OVI WHY WILLIAMS WALKED, PR NC E E WHY MARTIN BALKED: H S T THE ATLANTIC ACCORD NFLD & LABRADOR DISPUTE IN PERSPECTIVE L E S S E Christopher Dunn P C ROVIN In a province where no premier ever lost votes by standing up to Ottawa, Danny Williams has become the latest in a long line of provincialist champions from Newfoundland and Labrador. When he walked out of a First Ministers’ Meeting last October, he had carefully chosen his fight with Paul Martin over the Atlantic Accord, which allows Newfoundland and Labrador to keep 100 percent of its offshore revenues. Yet 70 percent of those revenues are clawed back by Ottawa under the equalization formula. In the election campaign, both Stephen Harper and Jack Layton promised to end the clawback. Martin made a similar campaign promise, but balked when federal finance officials turned stingy. From St. John’s, Christopher Dunn appraises the political landscape, and fallout, from the Atlantic Accord disaccord, and finds Martin between the Rock and a hard place. Dans une province où aucun premier ministre n’a jamais perdu le moindre vote en défiant Ottawa, Danny Williams est le tout dernier d’une longue liste de champions provinciaux. En claquant la porte de la rencontre des premiers ministres en octobre dernier, il a soigneusement choisi son combat contre Paul Martin, l’Accord atlantique qui prévoit que Terre-Neuve-et-Labrador conserve la totalité de ses revenus extracôtiers. Or, 70 p. 100 de ces revenus sont récupérés par Ottawa suivant l’actuelle formule de péréquation. En campagne électorale, tant Stephen Harper que Jack Layton ont promis de mettre fin à cette situation. Paul Martin avait fait une promesse analogue, pour finalement reculer sur les conseils de ses responsables financiers. Depuis St. John’s, Christopher Dunn évalue les répercussions politiques du désaccord sur l’Accord atlantique, de même que l’ampleur du dilemme auquel est confronté le Premier ministre canadien. Prime Minister Martin: “You can’t walk out of this meeting.” made to the province’s electors during the 2004 federal elec- Premier Williams: “Just watch me.” tion. Williams was annoyed by an October 24 letter from Finance Minister Goodale which qualified the federal offer o began, last October 26, another of the periodic polit- by limiting it to eight years (2004-2012) and provided that ical dramas that convulse the province of “no such additional payments result in the fiscal capacity of S Newfoundland and Labrador and the Ottawa estab- the province exceeding that of the province of Ontario in lishment. This time it involved the premier’s proposal that any given year.” Coincidentally, Goodale had redefined the there be a new offset provision in the Atlantic Accord allow- province’s fiscal capacity with “top-ups” that the province ing Newfoundland and Labrador to retain 100 percent of found unacceptable. Failing to meet with Martin before the the benefit of the offshore petroleum revenues it receives, FMM, Williams turned on his heel and left the capital. notwithstanding the treatment of those revenues under the Then he did it again: different capital, different offer, same equalization program, which provided that 70 percent of walk. Meeting in Winnipeg on December 22 with Mr. Goodale, these revenues be clawed back to the federal treasury. Mr. Williams said that the new federal offer was even worse The premier had set an October 26 deadline, the date of and that the province was breaking off negotiations with the the First Ministers’ Meeting (FMM) on equalization, for the federal government altogether. The province said that the prime minister to honour a pledge to that effect that he had prime minister had reiterated the principle that the annual off- POLICY OPTIONS 9 FEBRUARY 2005 Christopher Dunn set payment should be equal to 100 per- Then what slippage in support affect- Small provinces have to master politi- cent of any reductions in equalization ing the premier was swept away by an cal theatre if they want to be heard. payments resulting from offshore rev- intemperate, prejudiced column on Far from aberrational, his behav- enues, but had added conditions which January 6 by Margaret Wente of The iour was perfectly rational; in fact, eroded the 100 percent commitment. Globe and Mail (rural Newfoundland Williams had no choice. His actions Among the most striking, later pub- was “probably the most scenic welfare were driven by the appalling state of licized by the province, were those that ghetto in the world”). Outrage fol- provincial finances, a nationalist con- stated that the federally proposed offset lowed. The premier’s support was once sensus and a federal consensus. arrangement would terminate in any again consolidated, by default, riding a Danny Williams was sworn in on year in which NL is off