Wednesday, May 02, 2007

Equalization Loophole

First of all if anyone can expand on this please do. I caught part of the conversation on VOCM this afternoon when Sue called in to tell Bill Rowe about how Quebec and Quebec companies work together to take advantage of equalization loopholes. Certain revenues which would normally go to Quebec government coffers gets transplanted to other provincial areas which the province has to pay for. For example, Quebec Hydro might put several $100 million into health care initiatives, or infrastructure, etc. So the idea is that a revenue like hydro does not get counted in the equalization formula, and thus, Quebec will have wisely used a technical loophole to get every cent it can out of equalization. Bill and Sue both asked why can't NL do the same. It sounds like there is much potential for our province to replicate what Quebec is doing to retain more of the equalization monies that we would/will eventually not qualify for.
Updated info: Apparantly Greg Byrne of NL-Outside the Box also phoned in to Bill's show earlier, and mentioned this idea he read about. Just wanted to acknowledge this.

6 comments:

Brian said...

“So the idea is that a non-renewable revenue like hydro does not get counted in the equalization formula, and thus, Quebec will have wisely used a technical loophole to get every cent it can out of equalization. Bill and Sue both asked why can't NL do the same. It sounds like there is much potential for our province to replicate what Quebec is doing to retain more of the equalization monies that we would/will eventually not qualify for.”

Hydro power is NON-RENEWABLE revenue????

Who’d a thunk? If true that would be the Muskrat Falls of all loopholes.

I can imagine it true if the hydro power was in the Sahara. But why is it non-renewable in Northern Canada? Why then all the hoopla about Hydro being a clean replacement for the real non-renewals?

kodak said...

Thanks for the correction Brian. I've repeated the word non-renewable perhaps a few too many times amidst the equalization business and did so while hastily scribbling this.

WJM said...

When Greg raised the idea, Bill Rowe called it "stupid".

When Sue did, LATER IN THE SAME SHOW, Bill called it "intriguing".

kodak said...

That Bill actually did is what's intriguing. It certainly wasn't fair. Maybe his objectivity shuts down for ideas delivered by people not publicly known. I am not a regular listener and missed Greg's part. In any case it did sound like an approach that NL and industry could cooperate on to positively affect equalization income. But it's hard to believe that this was either not investigated or even known about before, if that was the case. Will it be pursued by NL, and should it? What do you think wjm?

WJM said...

Maybe his objectivity shuts down for ideas delivered by people not publicly known.

Funny! "Bill Rowe" and "objectivity" in the same thought group!

In any case it did sound like an approach that NL and industry could cooperate on to positively affect equalization income.

There is something wrong with the political culture when maximizing equalization payments is the great national goal.

Something really, really, wrong.

kodak said...

There's plenty wrong with the national political culture, and focusing on maximizing equalization payments could very well reflect imperfections currently, but also past glimpses into the national political culture. In Newfoundland & Labrador's case, the current flap stems to a great degree from the Uppper Churchill deal that went down. Yes, Smallwood did sign this agreement, and shouldn't have. But the Prime Minister could have interceded to ensure a fair deal was offered, but did not. There is evidence that Quebec threatened problems affecting national unity (Enc. of NL) and Smallwood did not want to ask the PM to intervene. That history in my mind is a large part of why the current focus is on equalization from NL's point of view.

From a business perspective, one might see pursuing this as taking advantage of opportunities to maximize profits. Since it involves billions for provinces to use as they please it is something worth trying to maximize when 7 - 8 provinces live on credit cards at any one time, with billions in debt. However, if it was "the" only
national goal, or "the" only provincial goal, at all points in time, then yes there is something really, really wrong. The extent to which it is focused on, or how much to the detriment of other priorities the focus is, can be problematic.

People will list 1000's of national goals, but big one should be to maximize the opportunities for individuals to be self-actualized, to create an environment for people to do what they are most skilled at, to allow individual contributions to society and the economy, and thus, to positively affect healthy minds, communities, and economies. A healthy national climate should be one where people are encouraged and motivated to be inventive, hard working, and fulfilled, and then fairly rewarded.