Editor’s Note: As the Liberal Government readies for
their second budget, I would like to remind regular readers of the eight-part
“Budget Colloquy”  posted by JM back in 2015.
Although you can argue with some of JM’s
recommendations, this series was wellresearched and offers a solid analysis of the state of the province’s finances. JM now returns with an introductory post on the equalization issue. 
Guest Post by 

I must disclose that I am not an expert on equalization. It is a complicated federal program, which
played a pivotal role in most of the history of the province. During
the 90’s, equalization provided nearly 30% of the total revenue to the provincial government. The highest
absolute contribution was $1.2 billion which occurred in 2001

1999 NL received over 12% of the total federal equalization allocation, for about
2% of the population of the country.  

comparison, in 2016 we received no equalization and the province’s combined revenue
from other Federal sources ($702 Million) and from offshore royalties ($485
Million) was less than the 2001 equalization value alone, adjusted for

As the second budget from the Ball government will likely attest, NL is in dire financial straits. After nearly a decade of hiatus, equalization is again back
in the news. Dwight Ball wants to get back at the negotiating table for the next round of negotiations which occurs every five years. 

is clear that we need our fair access to equalization. But what is fair, and what is our strategy for
these negotiations?

First, I
would recommend to the readers a recent “Primer” produced by the
Fraser Institute on equalization. Contrary to widely held public opinion, the amount of equalization received by
each province does not depend on the budgetary shortfalls, nor the costs of
services in the province. Rather the amount of
equalization received depends upon how the fiscal capacity of each province compares with the national average. Fiscal capacity is determined by the revenuegenerating capability of each province. 

is also interesting about the Fraser Institute article is that over the past 15 years there has
been clear consolidation of equalization wealth in the direction of central Canada
specifically from Atlantic Canada, which is demonstrated in the following exhibit.

2003 the share of equalization taken by Quebec and Ontario has increased from
about 42% to almost 70% of the total equalization pie.
The component to Atlantic Canada has fallen from 40% to 20% in the same period.

the complex mathematical formulae used to calculate equalization to qualifying provinces, the goals of the
program have never deviated since the program was first established in

The original intent of
equalization was to “enable less prosperous provincial governments to provide
their residents with public services that are reasonably comparable to those in
other provinces, at reasonably comparable levels of taxation”.

the intent of equalization is to ensure broad and equitable access to basic
public services, why does the cost of service delivery not appear to be
considered in the current equalization formulae? 

is time for equalization to formally recognize the disparity in the cost in
delivery of services from province to province. As noted, Quebec and Ontario receive 70% of the equalization in the country. They also have respective population
densities which exceed the national average. The scale economies such density affords clearly results in a lower cost
of delivery on a per capita basis. A recent report on health costs in Canada provides proof.
and Ontario, driven by their centralized, and larger, populations arguably have
the best health care, at the lowest cost per capita. Other services, such as
education, likely follow a similar trend. 

why would Ontario and Quebec not face an equalization penalty, taking into account their advantageous ability to deliver services at a relatively lower per capita cost?

I believe this a valid question.

1957, when the equalization program commenced, Canada was defined by Statistics Canada as 67% urban and 33% rural  Now well over 80% urban, Canada is a far less dispersed country than it was in the 50’s. It seems only sensible that its primary method
of national wealth re-distribution is modified to reflect this new reality. 

In short, it
is time that the equalization program reflected the per capita cost of service
delivery in its formulation. 

Premier Dwight
Ball will have many potential allies in his desire to reconfigure equalization,
and to draw wealth from Ontario and Quebec back into the periphery of the

Ball to succeed he will need a more substantive argument than
“We need our fair share”. 
His argument 
needs to be fact based, substantive and accompanied by a clear communications plan. 

a province, we must also realize that if the
equalization formulae are changed, whether through the Premier’s intercession or in combination with the efforts of other Premiers, Newfoundland and Labrador may still not become
by the definition of the equalization program a “have
not” province. We may still not receive

financial issues are due not to an imposed disadvantage from
Ottawa. Our budgetary crisis is
self-inflicted. It is the result of our inability to keep our spending
habits in check.
that problem, Dwight Ball
representing a potential ‘have province’ should be able to
take a leadership role in recommending changes to the equalization program which
reflect modernday Canada.  

It is
time for equalization to reflect the original reason it was established
to ensure that all Canadians have access to comparable services, having been levied comparable
levels of taxation. 

It is time for equalization to consider population density, demographics and the per capita costs of
service delivery when comparing the provinces. 

Had Newfoundland and Labrador advocated for such sensible changes during the last two rounds of
negotiations, we might have been in a better financial position today. 


Bill left public life shortly after the signing of the Atlantic Accord and became a member of the Court of Appeal until his retirement in 2003. During his time on the court he was involved in a number of successful appeals which overturned wrongful convictions, for which he was recognized by Innocence Canada. Bill had a special place in his heart for the underdog.

Churchill Falls Explainer (Coles Notes version)

If CFLCo is required to maximize its profit, then CFLCo should sell its electricity to the highest bidder(s) on the most advantageous terms available.


This is the most important set of negotiations we have engaged in since the Atlantic Accord and Hibernia. Despite being a small jurisdiction we proved to be smart and nimble enough to negotiate good deals on both. They have stood the test of time and have resulted in billions of dollars in royalties and created an industry which represents over a quarter of our economy. Will we prove to be smart and nimble enough to do the same with the Upper Churchill?


  1. With respect, this is bullshit.

    NLs public expenses are not out of control because of the cost of operating public services in rural and isolated communities. They are driven by the bloated public sector – civil service, health care, PSE, crown corps – which are overwhelmingly concentrated in St. John's. No other province has such a geographically concentrated public sector. The problem is not serving Nain or Ramea. It is the empire building and feather bedding in the city that created this mess. Thanks Danny!

    It will be political insanity to use the landmass of Labrador or even the rural island to justify larger transfer payments only to see every cent disappear, yet again, down the black hole of keeping the public sector unions in Town fat and happy. We have seen this before with the "Indian and Eskimo Agreement" funds that paid for civil service salaries in the capital, not for actual services.

    Would NL legally commit to spending a geographical topup out in the geography that justifies it, and without prejudice to the rural areas' ability to access general revenue? I doubt it.