equalization; the wave of nationalist feeling. He wisely November 6, 2003 as the ninth premier federal transition mechanism which is raised the flags during this episode. of Newfoundland and Labrador. The Williams cabinet, hours into Walkouts and bluster are old hat in this province. There was its first meeting, made a deci- Joey Smallwood flailing John Diefenbaker on Term 29, sion to undertake a Brian Peckford challenging Pierre Trudeau over offshore third-party review of the jurisdiction, Clyde Wells interjecting his concerns about province’s financial situa- tion. The PricewaterhouseC- Meech Lake in the unlikely context of a First Ministers’ oopers review results were Conference on the economy. All were, in their way, effective announced in a State of the — ultimately. Small provinces have to master political theatre Province address broadcast if they want to be heard. on January 5, 2004. The review pegged the current- triggered when the new offset termi- In a January 14 letter, the prime year deficit, on an accrual basis, at nates is the inadequate one embedded minister, apparently reversing a stance $827.2 million (up from the Liberals’ in the existing Atlantic Accord; there that Goodale was the point on this file, $666 million). It also noted that in the would be no extension of the agreement agreed to talks. January 28 was to be the absence of restraint measures, (1) the for another eight years to 2020 if the new date for “PM to premier” discus- average deficit would exceed $1 billion province was off equalization in year sions. However, the letter hinted he annually for the next four fiscal years seven or eight, or if there was no bal- would be unbending on extending an (2004-05 to 2007-08); and (2) the debt of anced budget in year eight, or if the agreement past 2020 and making “addi- the province would increase to $15.8 bil- province’s debt/GDP ratio moves ahead tional and continuing 100 percent offset lion from $11.6 billion by 2007-08. of one other province. payments even if the province no An audit of the financial state- Even if an extension did occur, the longer qualifies for Equalization,” which ments of the province for the year end- same criteria (two years off equalization, he called “in practice indistinguishable ing March 31, 2004, in fact saw the improved debt/GDP ratio, failure to bal- from Equalization payments.” government record a deficit of $913.6 ance budget) could end the arrange- million — the highest ever reported by ment in any year, and there was no hat can explain this apparently the province — and a net debt of $11.5 chance of extension beyond year six- W aberrant behaviour? Shortly billion. The auditor general also noted teen. The revenues from other potential after the October walk, I was at an aca- that interest costs amounted to $1.1 new oil fields will not be included. demic conference in Ottawa and was billion or 25.4 percent of total revenue To emphasize the province’s case, asked, by more than one person there, in that year — the highest interest costs the next day Williams ordered that if the premier was unsteady. The poor as a percentage of total revenue of any Canadian flags be lowered from dears. After all this time, they still don’t province in Canada. The unfunded provincial government buildings. get Newfoundland politics. Hence, yet pension liability at $3.75 billion con- They would stay down for close to another screed on the subject. tinued to worry government. three weeks. During this time, provin- Walkouts and bluster are old hat The effects of this appalling finan- cial public opinion careened wildly. in this province. There was Joey cial state of affairs had, and are still Originally united behind the premier Smallwood flailing John Diefenbaker having, repercussions. Nineteen on the offset issue, it began to divide on Term 29, Brian Peckford challeng- departments became 14 in February on the “flag flap.” Sensing that the flag ing Pierre Trudeau over offshore juris- 2004, and 10 departments were restruc- tactic was threatening the offset strate- diction, Clyde Wells interjecting his tured. In a January 2004 State of the gy, on January 3 Williams indicated his concerns about Meech Lake in the Province address, Williams announced openness to further talks with Martin unlikely context of a First Ministers’ there would be “a change in the pro- (and emphatically not Goodale), who Conference on the economy. All were, grams that are offered and a change in then retorted in effect no flag, no talks. in their way, effective — ultimately. the size of government.” As many as 10 OPTIONS POLITIQUES FÉVRIER 2005 Why Williams walked, why Martin balked CP Photo The giant offshore drilling rig, 600,000 tonnes and 224 metres tall, being towed from Trinity Bay to the Grand Banks in 1997.