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Cost-Benefit Analysis of Confederation: Part 3 | To be tolerated

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Newfoundland and Labrador pays more to Ottawa in taxes
than feds give back; mainland attitude towards province unfounded

Originally published Nov 7, 2004

Since Confederation, Newfoundland and Labrador has paid $3.4 billion more to Ottawa in taxes than Ottawa has sent to this province in transfers payments and personal benefits, according to research conducted by The Independent.

Far from being an economic basket case, Canada’s so-called “poorest province” has contributed an estimated $67.1 billion to federal coffers since 1949 by way of personal income, corporate, retail and excise taxes.

The Canadian government has, in those same years, allotted $63.9 billion to Newfoundland and Labrador in equalization, health and social transfers, cost-shared programs, pensions, family allowance and other transfers.

The Independent’s research was completed as part of its six-part series investigating the costs and benefits of Confederation, using information from research papers, newspapers, provincial budgets, Statistics Canada and other government sources. Where information was not available, conservative estimates were made.

In the decade before joining Canada, Newfoundland enjoyed record prosperity, marking a surplus, year over year, throughout the 1940s. That all changed in 1949, with new taxes, benefits, and expenditures. In 1957, when the equalization program officially began, Newfoundland was declared a recipient — a have-not province.

There it has remained since — though, according to the numbers above — the disparities are not what many have been led to believe.

Along with the figures came observations that the relationship between the governments of Canada and Newfoundland and Labrador, particularly when it comes to issues of economy, has always been marked by frustration. Whenever this province saw opportunity, some feel it was resisted, or ignored, by Ottawa.

“What I’m absolutely certain of is that we’re treated like an annoyance by the federal government,” says Conservative MP Norm Doyle.

“We’re treated like a pain to be tolerated. The federal government and the prime minister seem to have no respect or sympathy for the difficulties that we have to deal with in Newfoundland and Labrador.”

John Collins, who was provincial Finance minister under Brian Peckford in the 1980s, had similar experiences.

“We never did get the support that we should have for our case,” Collins tells The Independent. “The upper Churchill was a real blow to us. We didn’t get any help. We should have developed the lower Churchill by this time, but there’s been very little attention paid to that. Out in Manitoba, they’ve had a lot of help in developing their hydro potential … we’re not getting the same type of assistance.

“And fish, we could see they were under too much stress — we struggled heavily with the federal government, who controlled the thing, but we never got to first base with it.

“We have very little clout upalong … it’s not that they’re malicious or anything. But we’re a small province, we have small representation up there, and we just don’t weigh in the balance very much in Ottawa.”

Premier Danny Williams and the current provincial government may be discovering this all over again, as the debate over changes to the Atlantic Accord continues to rage. The province wants 100 per cent of offshore oil revenues, no conditions attached; the federal government’s proposal includes a cap and a time limit.

What Williams sees as a chance for Newfoundland and Labrador to finally vault into have status is, he charges, being subjected to conditions that will, once again, cool off the province’s economic engines.

Frustrating the situation even more, this particular debate comes at a time when the province may be on the verge of exceeding its own fiscal projections.

Finance Minister Loyola Sullivan’s first budget this past March brought discouraging news with the province’s sixth consecutive deficit.

At the time, he said this year’s fiscal outlook improved only slightly over last year with a small cut in the deficit to $361.6 million — still the largest projected shortfall in the province’s history. The reported red ink on the accrual basis remained large at $839.6 million.

Things have improved over the eight months since then. A new deal with Ottawa on health-care funding will mean an extra $30 million. The price of oil is through the roof, which will translate into more revenue for the province — particularly if the provincial government negotiates the changes to the Atlantic Accord it’s fighting for.

Sullivan won’t give any hard numbers, but he says the province is doing better, financially, than expected. “There are some positive bumps everyone was aware of,” Sullivan tells The Independent. “We’re not just going to meet our target — we’ll exceed it.”

He expects to release a revised financial statement by month’s end. An improved deficit position won’t mean a break when it comes to the 4,000 job cuts expected over the next four years.

“If every time you had a savings you said ‘We’ll keep another job’ … you’ll never change.  There has to be systemic changes made.”

Provincial NDP leader Jack Harris says, in terms of the province’s fiscal position, “we’re not as desperate as the Tories make us out to be, but we have a significant structural deficit that we do have to address.”

Speaking from the experience of more than a decade in federal and provincial politics, Harris says the province has seen a “significant (fiscal) improvement over the past 10 years … we’re getting less equalization that we were 10 years ago, and equalization payments are a smaller percentage (of revenue) than they were.”

Equalization, Harris continues, is just one of many federal programs through which funds are allocated to provinces — though one Newfoundland benefits substantially from.

“There are lots of other federal programs that Newfoundland gets very little benefit from — those that support the auto industry in Ontario, for example.”

He points out that while the public and politicians in Ontario may have little interest in discussing equalization reforms, they would be most excited about other funding programs — a mass transportation initiative, for example.

“Most money is spent in a centralized fashion,” he says. “For example, we have the lowest number of federal government employees per capita.”

According to numbers compiled by The Independent, there are 268,000 federal government employees in the country today. About 4,400, or 1.5 per cent, of them are located in this province (146,142, or 55 per cent work in Ontario and the nearby Gatineau region of Quebec).

Of 50 Crown corporations operating in Canada today, none are located in Newfoundland and Labrador (33 are in Ontario/Gatineau).

Neil Windsor, who held several cabinet positions through the ’80s, including Finance, says one of his biggest frustrations of his time in provincial politics was “so many programs are designed as national programs, and the feds try to deliver those programs in a comparable way.

“They have to realize that Canada is not the same. What works in downtown Toronto does not work in Baie Verte.”

He says the province was having a “very difficult time financially. We faced a huge debt, which we still have; it was getting worse and worse. We had gone through a number of years of cutbacks … we made tough decisions.”

Windsor now lives and works in Alberta (“a very positive environment to work and live in”) and sees, daily, what a healthy oil economy can mean.

“Canadians are not going to be all equal; it’s not going to happen. If you have more riches in the province, there will be more riches to pass around … the problem in Newfoundland is the more we make, the more we pay out.”

Windsor says it is not just Premier Williams’ right, but his responsibility, to do everything he can to get a better deal for the province.

Fellow former minister John Collins agrees. “I hope the federal government will take a more enlightened view than they have in the past.” But while he admits “Newfoundland has great needs,” it also has much strength.

“…I think many times the Newfoundland people themselves forget that.”

On June 11, 1981, then-premier Peckford stated, in a public speech:”Newfoundland makes a significant contribution to the rest of the country … and there is absolutely no reason for us to feel we are living off the rest of Canada and hence, that we cannot assert our views on major issues.

“There is no doubt we receive significant benefits from being a province of Canada — in 1979 we received about $1.6 billion from the federal government. But we did not receive it free.

“We paid about $600 million directly back to the federal government in taxes and the like. We paid another $800 million to the residents of Quebec in economic rent through the upper Churchill contract. We paid another $200 million-plus to Canadian manufacturers producing behind the tariff wall, few, if any, of which are located in Newfoundland.

“… overall, we contributed just as much, if not more, to the rest of Canada as we received.”

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