    And be careful what you wish for: apart from the maritimes, every other province is larger, and with the possible exception of Alberta, has more isolated communities. A geographical component might only end up tilting the balance of fiscal federalism even further away from NLs favour.

    • It would seem the overpass divide is alive and well. The post does echo the common theme that the size of the civil service is a direct result of Danny Williams which is not entirely supported by the facts yet the myth or, perhaps more accurately, the half truth endures. Looking at the Liberal's press release of Feb 22nd reveals the civil service growing from 78 per 1000 population in 1997 (when it was comparable to many other provinces ) to 94 per 1000 in 2015. It did peak in 2012 at 102 before the PCs started to bring it down.

      However coming back to the numbers, it grew from 78 per 1000 in 1997 to 89 per 1000 in 2003 , a 14% increase and all under Liberal governments. The net growth under the PCs was from 89 to 94 per 1000 (2003 to 2015) or 6%. Bottom line is that neither PC or Liberals have exhibited restraint in growth of the civil service and you can be sure the NDP would not shrink the civil service. Whether the latest round of cuts will stick remains to be seen.

      One thought on averages and statistics. If we look at Premier days per 1000 population (totally made up statistic) and Kathleen Wynne takes 365 days per year to govern Ontario with 13.6 million people then why can't Dwight Ball govern Newfoundland & Labrador's 520,000 people in 14 days?

      Poor Richard

    • Yes, the trickle down philosophy, as Galbraith would say, means that the sparrows get what is left after the oats have been consumed by the horse(s). Government run programs, similar to mega projects such as Muskrat eat up too much administration cost. This is the painful lesson of centralized control. It sank the communist systems, and is the scourge of capitalism as well.

    • Poor Richard, it's not a myth. It is a mathematical reality, that was well-document, even at the time (the Danny Debacle) by the "well known critics". (And was all but ignored by the mainstream media for some reason.)

      Yes, the bloated size of the public sector, including the civil service, is by and large the result of Danny-era waste and politically-convenient decisions. It's also true that Dunderdale did tap the brakes, but much more is needed. It's still baffling to some folks why Premier Wimpy didn't make some tough decisions early in 2016, when it would have been ideal to do so.

      Here's some links for your further reading, some of which have charts drawn from official data sources:


      Looking back on this, it's unfortunate that the NL blogging culture seems to be in a slump right now.

    • I tend to agree with "Anonymous". Newfoundland gets drunk on high oil prices and expects Uncle Ottawa to ride to the rescue arguing unfairness. "Set a beggar on horseback, and he'll ride to hell".

      With respect to Poor Richard I can say that under the Williams Administration for the period 2006 to 2010 the provincial public sector grew by 10,000. How do I know this? Because I paid for, and still have, the information from Stats Canada. Combine that with massive wage and benefit increases there are two things that cannot be ignored:

      1. 2016 Budget Estimates: Revenue of $5.6 Billion from own sources. (Taxation, Royalties, etc.)
      2. Wages: $3.6 to $3.8 Billion which represents about 65% of that number and debt servicing of $1 Billion.

      I would suggest JM read the AIM's report on this subject. Our small population and large geography certainly can account for some additional public service cost delivery but I highly doubt it is the raison d'etre.

      It's fine to want Cadillac services and top wages but I'm hearing little about what is necessary and reasonable given our population and geography.


    • Most of my lifetime, the idea of One Atlantic Province, (The underlining reason for AIMs to exist), has been debated. Think of how the administration costs, delivery of service costs, etc. could be rationalized and made more efficient. Debt too could be spread across the regional revenue potential, a common market if you will, in trade, labour, resource development. Maybe the idea of Muskrat being subsidized to the benefit of shutting down the GHG prone coal generation in NS is a key to revamping the whole Atlantica concept.

  2. Its sad that this province struggles with so much pain and suffering from the almighty dollar…Patience is described as a virtue according to aristottle where he refers to patience as the bitter and fruit as the sweet…..God knows we Newfoundlanders have shown patience since 1949 and I don't see us baring any fruit at least in my generation…For 500.000 people to demand such a high cost for a normal existence like the rest of the country is crazy…I often heard my poor mother talk of the saints in heaven and one in particular comes to mind…St Jude,the most holy apostle and the patron of hopeless cases I pray you watch over this tiny island and give us more patience to focus our eyes on the sweet that is near but yet so far away…..

  3. Equalization is a very complicated process, the details of which I fail to understand. However, what I do believe is that NL is not being treated in a fair and equitable manner by the Federal Government when we see immense hardships being brought down around our heads to accommodate a $2 billion annual deficit while other provinces lavish in equalization in the billions of dollars, offer subsidized programs that we could never fathom, and run surplus budgets based on the fact that they are "have not" provinces. And shame on our former PC Government for deciding not to participate in the last two rounds of equalization discussions. Its blinkered approach that our oil revenue would continue forever and a day, and that we would always be a "have" province because of it, has to go down in history as one of the biggest errors of judgement along with its foolhardy deal to build Muskrat Falls which is sinking our economic future for generations to come.

  4. I checked all three reactions:funny, interesting and informative.
    Funny….not the piece by JM but by the first comment `With respect , this is bullshit` It made me smile, as how can you have any respect for the content of the piece, or the writer, if you label it all bullshit.
    In my opinion, JM is one of the best who do analysis, especially on the boondoggle project. And he makes much sense on this subject.
    However, the critic also has a point : can there be a guarantee that cost of service to rural areas gets implemented. We recently see that aboriginal communities are under funded for education, water and sewer, health services etc, and much of the allocated money gets siphoned off by civil servant jobs in Ottawa, or St John`s. Poverty and poor health continues up North, and proper funding never reaches there. The same happens with equilization, I think. Like the issue of home care or mental health spending, if the feds don`t mandate where it must be used, then the provinces find other priorities (like fat MHA pensions)
    As for help from St Jude…….not to fault the benefit of prayer…..but I have often heard the expression :God helps them who helps themselves. And apart from the few who vent through this blog, we do much too little to help ourselves.
    After reading up on the Ecology Action Plan last night of Nova Scotia, which has put them into the direction of much better energy management, and challenging the status quo of the power companies there, they have 2800 members and 400 volanteers. They started in 1971. Where is our equal effort here……their jewel in the crown is their Energy Efficiency Corporation, the best in Canada, for assisting homeowners and reducing energy use.. They would not let the power companies run that Corporation, because of conflict of interest.
    Here Nfld Power gets a 90 percent approval rating, while being second worse in the country for such measures. Where is the awareness…….
    But I do think live is much better than in 1949. But we are at a cross roads it seems. April 6th……a life long sad day for me, having lost my father on that day when I was six, so sort f an omen for tomorrow. The budget planners are walking a tightrope….cut and slash or kick the can down the road. It will probably take a month or so for the bond agencies to react as to a credit downgrade or not……and then we can judge whether it was Black Thursday.
    Winston Adams

  5. Let's all hop on the Government subsidy bandwagon once again, because surely history has shown that Equalization is the answer to sustainable economic growth …. right?

