WHAT SHOULD WE EXPECT FROM OTTAWA? (Part 4)

Guest Post by David Vardy and Ron Penney

What
should we expect from Ottawa?
Part Four

GNL
has to commit itself to put its house in order, recognizing there are practical
limits. GOC will not want to write us a blank cheque. Ottawa will seek a
commitment to a three to five year fiscal recovery plan and they will demand a
say in the plan. Will we have to surrender our sovereignty in order to secure
the help we will need? Or will a commitment to balanced budget legislation at
the end of a three to five year fiscal recovery plan be sufficient?

We
have 1.38% of the population of Canada. We receive 0.947% of federal transfer
payments. Nova Scotia has 2.58% of the population and receives 4.43% of the
federal cash transfers. Nova Scotia gets $2.1 billion in equalization, while we
get none. This is the case because the equalization program is based on fiscal
capacity and operates with a lag. Our fiscal capacity has been above the
national average so we have not been meeting the threshold but this does not
mean there is not a strong case to be made for enhanced funding under both
existing program such as Fiscal Stabilization Payments and under other funding
mechanisms, designed to provide fiscal relief during the pandemic. 

We
must consider health Care. Canada Health Transfers are estimated at $565
million for GNL in 2019-20 or 18% of our expenditures. The original formula was
for 50% to be shared between the provinces and Ottawa, half in the form of tax
points and the remainder in cash transfers. We need to work with other
provinces to ensure that federal health transfers cover a minimum of 50% of the
province’s cost.

Our
health care costs are higher than those of other provinces. We have more senior
citizens and we have more people who are physically distant from provincial
health centers than other provinces. Federal transfers should take these higher
costs into account.

We
should ask Ottawa to convert its guaranteed debt in Muskrat Falls into equity
by operationalizing the Lower Churchill Development Corporation (LCDC) created
in 1978. Alternatively, the federal government could take control of Muskrat
Falls, as it did by purchasing the Trans-Mountain Pipeline.

Local
demand for Muskrat power is projected to be very small or negligible. This
project will serve the energy needs of other Canadians more than it will serve
local residents. On this basis, as a national project, the project should offer
NL Hydro access to the power on terms no less generous than those offered to
Emera Energy. The first one billion kilowatt-hours should be available to NL
Hydro at the same wholesale rate as is paid by Emera.

Beyond
that first block, power should be available at the lower wholesale rate enjoyed
by Emera. This would be fair and equitable for a national project and would
create an incentive for the power to be used both here in NL as well as in Nova
Scotia, rather than exporting it to the US at even lower rates.

The
Fiscal Stabilization Payments Program is less well known and currently involves
much less money than equalization payments. It provides financial assistance to
any province that suffers a substantial year-over-year decline in its
own-source revenues. This program appears to be a good vehicle whereby the
federal government can respond to the pandemic, but the magnitude of funds
available national would have to be substantially increased. However, it’s only
for short-term stabilization during the pandemic; no substitute for dealing
with our fundamental deficit problems. The medium and long term problems will
remain and have to be addressed by the Self-Reliant Approach.
Advisor to Premier on Economic Impacts of COVID-19

Paul Mills – Advisor to Premier on Economic Impacts of COVID-19

In
order to maintain stability over the next three years the province will need
access to financial markets. There appears to be no path forward for GNL
without either a federal guarantee or BOC intervention to buy our bonds. There
is also a risk that the cost of servicing new debt to pay off our bonds will
increase as it is unlikely that interest rates will stay at low current rates.
The limits and the borrowing rate must be decided as part of the five year
recovery plan.

Conclusion
Our
province must work together with other provinces as well as bilaterally with
Ottawa. We do have circumstances of our own which require federal support but
we also share with other provinces the enormous fiscal and economic problems
created by the pandemic and the associated collapse in oil prices. Where
possible we must make common cause. We must also build an understanding, both
among our sister provinces and with the federal government, that we are facing
extraordinary challenges.

The
next three years will be a difficult period for all of us, from a medical,
social, economic and fiscal perspective. How can we chart a course through
troubled waters? How much will we do to help ourselves and how much will Ottawa
do to help us, without setting unacceptable precedents? Is the framework we
have set forth here a viable basis for discussion as to how we can jointly manage
through the pandemic and beyond, with the help of the Government of Canada? Are
we prepared to make the painful adjustments needed and to commit the province
to a balanced budget within three to five years to maintain our status as an
autonomous and proud province of Canada?

If
we adopt the dependency model we must recognize that the federal government
will assume direct oversight of our sending. It will likely not be a formal
Commission of Government like we had from 1934-49, but rather a group of
faceless federal public servants approving every decision our elected
government proposes to make. If we take the Self-Reliant approach we are more
likely to stay in charge of our own destiny.

Ron
Penney and David Vardy


Postscript:
Below we have attached the
letter which the Telegram refused to publish:

The Telegram
has been very good to both of us and has published the many opinion pieces we
wrote both together and individually on Muskrat Falls and other public policy
issues over the past decade.
 

In the same
period, the Telegram has done an excellent job though its columnists, such as
Russell Wangersky, Pam Frampton, Bob Wakeham and Brian Jones, on Muskrat Falls,
and other important public policy issues, as has its reporters, such as Ashley
Fitzpatrick.
 

The recent
decision of the Telegram to suspend further columns from Brian Jones is not
what we expect from the Telegram, the last bastion for freedom of the press in
Newfoundland and Labrador.
 

This is not the
Telegram which we have read for many decades, the Telegram which published the political
criticism of the late Ray Guy and Harold Horwood, at a time in our history when
it wasn’t easy to publish biting satire about very powerful public figures. We
suspect that the late Stephen Herder, the last member of the Herder family to
be the publisher of the Telegram, would be appalled by this action.
 

As Voltaire
said “I may not agree with what you say but I will defend to the death your
right to say it.”
 

As retired
senior public servants we may disagree with the picture he has painted of the
public service, but there should be no sacred cows in Newfoundland and
Labrador.
 

The Telegram
has succumbed to political correctness, in deference to our powerful public
sector unions. Our only recourse is to condemn the actions of the Telegram and
to decline to offer our opinion pieces to it in the future.
 

If our union
movement supports free speech and freedom of speech it should join with us in
condemning the actions of the Telegram.
 

“Freedom of the
press” and “freedom of opinion and expression” are fundamental freedoms under
the Charter of Rights and Freedoms. We urge others to join with us in
condemning this action of the Telegram, which is the very antithesis of those
fundamental freedoms.
 

We ask the
Telegram to reconsider its position in the interest of preserving its long
standing commitment to independent and fearless journalism, in the tradition of
Ray Guy and Harold Horwood, and in keeping with the practice of the Herder
family.
 

Ron Penney and
David Vardy

St. John’s



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