Equalization Clarity?

Just over a week after Wade Locke's presentation on the implications of the new equalization formula for NL, a new interpretation has produced drastically lower equalization benefits from the O'Brien version than was originally presented. In fact it is $5¼ billion lower than first thought. When the "Harper Promise/Letter" equalization version was no longer an option, then the O'Brien or 50% inclusion offer sounded like a pretty tidy consolation. But now that's been diminished to a $1 billion lower amount than the status quo equalization scheme NL is on.

Dr. Locke explains that only a couple of hours prior to his April 4 presentation, he was contacted by officials from Finance Canada who contradicted information they had earlier confirmed, in which Locke based his presentation on. It was too late for him to adjust all his figures and thus proceeded with his original interpretation. The timing of this crucial and changed information from officials in the Finance Dept. seems very odd, not to mention shocking. It adds to peoples' skepticism about what to believe from officials and politicians. It's also interesting that no official version has been publicly released from the provincial or federal finance departments, that is, a similiar breakdown as Locke's. Politicians like Hearn and NL Finance minister Tom Marshall, just seem to rely on Wade Locke to give their latest version of events.

Peoples' distrustful image of Stephen Harper will likely harden. Whenever the next federal election campaign begins it's going to be weird to visualize Harper campaigning here in the province (the token visits to St. John's). What will he have to offer? How can he first neutralize the anger he has ignited here over the latest equalization figures, let alone get people excited about any of his policies? Good luck with that Mr. Harper.

Wade Locke's Assessment of Equalization - Implications for NL

Dr. Wade Locke of MUN's Dept. of Economics began crunching numbers shortly after the 2007 budget. Tonight he gave a detailed presentation of three different equalization options. There were many charts and figures which will be posted tomorrow at http://www.mun.ca/arts/.

I will just offer a few pieces of information I took from this. Dr. Locke emphasized that even for him understanding and analyzing how equalization works stretched his skills to the limit. He also stressed that he is just presenting his assessment for public knowledge, and not making any recommendations to people or the government.

There are three equalization options:
(1) Status Quo
(2) O'Brien recommendations/"50% Option" - (50% inclusion of natural resource revenues in the equalization formula, with cap)
(3) The "Harper Letter" (no natural resources 0% included in formula and no cap)

In terms of the economic benefits to Newfoundland and Labrador, the O'Brien option (50% inclusion of natural resources) is an improvement over the status quo.

The 50% option would also allow NL to keep the Atlantic Accord longer than would be possible than under the status quo.

In two (2) years time (2009), NL may not qualify for equalization payments, or the next couple of years following that. There is currently a two year delay in the equalization formula, i.e., we would still get an equalization payment in 2011 but not 2012. That means by 2012 we would be considered a "have" province and not get equalization for 2012. Therefore, after 2012 a new set of equalization rules would have to be applied to NL in that case till 2020.

(Please excuse my lack of detail here but it was challenging to observe, interpret and take accurate notes in the time provided - the next item is where I am unsure of the particular term he used, could have been "natural resource revenue", will have to verify that tomorrow)

Up to 2020


• using the Status Quo formula NL would get $18.5 billion
  
• using the 50% option, with cap, NL would get $22.8 billion
  
• using the "Harper Letter", without cap, NL would get $28.6 billion

Dr. Locke was asked by someone in the audience if he personally had a preference. His suggestion was to stay with the Status Quo for the next two years, and then switch to the 50% (O'Brien) option.

Total revenue from oil alone up to 2029-30 is approximately $18.6 billion

Like a lot of people I'll take much more time to read the details of what Wade Locke presented and form a clearer opinion. However, based on his presentation, my feeling about our options are more positive than before this information. Even without the "Harper Letter" option where a promise was kept, it appears that NL still does much better than the status quo. The Harper Letter option would be best for the province, but if that's not going to happen, the 50% option sounds better than the status quo to this blogger, so far anyway.