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Vol 39  No 13
Apr. 26, 2007


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Attempt to inform equalization debate becomes complicated saga

All things equal
by Leslie Vryenhoek


Dr. Wade Locke presented the nuts and bolts of equalization changes during a recent presentation at Memorial. (Photo by Leslie Vryenhoek)

Dr. Wade Locke knew it was going to be complicated and controversial when he stepped into the equalization arena – but he wasn’t prepared for how emotionally charged a set – well, two sets – of numbers would become.

On April 4, the Memorial economics professor made a presentation in which he detailed the estimated impacts for the Newfoundland and Labrador treasury of the equalization options specified in the 2007 federal budget. The event drew a crowd and several reporters to the theatre in the Science Building.

Before he laid out intricate details of three equalization scenarios and their financial implications for the province, Dr. Locke noted that he’d spent long hours crunching the numbers, an inherently complicated exercise. He went on to explain how equalization is calculated, how the Atlantic Accord functions, and the assumptions that had gone into his equations – assumptions that he’d verified with federal and provincial finance officials.

His aim was to provide an objective, unbiased assessment of the numbers, while steering clear of the politics surrounding this sensitive issue.

“This is not an attempt to determine whether a promise was made and broken, or fulfilled for that matter,” Dr. Locke asserted. Rather, he wanted to facilitate informed public debate.

According to his original numbers, under the current equalization scheme, $18.5 billion would flow into the province from the federal government between now and 2020. Under the 50 per cent option contained in the federal budget – what Dr. Locke called the O’Brien Panel recommendation – that number would climb to $22.8 billion. Under a third option, which would exclude all natural resource revenue but cap equalization, the total dropped to $18 billion.

Based on the currently available options to the province, he was able to state that the province would optimize its bottom line by staying with the current equalization arrangement until 2009, and then switching to the 50 per cent option. The final tally: $24.1 billion into the provincial treasury.

The presentation garnered acclaim and national media coverage. Dr. Locke received positive comments from a wide audience, including politicians and provincial officials. The story of the numbers dominated the airwaves and editorial pages for several days.

But early in his presentation, Dr. Locke had provided a caveat: the numbers were only as good as the assumptions underlying them – and he had been contacted just hours prior by officials from Finance Canada. They indicated that the eligibility criterion for the Atlantic Accord was subject to a different interpretation, based on legislation that had been tabled the previous week.

Dr. Locke subsequently received and reviewed a copy of the legislation, and went back to crunching numbers. “Once you have an indication that the assumptions aren’t correct, you have to look again. Professional ethics require that,” he explained.

Through several e-mail exchanges and then on an April 11 conference call, Finance Canada officials explained in detail how the new legislation would work. Based on this information, Dr. Locke released new, significantly different numbers on Friday, April 13 (although they had been leaked by an unnamed source to CBC the night before).

The biggest change: according to his calculations, if the 50 per cent option were to be invoked immediately, net revenues flowing to the provincial treasury,would be $17.5 billion – $5.3 billion dollars less than previously estimated.

Again, Dr. Locke found himself the centre of intense media and public attention. This time, unfortunately, some officials made public comments attacking Dr. Locke’s integrity. That has left him frustrated.

“From the onset, I encouraged both the province and the Government of Canada to release their own analyses and expose them to public scrutiny. Challenge my numbers, absolutely – but there is no need to attack someone’s personal or professional integrity.”

He calls the whole process both stressful and enlightening. While he doesn’t think academics have to stay away from politically-charged issues, Dr. Locke said he has learned that caution is important when dealing with individuals who have political agendas.

“But on a positive note, my experience shows that the university has an important role to play in helping inform public debate on issues that may be significant for the province and the country.”

Dr. Locke’s presentations, including the numbers and the assumptions on which his findings were based, can be accessed online at mun.ca/arts.

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