Anger at Harper, Justified. Rationalizing Non-Renewable Exclusion for NL, Iffy

No doubt, few will argue that Stephen Harper broke a promise. In doing that, he gave many in Atlantic Canada, Sasketchewan, and the rest of Canada a huge reason not to trust him. As Rex Murphy suggested last week, he has become the type of leader he once despised. The hope that his promise gave to people in Newfoundland and Labrador was shattered and hence people are justifiably angry at him.

The fallout of our Premier protesting with feisty words and ads is no surprise. Any Premier ought to have been angry with Harper over this, and stand up for the province. The message was sent, received, will be repeated in the next election, but it's time to put it to the back burner right now to give full focus to home developments and promises. The Williams government has to obsess on projects that are stalled and dying. In this blogger's opinion, he has good intentions for the long term interests of the province. He's certainly not signing agreements with big oil just to say it was done under his watch. That's good, and bad obviously, but that potential is still there. He has gotten the message through that Harper can't be trusted out there, but needs to move on.

Rationalizing 100% Exclusion of Non-Renewables from Equalization Formula
Harper used several provinces to get elected, 21 seats in Atlantic Canada and Sasketchewan, the margin of his win. He will likely win big in the next election. But if Harper did not win the next election, or if there wasn't a Harper promise to remove non-renewables resources from the equalization formula at all in the first place, could their exclusion be justified on its own merit? And how? Of course there would be little, if any, controversy in NL if he had kept his campaign promise in last Monday's budget. It would have been a great opportunity to pay down the debt sooner, enhance infrastructures in the province, etc. But ultimately our province has to answer why should we be permitted to exclude non-renewables and be exempt from a cap on fiscal capacity. So people will ask, "what makes NL so special?" Some rationale rightly or wrongly might be, for example:

1. In 2005, we had the highest per capita debt load of any province at $23,280 (2005), much higher than the next highest, Nova Scotia, at $13,000 (2005)
Quebec Finance Minister Michel Audet announced last year that Quebec then had the highest per capita debt.

Like the other 7 provinces we do not want to receive equalization continually, but paying of our provincial debt will take generations.

We have to run a surplus of $250 million a year for 48 years just to get to no debt, and Alberta has passed that point. - Loyola Sullivan, 2006

2. NL chronically has the highest unemployment rate in Canada.

3. Significant and continuous outmigration and declining population.

4. Many see excluding non-renewables from the equalization formula as fair compensation for the lack of intervention of the federal government in the 1960's, after Quebec declined Newfoundland's request for a transmission line across Quebec for the Upper Churchill Hydro development. NL MHAs were ultimately responsible for approving the notorious 1969 deal. But in an interview with Cabot Martin, Smallwood said that his request to Lester Pearson to use federal authority to allow a transmission line across Quebec, was rejected before he could formally present the request out of fear it would jeopardize national unity. After 17 years of investigation, negotiations and preliminary development, NL and BRINCO ran out of money, choices and time. Quebec had a geographic advantage and would not budge from their position. Some called it a "revenge of geography" for a decision, decades earlier, of including part of Labrador as part of the province of "Newfoundland". (same source) As a result Quebec gets 96% of the benefits each year (roughly $800 million in 2005, compared to $20 million for NL).

5. Displacement of tens of 1000s of fishery workers resulting from the moratorium on northern cod. While many factors may have contributed to the collapse, one factor is mismanagement of the fishery.

"In our view, the major factor was clearly mismanagement."
- Report of the Standing Committee on Fisheries and Oceans

In any future case where consideration is given to excluding 100% of non-renewables, some good clear rationale will have to be outlined. Non-renewables are finite, but also finite everywhere. If there are more arguments to support NL's case they would have to be compiled at some point.

Equalization: From "Promise" to ComPromise

Alberta paid off its debt several years ago and hence does not receive equalization because it is a rich "have" province. The longer our provincial debt exists the more we pay out to service the interest on the debt. Conversely the quicker we get it paid off, the better the province and ultimately the country benefits. If Stephen Harper stuck to the "promise", or the idea that he supposedly inferred, that all (100%) non-renewable resource revenue would be exempt from the equalization formula, then that would mean billions more for the province. That scenario would be an excellent opportunity to pay down the province's debt more expediently, and get out of the equalization business, albeit still many years away.

Harper's Letter to Danny Williams - quote on non-renewables in the equalization formula:

We will remove non-renewable natural resource revenue from the equalization formula to encourage the development of economic growth in the non-renewable resource sectors across Canada. The Conservative government will ensure that no province is adversely affected from changes to the equalization formula. (Feb. 4, 2006)

That's what he told Williams in writing, it's pretty general and leaves the percentage of non-renewable removal wide open. It does not actually say 100%, but did he mean 100% by verbally expressing that to Danny Williams?

It would appear that Harper has gone from "promise" to compromise. As long as Harper looks pretty in the polls, then he probaly won't budge much from the much talked about, and seemingly expected, 50% of non-renewables, rather than 100%, excluded from the equalization formula. One argument for keeping 100% of non-renewable revenue is that it is a one time only opportunity for that particular resource, e.g., oil and gas. That type of income for the province is finite.

How will the Liberal or NDP's version of equalization compare to Harper's and to Danny Williams' vision of a fair formula? Even if Stéphane Dion made a "promise" to Premier Williams to totally clear non-renewables from equalization, or say 25% inclusion of non-renewables, offer to Danny Williams, which would sound better, then we will still have to ask, "what is a promise?" What does general wording really mean other than wishful thinking? On the other hand, even if we had more detail in writing up front, e.g., "100% of non-renewables will be removed ..", does that matter anyway?

If the province is ultimately stuck with some compromise on equalization, then how about a counter compromise offer? For example, if 50% is the amount, then what if 25% of that were to be mandatorily put towards our provincial debt. That is, in addition to what the province normally pays or should pay, according to income percentages (or at least an average of the last 10 payments, for example). The rule could be that the province has to make its payment towards the debt each year first, then the federally held in trust 25% portion can then be paid towards the debt also.

The net debt per capita for Newfoundland and Labrador, for 2005-06 was $22,733. The debt for the same year was $11.7 billion.