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         In an op-ed piece published in the Globe and Mail on September 10, the Honourable John Crosbie claimed that the Government of Canada failed to honour "the original intent of the two principal offshore accords" signed in the 1980s by the Government of Canada and the provinces of Newfoundland and Nova Scotia. Mr. Crosbie also claims that "This is not about changing the national equalization formula to squeeze more funds...", even though the entire logic of his arguments supposes that such a change was contemplated at the time the accords were signed.

         I want to set the record straight by demonstrating that these claims are wholly without foundation. The Government of Canada has indeed fully respected both the letter and the spirit of these commitments. The accords do indeed make Newfoundland and Nova Scotia the "principal beneficiaries" of offshore development since they provide them with 100% of offshore oil and gas royalties. Furthermore, both the laws of Canada and the statements made at the time clearly show that it had always been the intent and understanding of the parties to these accords that the revenues involved would be taken into account in calculating Equalization. Finally, the Chrétien government has already gone further than any government in making offshore oil and gas development financially advantageous to the governments of Nova Scotia and Newfoundland.

         Mr. Crosbie is correct in noting that it was the Trudeau government which, in 1982, signed the first offshore accord with the Nova Scotia government which was subsequently enacted by Parliament in 1984. That accord granted Nova Scotia the same treatment of offshore oil and gas as that enjoyed by other provinces for these same resources on land, giving it 100% of offshore oil and gas royalties until such time as its fiscal capacity exceeded 110% of the national average, after which these royalties were to be shared with the Government of Canada. This provision was subsequently changed in 1986 to enable Nova Scotia to continue to receive 100% of offshore oil and gas royalties regardless of its fiscal capacity.

         As noted by Mr. Crosbie, an accord similar to the Nova Scotia one was concluded with Newfoundland and enacted by Parliament in 1985.

         At the time they signed these accords, all the parties involved understood full well that the Equalization program would take offshore revenues into account. These accords did, however, grant Nova Scotia and Newfoundland transitional payments (for up to 10 years in the case of Nova Scotia and up to 12 years in Newfoundland) to partially offset the decline in Equalization that would result from the growth of offshore revenues. Both provinces are still eligible for transition payments under their respective accords.

         It is therefore incorrect to suggest that it was never the intent of the accords to have Equalization payments decline as offshore oil and gas revenues came on-stream. Mr. Crosbie quoted a statement made in the House of Commons in 1984 by the then parliamentary secretary to the Minister of Energy to the effect that the agreement "ensures that Nova Scotia will receive the lion’s share of offshore petroleum revenues".

         However, Mr. Crosbie failed to quote his statement a few paragraphs later that "in accordance with the principle upon which the equalization scheme is based, equalization payments to Nova Scotia will be reduced as the province’s fiscal capacity increases because of offshore petroleum revenue".

         Indeed, since 1982 – and, therefore, at the time all of these accords were signed – the laws of Canada have required that all natural resource revenues be taken into account when calculating Equalization transfers to provinces. The Mulroney government, of which Mr. Crosbie was a member, in no way modified this aspect of the Equalization program.

         Shortly after coming to power in 1993, the Chrétien government implemented a change to the Equalization program that made the treatment of offshore oil and gas royalties more advantageous to Nova Scotia and Newfoundland than under the accords. This "generic solution" provision in effect shelters 30% of these royalties from being taken into account when calculating Equalization.

         Thanks to this change, the governments of Nova Scotia and Newfoundland have received – and will continue to receive – significantly greater benefits than those envisaged at the time the original accords were signed.