Don’t count your have-nots before they hatch.
The coverage of the tentative deal agreed to between Newfoundland and Labrador and the oil and gas consortium that currently owns the rights to develop the Hebron field has been understandably upbeat. A project that seemed destined to languish has been revived, a province that has always been portrayed as backward and poor gets a huge win that all Canadians can celebrate, and a political mudslinging match over equalization has, it is assumed, been brought to a neat and tidy end.
You see, according to the enthusiastic reports, Newfoundland and Labrador will now take its place among the have provinces. An eastern Alberta riding a tide of oil to the promised land, and saving all Canadians a buck or two in the process because we won’t have to send them cheques any more.
Not so fast.
Just for the record, if Newfoundland and Labrador receives even one dollar of equalization money in either 2011-12 or 2012-13, the Atlantic Accord gets renewed until 2020. Meaning all of the royalties that will begin to flow from the Hebron field in 2015 or 2016 will be protected and equalization (or the new fangled “offset payments”) will continue to flow at something akin to current levels at least until 2020.
Don’t get me started about what happens if Nova Scotia wins its fight with Ottawa, and Newfoundland and Labrador finds itself the potential beneficiary of both the new Hebron royalties and enriched equalization (with no cap). In either case, Newfoundland and Labrador would get to have its cake and eat it to.
Good on them, this is what the Accords were intended to achieve. Whether the Accords were a good idea in the first place (they were not) is an entirely different matter. That a province would make so successful a use of them as Newfoundland and Labrador has is entirely to their credit.
Better still for already overtaxed federal taxpayers, Newfoundland and Labrador isn’t the only winner in these sweepstakes. With the decision made to leave renewable resources in the equalization mix, all of the other equalization-receiving provinces will see their entitlements go up as Newfoundland and Labrador’s riches start to flow and the “average fiscal capacity” gets larger. It is a good thing that “all Canadians” are expected to enjoy more than $7-billion in revenues from the Hebron project over its 25-year life. We will need that money to pay the higher equalization bills.
It is regrettable that Ottawa insists on maintaining a flawed system of federal transfers that perpetuates the fiscal divide among provinces. It appears committed to the principle of an ever-larger flow of federal tax dollars into provincial coffers. This ensures that the historic disincentives for provinces to expand their own revenues will not only be perpetuated but will deepen. Only the very biggest projects will ever get pursued by the provinces and then only under very special circumstances. Not a very good long-term recipe for pulling ourselves up by our bootstraps.
We also should not trumpet this too loudly as a new model for hardnosed bargaining with global giants looking to stick it to the little guy (or even for dealing with those buggers in Ottawa looking to stick it to a have-not province). Simply put, Newfoundland and Labrador was in a unique win-win-win situation and it had the wit to take advantage of it. Other provinces should not hold their breath waiting for their turn to come.
With an enriched equalization program in its back pocket, Newfoundland could afford to play hard ball with the oil giants – it didn’t need the oil money, it would get ours if things went astray. With the oil giants waiting in the wings, Newfoundland and Labrador could play hard ball with Ottawa – they didn’t really need equalization, they could always get royalties if they had to.
And, thanks to the generosity of a desperate Prime Minister pursuing his own majority mandate, with the Atlantic Accord tacked on the Premier’s office wall, Newfoundland and Labrador could afford to reach an 11th-hour compromise that gives them both the oil money and, potentially, equalization.
Sure, some of that equalization money comes from Newfoundlanders and Labradoreans, a point often lost on our fellow Canadians in “have” provinces. But the largest block of it still comes from where the largest block of Canadians live – Ontario – a point often lost on everyone outside of Ontario, haves and have-nots alike. The Hebron deal actually makes that imbalance worse not better.
Charles Cirtwill is the acting President of the Atlantic Institute for Market Studies, www.aims.ca, a non-partisan public policy think tank based in Halifax.