Thoughts on equalization dispute

Some call it a dispute between the feds and Atlantic Canada. But let's remember that we have four Atlantic provinces. Two of them, New Brunswick and PEI, actually wanted full inclusion of resource revenues into the equalization formula. So, while the Premiers of Newfoundland and Nova Scotia are upset because the new formula touches the resource revenue, New Brunswick and PEI could argue that the formula only includes 50% - which lowers the national average and results in lower equalization payments for other provinces.

So it's quite disappointing to see so many people holding on to a myth that Harper has a grudge against Atlantic Canada and that he chose to scrap the Atlantic accord. Well, here are the facts:

In order to respect the existing agreement (Atlantic Accord), the Conservative government made a special exception to the “10 Province Standard” by allowing the Atlantic Accord to run its course until the expiration of its term in 2012. Nova Scotia and Newfoundland can continue to operate under the terms of the 2005 Atlantic Accords until they expire in 2012. There is no change to the terms of the Accords. There are no clawbacks under that scenario.

As a second scenario, the Conservative government gave NS and NF the option of being included in the new “10 Province Standard” formula – if they found it to be to their advantage. Imagine the outcry if the government insisted that NS / NF serve out the term of the Atlantic Accord with no choice to opt into the new, richer equalization! Furthermore, they did not have to opt in right away; they could evaluate their position each year and opt in at any point right up until the Atlantic Accords expire in 2012. They alone would make the choice whether to opt in or not, if the new formula proved more beneficial to their province.

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As the budget papers show, both provinces will benefit from the new formula. What makes the Premiers of Newfoundland and Nova Scotia so upset is that the new formula caps the equalization payments once a province's fiscal capacity catches up with a fiscal capacity of the "have" provinces. The two Premiers claim that the Atlantic Accord prohibits any caps on equalization payments even if the formula is changed.

Stephen Harper's suggestion to let the courts decide whether those claims are justified was immediately reworded by our media as "sue me" and "see you in court". Surprisingly, it's the Premier of Saskatchewan, (that doesn't have any special agreement on equalization,) who wants to do just that. Saskatchewan NDP is down in the polls and Lorne Calvert believes this would boost his support in the upcoming provincial election.

But if the dispute over Atlantic Accord does go to the court and the court rules to have the equalization caps waived, we may have yet another lawsuit; this time - from Ontario or BC. They'll argue (more than reasonably) that a deal which brings the fiscal capacity of Newfoundland and Labrador (a province that receives equalization) higher than that of Ontario (a province that actually pays into the equalization fund), subverts the whole purpose of equalization.

I think the reason Harper is losing the PR battle over equalization is because he tries to improve a Liberal-instituted program, rather than providing a real alternative. Instead of bargaining who gets what, the government should've worked with each province individually, developing a plan that would help the province's economy catch up with the national average.

New Brunswick is currently working on its own, looking forward to stop relying on equalization by 2026. Such initiatives must be supported and enhanced by the Federal government. Economic development plans that would help "have-not" provinces to develop new sources of revenues should provide a viable alternative to equalization, allowing the government to start phasing it out. And, once equalization is phased out, that will end these disputes once and for all.