    What most people don't seem to realize is that Equalization, like every other Government subsidy, is funded via tax payers dollars. Why do you think that Canada has one of the highest Income Tax rates in the world?

    "There is a tendency over time for the benefits from subsidy programmes to become capitalised into the least elastic factor of production. The economist Gordon Tullock labelled this phenomenon "the transitional gains trap". As Professor Tullock explains, the gains from subsidies tend to be transitional, accruing mainly to those who can immediately take advantage of a new scheme. Their successors end up paying higher prices for land, fishing licences, mineral rights, ect. As such, removing the subsidy thus risks imposing a transitional loss on the subsequent owners of these assets.

    The beneficiaries of a subsidy can become entrapped in a social sense as well. This is especially the case when subsidies are used to support employment in rural industries, such as agriculture, fisheries and mining, which require specialised skills but not necessarily much formal education. The resulting low mobility of the affected labour force itself becomes a barrier to policy reform, increasing subsidy dependency, and making structural adjustment all the more traumatic when it finally does come."


    • Think of provincial subsidies as a loan against the have provinces collective income streams, to build income producing provincial infrastructure; payback terms? Will Muskrat and similar Boondoggles, be able to pay back the loan subsidy say in 30 years?

  6. "…used to support rural industries, such as agriculture, fisheries and mining… The resulting low mobility of the affected labour force itself becomes a barrier to policy reform, increasing subsidy dependency, and making structural adjustment all the more traumatic…"

    Mike is bringing good points here. Above effects do exist, and are a given in most.

    Where should we spend our limited tax dollars. In subsidising declining industries and/or subsidising natural resources extraction?

    I believe we should redirect some more $ into the new economy, and toward our champions that are competitive worldwide. (or in industrial clusters – like in BBD… JUST KIDDING!).

    Those champions are the ones that will create our national wealth and avoid the erosion of the taxation base. Thus, permitting the maintenance of our social net, and why not, the equalization payments.

  7. JM: "Quebec and Ontario, driven by their centralized, and larger, populations arguably have the best health care, at the lowest cost per capita"

    Whoa!!! Quebec (+ONT) arguably have the best health care!!! I just can't imagine how bad hospitals are in the rest of Canada…

  8. Des:

    "Cost of delivery" is an argument typically advanced by people in provinces that are looking for more cash from Equalization. The assumption is that it costs more to deliver services to people in a province with a widely scattered population compared to others.

    Well, geography is one cost driver. You can treat 500K people in Hamilton with one good sized hospital with an emergency room. In NL, you need more hospitals and emergency rooms to give comparable service to people.

    Another cost driver is population. Other services – like policing and criminal justice – may be more labour intensive and costly in a larger population than in a smaller one.

    On that basis, the cost of service delivery argument may not work out as hoped by its proponents. In other words, Ontario may get even more money than NL if cost of service delivery is factored in.

    As far as population density goes, he available evidence doesn't bolster the case for NL based on cost of delivery. Saskatchewan has a population density identical to NL and yet does not have the over-supply of public servants per thousand residents that NL does. Here's a link to the most recent study on the subject: http://www.aims.ca/books-papers/size-cost-public-sector-atlantic-canada-2015/

    Your final point, though, is the bottom line: we are in our current mess because of government action (overspending) not as a result of any other factors. As such, Equalization is not the answer to the problem.

  9. It is time for Judy Foote and other federal liberals we elected to deliver for this province. They should however not be under the illusion that we will get "more than our fair share" as Judy has suggested in the past but not yet delivered, from the power brokers in central Canada. The spoiled children of confederation, Quebec and Ontario, aided by their many more voices in the parliament must continue to be maintained in the lifestyle to which they have become accustomed.

  10. It was the night Before Budget
    When all through the House
    All the knives had been sharpened
    To frighten even a louse.

    And Ball and Bennett
    Holding their nose
    Said Let her for the Gullies
    As nobody knows.

    Lets cross our fingers
    And pray to St Jude

    If that don`t do it
    We`ll give up our food

    But for F–ks sake Cathy
    Look very sincere.

    Lets toss them a biscuit
    Drop gas by 4 cents

    Twill please the masses
    Who just have no sense


  11. Anyone notice that residents and especially the media, get all excited if gas goes down 2 cents and concerned if it goes up. On VOCM they report an increase of 7 cents today , and they refer to this as a SHOCKER . Meanwhile, this is only a 5 percent increase. Power rates are to double, and there is largely silence from the public. UG has preached this for years, and Pete Sucey sometimes mentioned UG, and he gets fired! Go figure, let the masses stay ignorant …..and of course Stan is trying to MITIGATE the shock rate increase that is coming! 20 cent power rates, some shock. 12 billion and a little Labrador power to offset just part of Holyrood. Some mitigation! Holyrood supplies only 11 percent of our power, so Stan will mitigate 5 percent, and save 100 million on fuel, while paying 400 million on MF interest costs! Spin or what, Stan!

  12. In case you missed it, VOCM recent question of rating the performance of Stan Marshall of Nalcor, only 27 percent rated him good, 32 percent bad, 8700 voted.
    Meanwhile VOCM calls the 7 cent(5 percent) gas price jump as having `skyrocked`
    Imagine a 100 percent jump in power rates! What word describes that! I know :crazy, or insane, or stupid, life threatening, economy smashing, HUGGGE, as Bernie Sanders would say, or BIGLY, Trump might say, Lock em up, Williams, Dunderdale, Martin, Stan Marshall, even Ball and Bennett…..Lock em Up, they will shout.
    But not to worry,,,,,,,they are working on MITIGATION, whatever that means!
    Are you in LOVE with Diana, the reporter asked Charles. `LOVE, replied Charles, with a grin, ……whatever that means` Oh , the fairy tales………Prince and Princess, love ever after……

    Mitigation, we will ask soon, whatever that means.
    Words have meaning. Mr Ball, Mr Marshall……..clearly define Mitigation and the impact on our standard of living. You have had a year now, and not much mitigation it seems. Maybe you meant Migration! The jobless will migrate, The rich will move next to Trump in Florida, and have summer homes in Nfld, when electric heat use is low.

