Thursday, June 21, 2007

Crosbie and Martin on the Atlantic Accords

There is a lot wrong with John Crosbie and Roland Martin's opinion piece on the Atlantic Accords in today's Globe. I will limit myself to two short objections.

First, they claim that the Atlantic Accord is an "economic development" deal, like the auto industry in Ontario or aerospace in Quebec. This is a faulty analogy. In both of those cases, there is an argument that these industries would not exist if they were not subsidized. In the case of Nova Scotia, the offshore industry already exists. It doesn't require a subsidy to thrive. Indeed, nothing in the Atlantic Accord is about supporting an offshore industry, it is merely about letting NS keep all of the spoils. When Ontario is allowed to deduct auto industry revenues from its fiscal capacity, then the analogy will hold.

Second, they tell the reader not to worry, because if NS is not an equalization receiving province in 2011-12, then the Accord will run out. But honestly, who among us believes that if you don't count resource revenues, that NS won't be receiving equalization in four years? The obviously will. Despite the claims of Rodney and Co. that the federal government wishes to consign them to permanent have not status, it is in fact the opposite that is true. NS wants to be equalization receiving for as long as possible, which it will be as long as resource revenue is kept out of the equation.

Update: Jason Hickman, in his fair and reasonable comments to my post, notes that Alberta was allowed to receive both the benefits of its oil revenues as well as equalization payments in the beginnings of the equalization formula. One often hears this stated, but with little explanation. After doing a modicum of reading, this is the reality (which is not far off Jason's point, except in its implication). When equalization was formally introduced in 1957, a national average was used and fiscal capacity was calculated using personal, corporate and inheritence taxes. This changed five years later when natural resource revenues were added. Alberta was then dropped from equalization.

The implications of this are clear: it is not true that Alberta was given exceptional treatment. Instead, it was given the same treatment as every other province under the equalization formula of the day. When that formula was changed, Alberta no longer received equalization. Whether it did so with or without kicking and screaming is besides the point. The empirical reality is that no exceptions were made. It seems fair enough to ask that those who invoke Alberta's first experience with equalization as instructive would also embrace the second.


Jason Hickman said...

Peter, I can't speak for NS, but when it comes to NL, this:

In both of those cases [auto & aero industries], there is an argument that these industries would not exist if they were not subsidized.

... is actually quite similar to the development of Hibernia. Unless my memory is really faulty, the feds - right or wrong, for good or for ill - ended up sinking a lot of money into the Hibernia project, especially in its early days.

If one could make the argument that auto & aero needed government $$$ to exist in ON & QC - an argument that I'm not sure I like - then the same argument could be made about the offshore vis a vis Newfoundland & Labrador.

I'm not sure if that makes Crosbie's and Martin's arguments and conclusions any more valid, but it was something that jumped out at me in your critique.


- Jason.

Peter Loewen said...

Hey Jason,

Thanks for stopping by. I think your point actually weakens NFLD's case more. If the feds have already sunk money into Hibernia then it's hard to argue that NFLD is hard done by.

My point is this: a cash transfer in exchange for generated wealth (which is basically what the AA is) is not an economic development program. It's rewarding wealth that has already been developed. Now, if NS wants to argue that it won't go ahead with its offshore development unless it can keep all of the proceeds, then it deserves the title of petulant.

Jason Hickman said...

Hi, Peter:

I wasn't really trying to strengthen *or* weaken the Crosbie/Martin case, just pointing out that the subsidize-our-industry-please argument can apply to the offshore as much as it can to Ontario's car industry, or Quebec's airplane industry.

As someone who isn't a huge fan of subsidizing these sorts of industries in the first place, I don't see the parallel as a justification - but I do see it as something that exists.

I suppose the best that can be said for the NL/NS argument - by me, anyway - aside from the "it was a promise, so keep it" line, is that my understanding - which is imperfect at best on this issue - is that AB's oil & gas was excluded from the calculations of equalization's precursor back in the day, and it's not unreasonable to exclude non-natural resources given that this is truly a one-chance-only sort of resource (they aint puttin' any more oil in the ground ...).

