Nova Scotia Conservative MP Bill Casey was ejected from the federal Conservative caucus for voting against Finance Minister Jim Flaherty’s 2007 Budget.

Newfoundland Premier Danny Williams has been campaigning against the Budget for weeks.

Last week, Nova Scotia’s Premier Rodney MacDonald joined the chorus of opposition.

Notwithstanding their opposition, the Budget Implementation Bill was passed by the Conservatives together with the Bloc Quebecois and will now be scrutinized by the Senate.

In the meantime, the Atlantic Provinces Economic Council has released a study by Senior Policy Advisors Professor Paul Hobson of Acadia University and Professor Wade Locke of Memorial University in St. John’s Newfoundland that suggests New Brunswick will lose close to a billion dollars in “equalization” payments over the next seven years as a result of Flaherty’s 2007 Budget. Some dispute APEC’s conclusions but that’s not the issue.

The Atlantic Accord signed in 1985 and the Canada-Nova Scotia Offshore Petroleum Resources Accord, signed in 1986, gave Newfoundland and Labrador and Nova Scotia, respectively, the right to collect royalties on offshore oil and gas. In addition, the Accords provide equalization offset provisions to compensate the two provinces for potential reductions in equalization payments that might occur as resource revenues come on stream.

The 2005 Equalization Offset Payments Act provided for additional payments to ensure that each province receives 100 percent of the benefit of its offshore revenues and is not penalized by a corresponding reduction in equalization payments.

The 2007 Federal Budget establishes a ten province standard (one size fits all) measure of fiscal capacity and a more (the government’s words) predictable and stable payment system. The new program reverses a pre-election commitment to exclude natural resource revenues in the calculation of equalization payments and will now include 50% of these revenues in calculations, contrary to the intent and commitment of the above mentioned accords.

Equalization is a Government of Canada program that addresses fiscal disparities among provinces. Equalization payments enable less prosperous provincial governments to provide their residents with public services that are reasonably comparable to those in other provinces, at reasonably comparable levels of taxation. The Equalization Program was entrenched in the Canadian Constitution in 1982. Payments are unconditional – allowing receiving provinces to spend the funds according to their own needs and priorities.

Many confuse “equalization” payments with “transfer” payments which are received by every province. These are shared cost programs like the Canada Health Transfer provided in support of provincial health care, post-secondary education, social assistance and social services. Every province benefits from these transfers without reference to their economic circumstance.

The issue is whether a province generating wealth from a non-renewable resource like oil or gas should be receiving equalization payments when its (royalty) revenues are growing. Alberta does not receive equalization payments but it does receive transfer payments from the federal government.

The 1986 Offshore Petroleum Resource Accords clearly protected royalties from equalization claw-backs to enable Newfoundland and Nova Scotia to grow out of their economic disparity rather than neutralize the benefits of new revenues. Saskatchewan enjoys a similar circumstance. These were so-called “one-off” deals.

The 2005 Nova Scotia agreement triggered an upfront payment of $830 million that would allow the province to begin addressing its fiscal challenges. The 2005 Newfoundland & Labrador agreement was endorsed with an upfront payment of $2 billion to allow the province to reduce its debt.

Provinces like New Brunswick received no such payments. They were effectively penalized because they do not have oil and gas. The Harper Government takes the position that all provinces are equal, that disparity is a figment of the imagination, that the rich should get richer and the poor should look out for themselves.

The APEC study provides estimates of the revenue flows to the four Atlantic provinces under the pre-2007 Budget program and the post-Budget program for each fiscal year from 2007-2008 to 2019-2020, the year in which the Nova Scotia and Newfoundland and Labrador Offshore Accords expire.

It assumes that the aggregate of the fiscal equalization payments under the pre-Budget program would grow at an annual rate of 3.5% (as currently specified by legislation) and that non-oil and gas fiscal capacities for all provinces would grow at an annual rate of 1.4% (the aggregate rate of growth of per-capita fiscal capacity in Canada over the last ten years).

Based on APEC’s assumptions and projections, New Brunswick would benefit from a $68 million increase in revenues for the first two years under the revised Equalization program and reduced revenues in each year thereafter when compared to the “Fixed Framework”. In aggregate, the province would receive $1.1 billion less under the new Equalization program than under the pre-Budget formula.

New Brunswick is not blessed (so far) with off-shore oil and gas revenues. I have no issue with the deals cut by Newfoundland and Nova Scotia with the federal government. Indeed, I reject Jim Flaherty’s unilateral rejection of the 2005 Accords. I also believe the up-front payments to Nova Scotia and Newfoundland of $830 million and $2 billion respectively set a precedent that entitles New Brunswick and PEI to similar “bootstrap” investments.

New Brunswick’s “self-sufficiency” agenda depends to some extent on both the continuation of equalization payments and new investment required to wean the province away from equalization payments.

Nova Scotia, Newfoundland and Saskatchewan are considering legal actions against the federal government to recover the full benefits of their 2005 Accords. New Brunswick needs to make a case for its own deal, notwithstanding Stephen Harper’s rejection of one-offs and his bravado “sue me” if you don’t like it statements.

If New Brunswick is stonewalled on this issue, the Province may want to consider Mr. Harper’s challenge and join the other three provinces in a legal action.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at bill.bellstrategic@nb.aibn.