  13. Imagine that, last comment went through at HIGH NOON, 12:00 on the button. What `s the odds of that happening!. Like the old westerns, big things happen at high noon, or maybe 2PM. Hello……Budget time…..happy bondholders or not I wonder! Will that, pleasing the bondholders, be all the talk on TV news, or just the HST reduction on gas………..gas is key, forget power bills, health care, billions going on interest charges, no new hospitals or schools, can`t even fix a pothole…….cars being smashed………but a reprieve on gas. Oh my……….How we get led around by the nose!
    Too green to burn, it was reported a century ago. Still too green too burn now. Some things never change.

  14. Thanks to JM for another interesting post. Whoever you are, you are clearly very intelligent and well informed and contribute to making this blog a success. In this case, however, I would respectfully like to raise a few quibbles.

    NL has been calling for the inclusion of the cost of public services for decades now. The concept certainly makes intuitive sense. JM presents data on (“adjusted”) per capita health expenditures which are lower in Central Canada than in NL. He then concludes that the cost of providing essential services is higher in NL than elsewhere. The most obvious question relates to the appropriateness of the age and gender adjustment applied to the data. Moreover, although total spending is partly a function of factor costs, it is also sensitive to myriad other factors including the range and quality of services offered. In particular, the main cost driver of health and education is implied rent and salaries, which would, of course, be highest (by far) in central Canada and BC. Indeed, a leaked 2006 federal Finance Department study found that, as a general rule, the richer the Province, the higher the cost of providing services. As a result, failure to account for the cost of services actually favours Quebec and the Maritimes at the expense of Ontario and BC (https://www.thestar.com/news/canada/2012/01/25/ontario_shortchanged_in_wealthsharing_system_censored_federal_report_suggests.html). Please note that the article lumps all of the Maritime Provinces together. I am assuming that results for NL are compatible with those of the Maritime Provinces as a whole but that may not be the case. Finally, although the current equalization formula is complicated, the data used, which is based on capacity to generate own-source revenue, is fairly reliable (as data go). Determination of the cost of providing services introduces an additional level of complexity and potential arbitrariness.

    As JM points out, recent trends point to an increasing share of Equalization accorded to Central Canada. Two changes explain this result: first, Ontario has become a have-not Province; second, the growth in the absolute amount of Equalization payments has been capped since 2007. Because of the demographic weight of Ontario (or Quebec of course), even a small deterioration in their relative fiscal capacity results in a large impact on their share of the predetermined Equalization pie. Ultimately, the inconvenient truth is that, at least as of 2015, GDP per capita in NL is higher than the national average and, surprisingly enough (to moi anyway) is even higher than in Ontario (https://en.wikipedia.org/wiki/List_of_Canadian_provinces_and_territories_by_gross_domestic_product ).

    It is perfectly reasonable for JM to propose changes to Equalization which are compatible with the philosophy of the program and which might favour NL. However, be careful what you wish for. Analysis done by the Federal Government seems to indicate that inclusion of the cost of services might actually penalize NL.

    • Bernard, we have a high GDP,but seems due to exports of iron ore, nickel from Inco, oil production ………yet have a lot of low income people scattered in small isolated communities. So it GDP a fair gauge

    • As a general rule, high exports translate into higher potential fiscal revenues, either through higher salaries or higher corporate profits. However, you are right Winston, GDP per capita is only a very rough and imprecise proxy for fiscal capacity. You will find however that in general, the 'have' Provinces have a higher GDP per capita than the "have not" Provinces. That is not always true since Ontario has a higher GDP per capita than BC but a lower fiscal capacity. I was simply trying to illustrate that according to the Equalization formula, NL still has a fiscal capacity higher than the national average. I find that surprising but that is what the numbers say.

    • Thanks Bernard, as I am of the opinion that Nfld is rich in natural resources, but has historical got little benefit from them, whether British paper mills, Labrador iron, Vocey Bay nickel, Churchill Falls power and now Muskrat Falls power. For our small population and large resources, including one of the greatest fishery areas in the world, we should be well off, if we had prudent governance. And we have had more than our share of corruption in our history. So, we again go cap in hand for equalization. Something like Quebec getting equality vs Ontario, I think, and maybe Quebec has been more successful than Nfld.

    • Winston, as I often point out – I am not the official representative of Quebec nor am I competent or apt to comment on the history of NL. I happen to care about NL and I enjoy participating in these debates. I was trying to make a simple point – including costs of delivery of public services in Equalization may not help NL, at least according to leaked Finance Canada documents. Finally, Equalization is not welfare, it represents the type of redistribution that is common in most countries. Proposing formulas that maximize gains for NL seems perfectly normal to me. I was simply making the point that you should be absolutely sure of the outcome before proposing changes.

    • Bernard, I appreciate your input to the discussion. Redistribution of wealth is one of the great benefits of being part of Canada, as conditions change, various areas have fat years and lean years, although more like decades. I do not fault Quebec for Nfld`s small return on the Upper Churchill.And the project gave me summer job that helped pay my university engineering expenses. Worked with fine people from Quebec there then. These was no foresight to allow for changing conditions on the value of electricity, as there was no foresight to imagine that oil prices would drop and impact Muskrat Falls. One need only to look at the conditions of poverty on coastal Labrador to see that redistribution could be much improved, and Labrador with vast natural resources. As to Nfld history, Nflders chased our Prime Minister Squires out of the seat of government here in the 1930s,wanting to hang him maybe, he ran for his life, he was a crook, as documented by a British investigation, and we went under British Commission of government for 15 years, from 1934 to 1949. Tough times, 6 cents per day per person, known as the dole. Wonder if we are headed for such financial trouble again. Thank you for caring.