That said, I have some discomfort to say the least with the notion of "equalization, unhindered, forever, amen", and I definitely have some concerns with Danny W's approach.

Peter Loewen said...

Ah, but Jason, you've exposed the weakness of the Rodney MacDonald argument. He is not asking that the government subsidize his industry (which was given to him by the federal government). He is asking that they not tax his province with the same rules with which we tax every other province, whichever industry they used to generate that wealth. This is the big difference for me.

Frankly, I don't know enough about Alberta's case to speak on it, though I would like one person to demonstrate that it is actually true. But it is clear that NS is asking the federal government to continue to treat it differently than every other province except NFLD under equalization. This is not fair.

Anonymous said...

I will simply observe that this should be part of a broader discussion on equitable allocation of Federal dollars; equal opportunity is not just about equalization. I'm not a big fan of government picking industries to subsidize but if they are going to do so there should be some effort made to ensure that the dollars are distributed equitably. I don't think that it is wise for them to only pick industries that would not exist otherwise; why not support some viable industries to help them thrive. Getting out of the subsidy game seems wiser but I don't see that happening.

Peter Loewen said...


Let's go through this piece by piece. Do you agree that the Alberta analogy is at least imprecise and at worst incorrect. Second, do you agree with the distinction between the desirability of giving money to an industry that would not exist - that is, giving money for the creation or maintenance of an industry - and giving money because an industry has done well? They seem to be quite different things to me, and it doesn't seem to be a sensible argument to say that we should reward success with more money and then all it economic development. Third, the equitable distribution of federal money comes first through equalization, and then through per capita transfers (which are equalized as well, btw). If you can demonstrate that NS is treating inequitably in these things, I'd like to see it. The reality is that compared to Ontario, at least, the exact opposite is the case. Do to the tax point transfer in 1977, even per capita dollars are not actually per capita. A per capita dollar is worth more in NS than in Ontario. And that doesn't even take cost of service into account.

In sum, if the target keeps moving, then I agree that one can make an argument that NS is hard done by. But it can't be made on the grounds of either equalization or social services tranfers, I should like to think.

Jason Hickman said...

As a Newfoundlander-in-exile, I'm gonna start getting grumpy if you keep on linking me to Nova Scotia :)

More seriously, I too would like to see something "official" re: the Alberta comparison.

I think you can make the argument re: non-renewable resources & equalization, which (in their calmer moments, as few as they may be) rep's of the NL government have made.

Anyway, if I can ever track down something re: AB, I'll let you know.


- Jason.

Peter Loewen said...

I updated the post yesterday explaining the Alberta situation.

NFLD and NS aren't the same thing?

Jason Hickman said...

NFLD and NS aren't the same thing?

NS just wishes that was so!

And just to keep the devil's advocate thing going on a bit longer, here's a precis of an article from AIMS which makes the argument for excluding non-renewable's from equalization.

Jason Hickman said...

... And thanks for the comment re: AB. As per usual, it's not as cut-and-dried as I thought.

But still - one could argue that there was an exception-in-practice when equal'n was created which was to the benefit of AB (and any other "non-renewable resource" provinces) for the 1st few years of the programme. That's not inherently a "bad" thing.

Other policies have, for good or ill (usually ill) carved out exceptions for different provinces (or the industries located in same) from time to time. There is an argument for excluding non-renewable resources from the equation - we just need someone to make it without sounding like he's got a shotgun for a mouth all the time.

Peter Loewen said...


Thanks again for good comments. A couple of rispostes.

First, this is not a question of the inclusion or exclusion of natural resources generally. I venture to say that NS and NFLD actually do not want natural resource revenues excluded from the new formula, because it would bring the national average down (by virtue of Alberta's NR wealth not being included). Instead, they quite literally do want to have their cake and eat it too: they want Alberta's NR wealth driving up the average, but their own excluded. It's a bit rich, no?

Second, I don't think that the Alberta example applies to NS, particularly because at that time the exclusion of NR was a general principle applicable to all provinces. What NS and NFLD want is for it to be a specific principle which applies to them only. And that's just not fair.