Wednesday, July 12, 2006

Harper Open to New Equalization Formula?

Harper did an interview with the Calgary Herald and I found these comments on including resources into equalization curious:
Q: Mr. Harper, there is some unease in Alberta that you seem to have distanced yourself from what was once a very strongly held position that resource revenues shouldn't be part of the equalization formula. During the campaign for instance, you were recorded as saying a new equalization formula should exclude non-renewable resource revenues. Now about a month ago you said, that was just a preference. So, what are the influences on you that have caused you to reconsider that?

A: Well, first of all, the details of the calculation on the equalization formula are very complicated. And, as you know, they're the subject right now of considerable controversy among the provinces. As part of our efforts to address the fiscal imbalance we're trying to create, seeing if it isn't possible to create some kind of consensus.The Council of the Federation brought down a report. My recollection is that they advocated the inclusion of resource revenues. The O'Brien Commission advocated 50 per cent inclusion of all resource revenues, renewable and non-renewable, and different provinces have different positions. So let's just say that we're right now saying that we're open to listening to different points of view on equalization and other issues and the government will make its own decisions on that as soon as it's feasible. But we would like to get a consensus among the provinces if that's possible.

Q: If you don't get a consensus you will make your own decisions?

A: We won't have a choice. We have to have the new equalization formula in place I believe at the end of the next fiscal year. So at some point we will have to move forward with our own proposal.

Q: Resource revenues are notoriously volatile, which is why they have always been kept out.

A: Well, there's been two ways of dealing with the volatility. Well first of all, that's actually not true. They're actually in now, resource revenues are in the calculation now. The way they have been excluded is indirectly. We're on a five-province formula. So what has happened is Alberta has been excluded from the calculation. It's actually not resource revenues that have been excluded, it's Alberta that has been excluded from the calculation. So, as I say, resource revenues are today included in the calculation.

The fact that Harper cites two reports that advocate including resources into the equation seems to imply he is increasingly open to the idea. In addition, Harper also argues that resources are already in the equation, so this subject isn’t necessarily new, just the provinces involved. The fact that Harper made these comments, in Calgary of all places, suggests we may see a surprising turn in philosophy.

Harper is no danger of losing seats in Alberta. This fact provides a certain amount of leeway, as Harper tries to expand his base with an attractive equalization formula. Would Harper be willing to “sellout” Alberta to curry favor in other regions? Politically, Harper can afford to make this move because his opponents aren’t even on the radar. I read Harper’s above comments as an admission that he is considering this exact strategy and it is actually quite shrewd.


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