    • Welcome back Bernard. Again, thanks for your very informative comments.

      As you said, there are many factors that can drive up the costs of providing services.

      I might also add a few more cost factors.

      The service level + how broad that a province wishes to provide services is also a significant cost factor.

      By example, Quebec decided to run a drug insurance program (costing billions!). They run a heavily subsidized child care program (costing Billions). And how about a more generous parental paid leave program. (I'm missing a few more, but you see where I'm going)

      We now realise that the cost (per capita) of programs provided in Quebec is probably higher than in other provinces.

      Should that trigger more equalization payments? I sure hope not!

      Let's say there is a very damaging strike, and a province caves in and gives a 50% salary raise to those employees. Should that also trigger more equalization payments?

      Provinces must be accountable for the services it provides in both costs and quality. (i.e. continuously looking for effectiveness, efficiency and economy).

      You just can’t link the cost of providing services to equalization payments. That would be a recipe for financial disaster.

    • You just can’t link the cost of providing services to equalization payments. => Was meant for "JM"

      A costing formula that would reflect each province hardship in providing a pre-set level of service would be extremely complicated to figure out.

      It would probably have more drawbacks/perverse effects than benefits.

    • I agree with some of what you have to say Ex-Military Engr but let me try to be clarify some points. First, equalizing based on fiscal capacity AND the cost of providing services makes intuitive sense to me. I am sure that JM was not suggesting transfers should be based on actual spending – I assume the graph he presented was for indicative purposes only. Accounting for the theoretical cost of providing services is difficult and would require a number of controversial judgments. However, it can be done. Equalization in Australia for example takes into account fiscal capacity as well as the cost of providing services.

      My point was pretty basic. I am not at all sure the changes proposed by JM would favour NL. The leaked 2006 Finance Canada study seems to be conclude that accounting for the cost of providing services would mostly favour Ontario and BC.

    • I wouldn't say it quite like that. I would say that any implicit subsidy stemming from below market electricity prices (as is the case in Quebec and Manitoba) could be considered as something like implicit own-source revenue potential of a Province for the purposes of Equalization. Since Equalization was capped, it has become a zero-sum game. Every gain for one Province receiving Equalization represents a loss for the others. I think NL would get more traction questioning the current formula than by proposing wholesale changes that may well penalize you.

    • A couple more points Mr. Anonymous, I am not sure why you seem to think that hydro-electricity should be treated differently than any other means of electricity production. For example, it seems to me the same would be true if an oil-producing Province were to subsidize the production of thermal energy by providing oil at below-market prices. Am I missing something? In any event, the contribution of electricity to GDP is certainly not the appropriate measure to consider since it would be inversely related to the level of subsidy.

    • Make sense, if local electricity rates are subsidized (Manitoba/Quebec) it's a wasted revenue stream that should be penalised in transfer payments.

      Same for any other subsidized gouvernment backed services I suspect.

    • It is interesting that the new interprovincial trade deal to come into effect in July might include for the flow of electricity through provinces in a similar way as has been the case in/to and from the USA for about 20 years or so now. That could mean progress for NL.

    • I am not sure what your remark has to do with Equalization but the issue of electricity transmission rights within Canada could have been solved in the mid 90’s. Chapter 12 of the Agreement on Internal trade ensured, among other things, electricity transmission rights through adjacent Provinces. Quebec agreed to those provisions? NL and NS dissented because of the potential negative impact of other provisions in Chapter 12 on the grossly protectionist provisions of the Atlantic Accord. If you have forgotten the details, they are discussed in depth by Justin Churchill of Memorial University (http://www.gov.nl.ca/publicat/royalcomm/research/Churchill.pdf ).

    • Oh, the Atlantic Accord represents "justice" again now, does it?

      I mean, it was "just" enough when Peckford signed it, and continued to be "just" in the public imagination until oil started flowing and it actually kicked in. Then Danny Williams worked everyone into a lather about how supposedly "unjust" it was. Now it's back to being "just".

      So hard to keep up with the Newfoundland nationalist nonsense. Let us all know when it goes back to being not "just" again.

    • Who said the Atlantic Accord was just, or unjust. FYI, I suppose I wasn't clear enough. I was repeating the position expressed by Jason Churchill of Memorial University in a document – The link is included at the end of my comment. He argues that NL and NS rejected Chapter 12 of the proposed Agreement on Internal Trade (which included electricity transmission rights) because of certain (unspecified) clauses in the Atlantic Accord. He also mentions that Quebec was in favour of the agreement. Since the document was written by a Professor at Memorial and published by the Government of NL, I assumed that it was a reliable source. However, and I repeat, I don't remember expressing any view on whether or not the Atlantic Accord was good, bad or something in-between.

  15. Thanks Robert, glad some are not asleep at the wheel. Peckford (the cucumber premier) says the deficit for this is really 1.6 billion. WOW.
    Cathy providing alternative facts or what. I`ll assume Peckford is right and will wait for others to comment. So, we are probably in deep doo doo, probably a credit rating drop coming. Peckford says this a SAD day. We are in a PICKLE. And would be worse only for the oil royalty revenue from the Atlantic Accord. So it seems. And of course, the Saudi and Russia who finally agreed to reduce production and increase oil from 35 to 55 a barrel. Putin and the Saudis, both countries where there are no human rights…….we owe them for a 500 million boost this year! Yet not enough. So was the budget SPIN!
    Gas tax dropping 8.5 cents but went up 7 cents today, and likely more increase shortly. Gas tax going down 4 cents in DEC……..did PF have inside knowledge in his prediction! Keep the masses happy. How come none of the media picked up on what Peckford suggests.

  16. All people needed to look at in the budget was the cost of expenses. The revenue is nearly outside the control of government, the costs of muskrat falls is outside the control of government, the federal funding portions is nearly outside the control of government. They do however control spending.

    In this budget the liberals took the cowardly route. Enabled by some modest returns in oil price, they are able to use the PC method of reducing costs over time -attrition.

    The province were ready for cuts, and they should have been implemented.

    Ball has kicked this issue down the road.

    And what is this 245 million contingency fund for rate relief on Muskrat Falls? That will only mitigate 1-2 years of electricity rates. All this will do is keep rates in control during the next election cycle. Yes I am that cynical.

