The Globe and Mail
Metro, Page A19

Silent partner in Voisey’s Bay
Brian Lee Crowley

If the rich Voisey’s Bay mineral deposit were in Alberta or Ontario, Inco would be developing it today. Hundreds, if not thousands, of well-paid jobs would be created, generating lots of economic activity and new government revenue.

Yet in Newfoundland, with its declining population, and high debt, taxes and unemployment, Voisey’s Bay languishes. Why? Because of the silent third party to the talks, hovering like Banquo’s ghost over the negotiations between Brian Tobin’s government and Inco.

Yet after last week’s suspension of the Voisey’s Bay talks until at least next year, hardly anyone correctly identified the spectral presence haunting the discussions between Mr. Tobin and Inco: the perversities of equalization.

Of course, many factors have influenced these negotiations.

Observers rightly pointed out, for example, that Newfoundland’s natural resources have too often furnished the occasion for the exploitation of Newfoundlanders and the disproportionate enrichment of outsiders. The Churchill Falls hydro development is only the most egregious example.

Others pointed to the fact that Voisey’s Bay is only one among many opportunities for Inco to increase nickel production worldwide. It can therefore pay no more to develop the Labrador deposit than it would to develop alternative sites. And in many such places, local governments are far keener than Mr. Tobin appears to be to see their resources developed.

Still others remarked on the Premier’s political ambitions. Having proclaimed that not one spoonful of Voisey’s Bay ore would be processed outside the province, Mr. Tobin felt incapable of accepting less. He is, after all, the swashbuckling hero of the turbot wars with Spain.

As powerful as all these factors are, none matches self-interest. And under Ottawa’s equalization system, Newfoundland has little incentive to agree to economically sensible development of Voisey’s Bay. On the other hand, it has every incentive to hold out for an uneconomic, but politically popular, job-maximizing strategy.

In Ontario or Alberta, if a development such as Voisey’s Bay went ahead, even without a smelter, the province would realize major revenues. Mineral royalties, as well as business and personal income-tax revenues, would all rise handsomely.

Not so in Newfoundland. More than 80 per cent of those increased revenues would simply be deducted by Ottawa from equalization payments. So identical developments that in Ontario would yield, say, $100-million in tax revenue to Queen’s Park would generate less than $20-million for Newfoundland.

Inco was prepared to invest $750-million immediately in a mine and mill, and a further $95-million in underground exploration, plus a $180-million experiment to see whether local chemical processing of the ore was feasible. It was not enough for Mr. Tobin. All the ore had to be processed in Newfoundland. Period. Why? Because doing the processing in Newfoundland would create jobs, and lots of them. That confers huge political advantage on the premier who obtains it. Even if he doesn’t get it, and the ore stays in the ground, he goes down in history as the premier who stood up resolutely for Newfoundland’s interests. But if he does what premiers in wealthier provinces would do, and lets the development proceed incrementally in a constructive partnership with the mine developer, he gets fewer jobs, and only token revenue gains to spend on Newfoundlanders.

Equalization’s spectre whispers constantly in Mr. Tobin’s ear, “Go for the jobs.” It’s the only way to make Voisey’s Bay pay off for him, despite the fact that the project is now stalled and Canada already has excess processing capacity. Thus do equalization’s good intentions make fools of us all.

Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think-tank based in Halifax. E-mail: [email protected]