April 16, 2008
Minister Provides Update on 2007-08 Equalization Election
Today, the Honourable Thomas Marshall, Minister of Finance and President of Treasury Board, provided an update on the equalization election for the fiscal year 2007-08 which was available to the Provincial Government.
"The Harper government had committed to remove non-renewable resources from the equalization formula with no small print, no excuses and no caps. This commitment has not been met. Instead, the Federal Government imposed unilateral changes to the equalization formula which impacted the Atlantic Accord," said Minister Marshall.
The new equalization formula provides all provinces with the option of choosing the new O�Brien formula with either 50 per cent resource revenue exclusion or 100 per cent resource revenue exclusion, subject to a fiscal capacity cap. Under the federal legislation, Newfoundland and Labrador is also provided with the option of staying with the old formula, known as the fixed framework. The calculation of the Atlantic Accord payments is determined with reference to the Equalization methodology chosen. Working within the new federal legislation, the Government of Newfoundland and Labrador will make decisions which maximize combined Equalization and Atlantic Accord revenues over the longer term.
Based on projections at the time, the Provincial Government�s Fall Update of December 10, 2007 indicated the province could optimize cash revenues in 2007-08 by electing on March 1, 2008 to move to the new equalization formula in that year. It was also the Provincial Government�s analysis at the time, that moving to the new formula for 2007-08 would allow the province to optimize revenues over a five-year horizon. This five-year horizon coincides with the expiry of the first eight-year term of the 2005 Atlantic Accord, and the termination of the 1985 Atlantic Accord offset.
On December 14, 2007, the federal Bill C-28, which amended the Atlantic Accord 1985 legislation for the second time in the same year, received Royal Assent. On December 21, 2007, the province received updated information from the federal Department of Finance regarding provincial equalization entitlements. This updated information was received subsequent to the release of the Provincial Government�s fall statement.
"We conducted a thorough review of this updated information, and determined that it was no longer in the long term financial interest of Newfoundland and Labrador to elect the new formula for 2007-08," said Minister Marshall. "Consequently, I have advised Minister Flaherty that the Government of Newfoundland and Labrador will not be making an election under the equalization legislation for 2007-08." The minister noted that not making an election means the province continues to operate under the fixed framework option and is not choosing the O�Brien formula.
"Provincial analysis indicates that, based on the legislation as amended, we would expect to receive an overall positive impact on the Newfoundland and Labrador treasury of over $300 million for the five-year period ending 2011-12," said Minister Marshall. "This falls substantially short of the significant promise that was made to our province by Prime Minister Harper and his government, which is estimated by independent economists to be worth approximately $10 billion."
2008 04 16 1:20 p.m.
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