    Good post… I think many people have made valid points. By JM stating "he is not an expert" I believe he or she would be happy that there was some sensible discussion of the post in the comments section.

    Keep up the good work Des and JM

  17. The liberals presented year 2 of a 7 year plan, that the way forward is 'waiting for oil'.
    Why cut gas taxes, the dagger was already inserted. They will put it back in another year while continuing to wait for oil.
    No talk of investment in job creation to deal with unemployment, just an ease on gas so people can drive to service canada or the post office with less coming out of the pogey.
    No talk of how to spend and invest oil money when they finally get more of it. Why hide from it?
    Tell us up front, we are waiting for 120 dollar per barrel oil than we will pay off debt. Then we will invest in a legacy fund. well that part is a dream.
    our pensioners will double or triple the low income families in this province when it goes bankrupt. more low income seniors will not take stress off any government programs. maybe that can be federal govt's problem to deal with. keep going to justin with hands out, we might as well ask hydro quebec directly if they want to buy labrador.
    cut costs and pay down your debts like every household has to do. we are already looking after our own. why does govt pretend to be looking after middle class families when the pensions they invest in for a lifetime, will be wiped away under bankruptcy protection?
    pension plans are not taxes. that is earned savings thru investment. its our money. get your hands out of the cookie jar.
    best employer ever, said no one. ever. #twoticketstothepoorhouse

  18. Don`t F–k with the fishermen, whose survival is at stake. Scrimp quotas cut from 48,000 tons to about 12,000 over the last two years. Imagine MHAs and governments workers taking a 80 percent pay cut…….sure,…. the recent reductions of 43 positions in health care saw average benefits of 180,000 dollars going to each as compensation….and they spoke of the hardship!
    Fishermen, losing quotas and some their crews and boats.
    The TV crews captured the fishermen`s angry response. It would have been worthwhile if they had to have burned the building down, the leader, Ryan, said. They did break in, got a meeting with officials at the federal government office in St Johns, and got a signed commitment whether priority for adjacency would be granted.
    Now that was what you might call a protest. It got results, so far.
    Was it a mob! Did they break the law…….. well, the police showed up, not a single mushroom bullet was fired at them, and the fishermen were defiant. 50 of them.
    I could not find it as a NEWS story in todays Telegram. But you can find it under the BUSINESS section.
    No charges laid, despite it being filmed that they broke the door to get in. Why no charges……..well no complaint has been laid said the RNC.
    Moral of this story……don F–k with angry fishermen, who have nothing to lose. And matters could get worse, if their concerns are not addressed.
    There is life beyond the overpass.
    Now compare that to the heavy handed treatment and charges laid against protestors at Muskrat Falls, including against a journalist.
    Soon, all our backs will be against the wall, needing to pay a billion dollars a year in interest costs, much due to Muskrat.
    The fishermen wants Mitigation. And rightly so.
    Marshall and Ball promises Mitigation against 21 cent power rates……but little of benefit, and some curtain and mirrors, a few cents lower, maybe, but we will tax you the difference.
    Is that Meaningful Mitigation!
    Come Labrador power infeed, and no real mitigation, the masses will likely be with the fishermen, at the Con Building, by the thousands. Ball`s perpetual smile will be gone. Ball will be gone…..out the back door, just like Squires in 1932. The writing is on the wall, or so it seems.
    Now we could still put a stop to Muskrat Madness. But Ball says he has succeeded in making the province happy…….for now.And all the reason and logic to put this project on ice, has been in vain.
    So we kick the can down the road. The fishermen kicked in the door.
    Remember when John Crosbie said `I didn`t take the god damm fish`
    Was there not a out migration of some 20,000 Nflders then!
    With a billion a year going to banks and bonding companies, will Ball`s defence be `I didn`t take the god damm money`
    No, it was Cathy who signed for the 4.5 billion loans last year. And no sugar tax…..wonder why!

  19. Protest signs should read : MITIGATION NOT OUT MIGRATION.

    Wonder what Ches Crosbie, who predicts another government credit rating down grade coming the next few weeks, would propose as real Mitigation. Crosbie says he tells it like it is, …….so tell Sir, what would you do…….lay off 8000 public employees…….is that it…….is that your vision………nothing more than that…..do not keep us in suspense for 3 years, please

  20. Vimy Ridge 100 anniversary tomorrow. There was a house in Spaniards Bay called the VIMY
    10,000 casaulties. 3600 young men died, Canadians, as we were not Canadians then. Vimy happened less than a year after Beaumont Hamel, that was our day…….though many more Nflders died in other battles known as The Trail of the Caribou. The first battle in Turkey…..Churchills great plan to take the Dardenells…….great plan! Nfld still looking to put a bronze caribou there. The book on the First 500 documents the losses from disease more than anything else.
    Great stuff…….war. Trump, after 2 months in power, jumped into the fray, on April 6, our Budget Day……He promised to bomb the shit out of Isis, which is a Sunni crowd, and now he attacks the Shites too. He said perhaps there would be another opportunity to take their oil. I guess he is working on that.
    This time the Turks are pleased. If Canada supports Trump, we may get to put that caribou over there yet.
    But Vimy……. the making of a nation, that day, it is said. I prefer it to think it was foresight of McDonald and others in 1867, and as a counter to the expansion of the United States following their civil war.
    But to justify 10,000 Canadian youth killed and injured over 4 days, ….. The attack on Easter Monday! Surely god approved! Justification: say it was the birth of a nation. A fairy tale……..or what. It nearly broke up Canada over the conscription issue, as the more got killed , the more was needed to sacrifice. And historians say it was a useless unnecessary war! And the result a passion for revenge by one Adolf, 20 years later.
    A century ago, Nflders soldiered on. It would be more than a year later before the King would grant a VC……to his youngest VC ever. It helped sooth the pain for the colony who sacrificed so much. History suggests Rickets was not the first choice, as documents by Ed Roberts book on Frost show. Ahhhh , but he was the youngest…..mere 15 or 16 when he enlisted……..it went over well.
    Least we forget.

  21. Nalcor has been ordered to mitigate doubling of power rates. To do this, some recall from Churchill Falls will be used, that could save 150 million in Holyrood fuel costs says Marshall, some 300 MW.
    Now Holyrood supplies only 11 or 12 percent of our power. When oil was more expensive I believe it ran up to 150 million a year, now about 100 million.
    Meanwhile that recall power was bringing in about 70 million a year.
    So is the saving only 30 million!. And Holyrood need this only a few winter months……so for other months is this sent to Nova Scotia for no revenue!

