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Sunday, April 29, 2007

Sidestepping Equalization Rules

It looks like the Sask. government is looking at some interesting ways to turn the tables on Steve Harper's underhanded attempt to screw smaller provinces on equalization. The following appeared in the Star Phoenix recently. It looks like two can play at the type of bait and switch so popular in Ottawa these days. The government of Newfoundland and Labrador may want to take a long hard look at the possiblities being examined in Saskatchewan as well.


Sidestepping equalization rules

Province explores ways to recoup resource money

Murray Lyons, The Star Phoenix
Published: Saturday, April 28, 2007

Finance Minister Andrew Thomson hinted Friday the provincial government is looking seriously at working around equalization rules to prevent what he calls a $1.2-billion con- fi scation of resource cash by Ottawa.

Under the scenario, petroleum, potash and uranium companies would make direct contributions to build infrastructure such as hospitals or highways. It would mean the money would go directly to third parties or specifi c projects -- royalty resources would not end up in the province's general revenue fund and be counted by Ottawa in its equalization calculations.
The $1.2-billion fi gure is the estimated equalization payments that would come to Saskatchewan if there was no dollar-for-dollar clawback of resource revenue.

A senior Finance Department offi cial confi rmed "preliminary" studies of this and other possible scenarios are occurring within the department. The offi cial admits it's similar to an idea fl oated by academic Thomas Courchene in a recent paper in the Policy Options magazine of the Institute for Research on Public Policy.

Courchene, one of Canada's foremost experts on the federal equalization formula, suggested the alternative to general revenue fund royalties in the paper, which was published after the federal budget.

"Why would the province continue to collect any royalties?" he wrote. "Why not reduce them to zero and require energy companies to make compensatory contributions to hospitals and universities."

Thomson, in a 20-minute presentation Friday to the Greater Saskatoon Chamber of Commerce, made no mention of Courchene's thinking in his speech. However, he admitted the plan was under consideration during a question-and-answer session.

Without mentioning Courchene by name, the fi nance minister described the academic's proposal as a "very interesting way for us to work around the agreement" and "essentially not charge royalties.

"We would simply require through some kind of legislation that resource companies send a direct percentage of their profi t to a health board, a school board . . . or whatever," he said. "I hope it doesn't come to that.

"I would rather we continue to pool the tax and resource revenues as it gives us more fl exibility to deal with changes that we see with different industries." He says the potash and uranium industries, for example, which are hugely dependent on international markets, need a more sophisticated tax system than simply one that is designed "to recoup what we are being cheated out of by equalization."

Speaking on background, the senior Finance offi cial points out the Courchene proposal is not too different from the manner in which Quebec and Manitoba collect hydro "rents." The provinces receive artificially low revenues from their hydro-electric resources by charging citizens "lower than market rates" for electricity. As a result, any rental rates for use of the water resource for power generation does not get counted in the general revenues of those hydrorich provinces.

Saskatchewan often uses a comparison with Manitoba in discussing equalization.
Thomson told his business audience that this fi scal year Manitoba, with roughly the same GDP as Saskatchewan, will get $2 billion in equalization while Saskatchewan will get zero.
Questioned by reporters, Thomson says the fact the Quebec government used its gains in the new equalization formula unveiled recently by Ottawa to immediately give its citizens a tax break helped show Saskatchewan residents a new perspective on equalization.

"It helped to draw the line from A to B and to demystify a lot of what equalization was about," he said. "Equalization is a complicated formula and there is no easy solution to it.
"But when we're losing $1.2 billion worth of revenue and the federal government is able to provide $2 billion in support to Manitoba and $800 million to Quebec to cut taxes, people wonder why there is no money to do more here."


Anonymous said...

Ontario is not an equalization recipient because it has been the prime beneficiary in other ways. Quebec gains the most through equalization and ranks second in other assistance, such as the recent $900 million commitment to the aerospace industry. They have been the big winners because they control the House of Commons. They win through the concentration of business and government activities Ottawa bestows on them through national policies, subsidies and transfers.

Ontario has not received equalization because it enjoys so many other benefits provided by Ottawa. Alberta is not presently receiving because its economy is doing well - as a result of its oil wealth. Unlike Ontario, its prosperity is not dependent on federal government favors. All the other provinces have been recipients, with Quebec consistently receiving the most, in addition to receiving the second highest share of other benefits. It only has 25 per cent of the population but will receive 33 per cent of all transfers this year.

Years of equalization payments have not changed the fact that Newfoundland and Labrador contributes more financially to the country than it receives. The federal government might spend more than it collects here directly, but our contribution to the economies of other provinces far exceeds their contribution to ours.

