Why is the government of Nova Scotia not taking out full page ads across the country decrying the unfairness of the new equalization system? Why aren’t we pulling down Canadian flags and burning the Prime Minister in effigy? Because, all things considered, we got exactly what we wished for, or pretty darn close.
You see, Nova Scotia, along with all of the other provinces, asked the federal government to do two things. One, we wanted the federal government to reach deep into the individual pockets of Canadians and find a pile of cash. Two, we wanted the federal government to take that cash and spread it around to all of the provinces to address the so-called “fiscal imbalance”. Mission accomplished.
Yet, Nova Scotia is still making noises about promises not kept and threatening to take the federal government to court. We are doing that because, again like our counterparts across the country, we wanted something for everyone and a little more for ourselves. Nova Scotia not only wanted all resource revenues included in the calculation of our equalization entitlement, we also wanted to maintain our offshore accord revenues independent of equalization.
By getting all provincial resource revenue into the calculation of equalization you include oil rich Alberta and as a result the ten province standard used to determine how much all other provinces should get skyrockets. Of course, if all resource revenue is included in calculating how much you should get, then your resource revenue should be included in determining how much you need. Except in Nova Scotia, because we have the offshore accord that says our offshore revenue will be ignored when determining how much we need.
A neat trick, count resource revenue to maximize how much we should get, exclude it to maximize how much we need, we win! And win we have. The new equalization formula includes 50% of resource revenue, driving the ten province standard up and giving us a greater entitlement.
On the other side, we get to choose the Accord or the new formula, which includes all of our resource revenue when deciding how much we need. Because we have done such a bad job of managing the offshore, the decision is a no-brainer. We get more under the new formula and, barring a miracle offshore or a fundamental shift in our oil and gas policy, we will be better off under the new formula for the foreseeable future.
To make the pot sweeter, the federal government even gave Nova Scotia an extra year to crunch the numbers. To revise our projections of potential offshore revenue and to, in essence, decide if we can get our act together and turn the offshore into a real asset or whether it is better to take the guaranteed money.
You see the accord was negotiated at a time when it seemed Nova Scotia was on the verge of self sufficiency. The new equalization formula is being offered at a time when things don’t seem quite that rosy. That is the beauty of the new system, it hedges the provincial bets and it applies to everyone. Essentially guaranteeing the provinces the maximum amount of federal money with the only limit being that they will never have more than Ontario (or whatever “have” province has the least).
That explains the quiet response of the MacDonald government. They know we are a little better off then we were last year and will be a little better off next year. They know that, on balance, Nova Scotia is doing well inside the federation and they know that this gain comes for the most part from taxpayers in other parts of the country to whom they are not accountable.
The federal government met its commitment to bring equalization back to a stable, predictable formula. The problem is that the prediction inflates federal costs and expands provincial demands with little in the way of evidence that either of those things will deliver the “reasonably comparable levels of service” promised in the constitutional guarantee of equalization.
One thing is certain. Both sides are wrong.
The old approach of special accords and side deals had to go. But, non renewable natural resources will never slingshot a province, any province, off of equalization so long as those resources are included in the equalization formula. Worst of all, the new formula is sufficiently attractive that few provinces will resist it for long and that means we better get used to “have not” status around here, just beggars along for the ride.
Charles Cirtwill is the acting President of the Atlantic Institute for Market Studies, a non-partisan public policy think tank based in Halifax.