  22. Do I understand that with the new interprovincial free trade deal, this would open up the possibility that Muskrat +Churchill recall power can be routed from HQ, through NB and NS to Link with NL?
    Would this not mitigate some of the supply of cheap power, (Churchill) committed to NS?

    • Sorry Robert but I don't understand your point. Why would one want to rout recall power to NL through Quebec, NB and NS rather than directly through the Labrador-Island link currently under construction? I must be missing something, please elaborate.

      As the anonymous contributor points out below, NL already wheels electricity through Quebec. Mr Anonymous also correctly points out that the limiting factor is capacity. Prior to the final decision on Muskrat Falls, Premier Williams was offered the chance to export power from Lower Churchill to the US through Quebec. Williams claimed that the $3B price tag demanded by HQ was unjustified. He may be right. I don't know. However, I do know that these numbers cannot be pulled out of thin air without running afoul of authorities in the US. Moreover, I have my doubts as to Williams' ability to forecast the cost of transmission assets since, according to JM's recent post on Emera, the transmission costs for Muskrat Falls have risen from an initial estimate of $3.7B to $6B.

    • Not sure what the transmission of electricity through Canadian provinces has to do with "running afoul of authorities in the US". As I recall the ferc in the USA refused to get involved in the interprovincial dispute between Quebec and Newfoundland over lower Churchill power transmission through Quebec.

    • You are right, I was commenting on two posts simultaneously – Robert's suggestion and the Anonymous comment below discussing wheeling rights through Quebec.
      Inter provincial transmission in Canada would of course have nothing to do with the FERC. My apologies, I thought it was clear that I was commenting on the Anonymous comment below about access to the US through Quebec.
      If HQ can be proven to disallow transmission access to the US it could lose its right to participate in the US market. Of course the FERC would not get involved in a dispute between Quebec and Newfoundland but HQ had to offer access. If no capacity is available, NL would have to pay for new transmission assets. HQ doesn't have a few thousand megawatts of excess capacity over thousands of kilometers just sitting there. Moreover, the Romaine project, with twice the capacity of Muskrat Falls is now coming on line. If HQ's demands were unreasonable it could be accused of limiting competition and lose access to the US market. HQ claimed it would cost $3B to send the Lower churchill electricity through Quebec to the US market – to put that into perspective – that amounts to roughly 3x the latest estimate of the transmission cost between Muskrat Falls and the Island link. In any event, lets be honest, NL has no desire to deal with Quebec. Oh well, HQ will survive.
      I am sure you won't believe me so let me quote Jason Churchill from Memorial University.
      In December 1999, the FERC passed Order 2000 which introduced the stipulation that “all
      transmission users should receive access under rates, terms and conditions comparable to those
      the transmitting utility applies to itself to serve its own customers.”126 The measure is meant to
      ensure that energy remains at a competitive price in the fi nal marketplace despite having to be
      transmitted through one or more jurisdictions.127
      Once again, FERC measures govern the transmission and sale of electricity within the United
      States, but this strongly affects Canadian utilities attempting to sell into American markets.

      Churchill also points out that the issue of electricity transmission rights within Canada could have been solved in the mid 90’s. Chapter 12 of the Agreement on Internal trade ensured, among other things, electricity transmission rights through adjacent Provinces. Quebec agreed to those provisions. It was NL and NS who dissented because of the potential negative impact of other provisions in Chapter 12 on the protectionist provisions of the Atlantic Accord.

    • My above query was somewhat confusing. I shall try again. The new interprovincial trade deal seems to offer an alternative transmission route to meet the contract made to NS by NL. NALCOR may be able to purchase cheaper Churchill power from HQ, and have it supplied through Quebec and NB to NS. Does this make sense?

    • Sorry, Bernard, I failed to put my name to my comment below ,posted at 15:29.
      I have been busy continuing my monitoring and research on attic mounted mini-split heat pumps. At this spring season, A rare beautiful sight of sea ice in Conception Bay and right off my cottage at Bishop`s Cove. This used to be somewhat regular decades ago, now rare.
      We are not blessed with sunshine in eastern Nfld, but I have achieved a COP of 4.75 daytime on a sunny day, and just over COP of 3 at night, for a average of 4.1…….with mounting the unit in the attic instead of outdoors. Two main factors: solar gain on the black roof, and reduced RH in the attic eliminating most all defrost cycles. Nfld Power suggests one could get a COP of 1.68 average……..so they are puzzled by my performance, and seems NOT pleased.
      I have been an advocate of energy effficiency, like in Nova Scotia. We could have retrofitted every house in Ndld for 1.25 billion, while reducing customer costs by about 30 percent from energy savings…….very cost effective…..but the govn opted for the boondoggle.
      Rain and mist and some fog all day, outdoor RH 97 percent, yet not much above 70 percent in the attic. My unit has not had to defrost now for several days. 400 watts to heat 1000 sq ft today (daytime) with no sun! 2 days ago with sun, this dropped to 70 watts for a short while.
      So, I am not not much impressed with Ball`s and Marshalls mitigation plans…..I am doing my own mitigation….monitoring this system installed 6 years ago, and trouble free. By the way, I do not sell or install these units.
      I do follow the MF debate and comment …….maybe too often. Appreciate your and Roberts input.

    • Robert, good question. My impression is that your idea, while theoretically possible, would not be very advantageous. First, although HQ would no doubt be willing to sell energy from the Upper Churchill, the price would normally be the replacement value. As for delivering that energy to NS, I would assume the Maritime route would the least cost route, by far. My impression is that sending energy through Quebec and NB to NS in a pinch. However, it would not be a very efficient solution. First, there simply isn't much capacity on that route. Also, as you probably know, the route would not be very direct and of course the greater the distance the greater the energy loss. Finally, Quebec and NB would charge you for the privilege of using their network.