We contribute through buying goods and services from Ontario and Quebec, instead of from other countries where they could be obtained more cheaply. We contribute our own taxes, in addition to those collected elsewhere because of economic activities we create. We contribute through exploitation of our resources, in particular through providing far more revenues for Quebec than for ourselves as a result of the Churchill Falls Hydro project - because Ottawa refused to enforce our right to transmit power across Quebec, or to compensate us for the loss. We contribute through the inflated food prices we pay to subsidize mainland businesses. We contribute through the enormous debt we’ve accumulated to finance the purchase of goods and services from Central Canada.

Anonymous said...

Manning and Hearn have burnt their political soul. What they will have to depend on from the next election on is the Cadillac policy of the Federal Government which looks after old politicians after they have burned all bridges with their voters.

Anonymous said...

I think Ottawa's Cadillac policy has to go. It is detrimental to a province like Newfoundland and Labrador when its politicians are encouraged to toe the party line for Ottawa while letting their own people languish with no jobs and no economies, while being endowed with many resources. That is how we lost so many of our resources to the rest of Canada. The bloody
politicians toed the line for Ottawa, knowing full well there was no need to worry since Ottawa has a Cadillac policy to see politicians through who toe the party line. That is Corruption at its worse. That policy will kick into place at the end of this term when the afflicted politicians do not win back their seats. What a job when you don't do what is right for the ones who elected you, you have 100 per cent security from the entity for whom you toed the party line. Make no wonder we haven't been able to move forward!

Anonymous said...

"Another Great Article Patriot"

"We contribute through buying goods and services from Ontario and Quebec, instead of from other countries where they could be obtained more cheaply"

This point my friend has been pushed upon us by confederation.Ditch the tie's that bind and open up our econmony to free trade ,south, of the Border and we shall be prosperouse.

The only explanation for Newfoundland and Labrador not being able to get ahead is from activitys in other parts of the country .For excample,"steve's" neck of the woods.Alberta.I have said it before on your Blog Patriot.Why in the name of God would "Steve" want a strong Newfoundland and Labrador,when he needs more Newfoundlander's and Labradorian's In Alberta to drive "THIER" econmony to greatness.

If I may make referance Patriot to the story done a fortnight ,ago ,on how the entire Alberta economy is getting Dangerouse becuase of the lack of workers they have to make such work sights safe."Steve" is out to do what he can for the west and thats all .

While he trys to tie the hands of Premeir Williams,to make him either use the resources of Newfoundland and Labrador to pay for promises that were made by conservatives in Ottawa to the rest of canada or it just simply costs us jobs here in our province.

This is the only reason why there has not been action taken on certain "Key" issuse's to the province,such as fallowfield legislation.
And then people ask why Canada doesn't work.Prime example right here folks.Get rid of the problems with canada ,let the Americans purchase the hydro from Labrador .Create a system of dependancey for that Power .Open that up to competition from canada and the united states,and then watch who wants to help us out when we control our our domain.

Canada will soon see how much it took and gave from Newfoundland and Labrador .Whats that saying, "you never relise what you have till it's gone"

As Always,

Anonymous said...

To be fair to Manning and Hearn, they are not the first to toe the party line for Ottawa, it has happened for 58 years and everyone else was under the radar screen as we weren't aware of what was happening, so therefore they didn't get detected, and for the most part up til now were heroes.

The first to become the scapegoat was Efford,and now Manning and Hearn.

It is only after all these years that we became fully aware of the the two-way Tool that Ottawa utilized, the tool that encouraged politicians to 'toe the party line' for Ottawa with a back-end Cadillac insurance policy that gave such an assurance that if the politician's activity was detected by his/her electorate and he/she didn't get re-elected, well then the policy would come into effect and the politican would not be adversely affected in any way shape or form, matter of fact, his/her circumstances would be greatly advanced if their activities were detected, since there are patronage positions galore to be handed out for any poor politician who got caught in the act of 'toeing the line' for Ottawa , but unfortunately that powerful tool destroyed the province of Newfoundland and Labrador's change of getting ahead in the Federation of Canada, to where it would never be on par in its 58 year history of being a part of the Canadian Federation with the rest of the Canadian provinces, despite the vast resources of the province that were directed to other destination's economies.

The tool of 'toeing the party line' has to go as it relates to the province of Newfoundland and Labrador, if not we will never reach the apex of our ability to become a powerhouse in Canada.

These darn politicians have to be reigned in and read the riot act by the province of Newfoundland and Labrador.