resources, it is a one-time deal. God is not going to put new oil and gas and coal and copper under the ground when we deplete current resources.”

“We therefore have both a financial responsibility and a moral obligation not to treat this money like a lottery windfall, or to sell the house to finance a splurge on fancy cars and new clothes.”

Any changes to the equalization program should consider what provinces are doing with the money they receive from non-renewable resources, argues the report. If they spend the money on ordinary programs, it should be taken away from their equalization entitlement, but if they invest it or apply it to provincial debt, it should not count against them.

AIMS points to the example of the Government Pension Fund started by Norway in 1990. Norway invests revenues from petroleum into the fund, which is expected to be worth approximately $270 billion U.S. by the end of 2006, and some of the income from the fund is used to cover other spending.

Whatever happens to the equalization program, the president of AIMS said provinces need to reduce their reliance on payments from Ottawa.

“No one should expect a big deal with a lot of federal money going to the provinces, I don’t think that’s in the cards,” said Brian Lee Crowley. “People need to reduce their expectations a little bit.”

Crowley points to interprovincial trade as one area where the provinces could stand to generate more money for their coffers from coast to coast.

“Canadians should be free to work and do business on the same platform,” said Crowley. “But provincial governments are very reluctant to follow that principle at the expense of the prosperity of the country as a whole “… They try to tilt the platform to workers and business within their province.”