    • Bernard, if I recall correctly, the transmission losses from Muskrat to the Avalon region of Nfld is 8 percent, for the line rated at 900 MW leaving,(824 from MF, 76 from CF). This gives 72 MW loss.
      As a portion of the 12 billion MF cost this is 960 million. We can round this to about 1 billion for transmission loss (almost enough to outfit all houses with heat pumps). Transmission losses my not include distribution loss once this is stepped down in voltage at Soldiers Pond and distributed to households by Nfld power. I see on a report from Nova Scotia where they use a figure, I think of 14 percent for transmission losses within NS power, which may be from generation to high voltage then to low voltage to households. If overall loss is in this range for MF then the loss would well exceed 1 billion in cost.
      For this reason, MF is not going direct to Nova Scotia. Our island generation is going there , as the distance is much shorter. This makes efficiency sense, but nevertheless, exposes Nfld , and the Avalon, to less reliable MF power, given the distance and terrain, salt, wind and ice loading problems. Crazy, in my opinion, and more outages for St Johns.
      Meanwhile on the conservation and customer efficiency side, that is Demand Side Management, reduction in energy use (for the customer reduces) grid transmission losses.
      The limits for minisplit performance is a COP of about 6 for space heating ( a reduction of 83 percent, and a COP for water heating of about 9, a reduction of 89 percent. This extreme good COPs are difficult to achieve, and at a small percentage of the time, and so COP of 3 is generally considered good, a reduction of 66 percent.
      Of course since MF was supposed to be needed to offset our winter space heating loads, this is why this application should have been priority one. Nova Scotia has installed some 100,000 units this past decade, 20,000 in 2011 year alone. I understand the first such unit in Canada was installed in Montreal in 1992.
      My monitorong last night showed a COP of just above 3, at about 47F. As the unit now has a low load, at relative mild temperatures, it cycles on and off, and loses some efficiency in this mode. So it is actually more efficient when colder and running steady. The steady load is 420 watt or more. This unit is a series designed about 10 years ago, Japanese. New units can go down to a load of just 150 watts before cycling , so more efficient still. Such technical details may bore some readers, but is the hall mark of efficiency considerations…….and given climate change issues, is rather necessary, I suggest.
      The ocean here this morning is now more beautiful, with the wind scattering the ice, so white mixed with blue, and just momentary sun. I expect future generations will not see this beauty at all, in our location, with climate change progressing, and less ice in the future.Premier Ball here is delaying carbon credit issues as long as possible, and still sees oil as our salvation for government debt issues! Meanwhile I have a Tesla car on order, some 200 miles on a charge, 35,000 US, in production for late this year. I am stepping up from my Prius hybrid, which is an excellent car. Tesla prior models were aver 100,000 US.
      Looking forward to Uncle Gnarley take tomorrow morning.

    • Very interesting Winston – you obviously know much more about most of these issues than I do. I totally agree with you. Use of electricity to heat homes is a mystery to me, especially when the electricity is produced by burning fossil fuels at Holyrood. I am not exactly sure what is left of the initial justification of MF but I hope things work out much better than I currently fear.

      Good luck with your mitigation efforts – I am sure that many more of your neighbours will be looking for cost-efficient solutions in the future to reduce electricity consumption.

    • Bernard, thank you for your response. That ".. Quebec and NB would charge you for the privilege of using their network", is a status quo, and regrettable circumstance. I have long held the view that the mixed provincial ownership of the power grid in Canada is the problem needing fixing. With a public ownership power grid model, the ratepayers , (public good), are better served. An Atlantic Grid, based on "smart grid" technology, is long overdue, and the respective provinces; Quebec, NB, NS and NL should get this resolved, or the abusive protected markets, political animosities will continue to serve special interests rather than the common good. The Atlantic grid portion, including NL should be considered for maximin efficiency, as just a branch of the North American power grid. This is where Williams and associates got it wrong. They persisted in a "tail wagging the dog" philosophy.

    • Robert, you raise a number of interesting points. However, electricity transmission is very expensive. Of the close to $12B cost of Muskrat Falls, more than half is transmission costs. It seems reasonable to me that users should pay for electricity transmission. That would normally be the case even if one were to create a national grid.

    • Agreed. Should not the grid be public and non-profit? Run it as we do the highway system, financed under public infrastructure protocol. Muskrat, Churchill, James Bay, and Romaine, Municipal CHPs, etc. are just regional private generators of power, (Same as private solar/wind thermal, etc.). Think of the benefits.

    • The transmission network is already public and non profit, but is under provincial control. As an economist I would say tthat the efficient solution would be to have the users of highways pay for them. It would be the same for electricity. The cost related to the transmission of electricity in Quebec for example is exorbitant compared to Ontario for example. Are you saying the federal government should pay the transmission costs while HQ keep profits from electricity generation? Doesn't seem very fair to me. In my humble opinion a national grid is a possible solution but it should be financed by users as a function of the intensity of use. In my opinion the issue is more complicated than it might appear at first.

    • I would give the provinces , (QU, NB, NS, NL), the first opportunity to work out a power grid Commission, to build, operate an Atlantic Regional Grid. This would be a major National achievement and would show the way for similar Regional Energy Grids, (Western, BC AB), (Central, SK MA), (Eastern, ON QU). QU with its geographical and hydro resource advantages needs to step up to a full leadership role.

  23. We need Holyrood power for only 4 to 6 months, and 300Mw then can only offset only half of Holyrood at times , but maybe 80 percent on average. So lets say we offset 80 to 90 million of oil. With committments to Nova Scotia, for other months this goes to Nova Scotia, but no revenue from them, whether via the Maritime Link of via NB. Meanwhile we lose the 70 million this presently brings in from the Upper Churchill. SO we save 10 or 20 million. But if there is a surplus once Muskrat goes on stream, and at times not needed by Nfld or NS in summer, then there may be sales via the Mritime link or through Quebec, if their system can handle it. They are very restricted on their capacity from CF already, and a new line through Quebec was costed at 3 billion. Capacity is restricted between NS ans NB also. So no gravy train it seems to me…..not for Nfld. And as to wheeling power through Quebec, this has been done for years, for transmission fees……so may be some mminor improvements…..maybe……don hold your breath Robert. Others might comment on this. Meanwhile, in winter, how are we to meet Nfld needs in winter (at times 500 MW thermal) even with 300 MW from CF, and committments to NS also of 160 MW, before MF is finished………oil burning at Holyrood of course. Where is the mitigation, boondoggle last year, boondoggle now, boondoggle in 2021, and Ball keeps smiling. …….Marshall not so much.