Atlantic provinces to lose billions in new formula: study

Last Updated: Thursday, June 14, 2007 | 8:39 AM NT

CBC News

All four Atlantic Canadian provinces will lose money under the federal Conservatives' new equalization formula, a new study shows.

The formula would mean losses of about $4 billion across the four provinces, should they decide to opt into the new formula, a study by the Atlantic Provinces Economic Council says.

Economist Wade Locke said the new equalization formula spells bad news for all four Atlantic provinces.
(CBC)

Nova Scotia and Newfoundland and Labrador have been critical of Prime Minister Stephen Harper for turning his back on a 2006 campaign promise to exclude non-renewable resources — particularly offshore oil and gas — from any new formula.

But the APEC study finds that the new formula will also mean less money for New Brunswick and Prince Edward Island.

Memorial University economics professor Wade Locke, a co-author of the report, said Nova Scotia and Newfoundland and Labrador are already aware they will each lose about $1.4 billion by 2020.

Locke predicts that New Brunswick will lose about $1 billion over the same period, while P.E.I. would receive almost $200 million less.

Locke is careful to not pass any judgment on his findings, although he dismisses the federal government's suggestion that Nova Scotia and Newfoundland and Labrador could stick with the outgoing equalization formula for a period of time.

"Since other provinces are not offered this choice, this would result in an unprecedented situation in which there are two distinct equalization programs operating simultaneously," said Locke.

"We don't think that situation is sustainable."

Newfoundland and Labrador and Nova Scotia negotiated new Atlantic accords with the former Liberal government in early 2005, updating a pact drafted two decades earlier.

The accords — which identify the provinces as the prime beneficiaries of their offshore resources — prevent energy royalties from being clawed back through equalization.

In an earlier analysis, Locke determined that Newfoundland and Labrador alone would receive about $11 billion had Harper maintained the 2006 campaign pledge.

Equalization is the wholly federal program that transfers money to "have-not" provinces so they can provide comparable levels of service.

The new APEC report does not assess how other have-not provinces would fare under the new equalization formula, although Quebec is already banking on an extra $2 billion.

Nova Scotia economist Paul Hobson, who co-authored the report, said the changes to equalization will do nothing to address long-standing complaints by Ontario that the program is unfair.

"The equalization program is paid for out of the federal government's general revenues. Unless it makes tax reductions, there'll be no benefit to Ontario," Hobson said.

The premiers of New Brunswick and P.E.I. have yet to comment on the report. Newly sworn-in Robert Ghiz is being briefed on P.E.I.'s finances, while New Brunswick's Shawn Graham is out of the country.