Nova Scotia should take the federal government to court if it is serious about claims that Ottawa went back on its word and changed offshore-oil revenue agreements, Prime Minister Stephen Harper said Monday.

"If you're really serious in the allegation that we've broken a contract, then I think you have to follow that allegation up with action," Harper told reporters in Ottawa. "I don't think you can make that allegation and just walk away.

Prime Minister Stephen Harper talks to reporters about equalization in Ottawa on Monday.
(CBC)

"We're not breaking the law, and if Nova Scotia believes that, they will take the appropriate action."

Nova Scotia Premier Rodney MacDonald has called on all members of Parliament and senators from his province to vote against the federal Conservative budget, which is due for its third and final reading this week.

The premier, a Progressive Conservative, said the budget offers new equalization formulas that undermine the Atlantic Accord. The accord, signed in 2005 under former Liberal prime minister Paul Martin, protects Nova Scotia and Newfoundland and Labrador's offshore oil and gas revenues from federal clawbacks.

The premier of Newfoundland and Labrador, Danny Williams, has been just as vocal in his criticism of the budget and the equalization options it offers.

'Court of public opinion' more important: MacDonald

MacDonald scoffed at Harper's willingness to take the battle to court.

"If you want to talk about the most important court, the most important court is the court of public opinion," MacDonald told reporters in Toronto, where he was speaking to business leaders.

"This is an agreement that people feel passionate about because this is a right, and their right is being taken away," he added. "A deal signed in good faith with the government and now they're breaking the agreement.

But Harper insisted on Monday his Conservative government is still honouring the accord. He said he was willing to "consult the courts" to prove it.

"This is a very serious claim," Harper said. "We don't break contracts. We respect contracts."

MacDonald said he doesn't buy Harper's claim.

"They're not going to pull the wool over Nova Scotians' eyes," he said. "We may be a small province in Nova Scotia but we will not be bullied."

Casey says provinces would win a court battle

MacDonald's decision to speak out against the changes to the equalization program came almost a week after Bill Casey, a long-time Conservative MP from Nova Scotia, voted against a bill to implement the budget.

Casey was kicked out of the Conservative caucus hours after the vote passed in the preliminary reading on June 5. He said he could not support an action that would cost his province hundreds of millions of dollars.

Like MacDonald, Casey said the "court of public opinion" will have the ultimate say on Harper's equalization plan.

"But I think the provinces would win if they do go to court over this," he told CBC News on Monday.

Nova Scotia Conservative MP Gerald Keddy hinted Monday he might follow in Casey's footsteps and vote against the budget, too. He told the Canadian Press on Monday he plans on discussing his concerns with Harper.

N.L. premier says voters will have final say

Williams, a Progressive Conservative, said he has no interest in a drawn-out legal battle. He too suggested on Monday that the "court of public opinion" would have the last say.

"That will be settled on federal election day, whenever that happens," said Williams, who has been actively encouraging voters to boycott Conservative candidates in the election.

Williams, speaking to reporters in St. John's, accused Harper of deflecting attention from the substantive issues involving equalization by saying he had been accused of violating the accords.

"It's about him keeping his original promise, when he gave in writing," said Williams, who accused Harper of taking revenue from his province, Nova Scotia and Saskatchewan, and passing the revenue "primarily to Quebec and other provinces where he's trying to win votes."

Opposition MPs join attacks

The attacks launched by Williams and MacDonald were echoed in the House of Commons on Monday. NDP and Liberal MPs grilled Harper on his suggestion the issue could go to court.

"Why should Atlantic Canadians have to go to court to get the prime minister to keep his promise?" Liberal MP Geoff Regan asked.

The budget offers the two signees of the Atlantic Accord — Nova Scotia and Newfoundland and Labrador — two options:

• The old equalization formula, along with the benefits from the Atlantic Accord, which allowed the provinces to profit from their offshore oil and gas resources without fear of losing equalization money.
• A new, enriched equalization formula that includes a cap on the amount of offshore oil and gas revenues the provinces can keep.

Finance Minister Jim Flaherty said Monday that provinces that choose the first option will be protected by the Atlantic Accord until it expires in the 2019-2020 fiscal year. After that, only the second option is available.

Harper has argued that Nova Scotia will get $95 million more this year from the equalization payments than the province would have received before the budget.

Casey, however, has predicted the new budget could cost Nova Scotia up to $1 billion.