During the good years, the money was great and remittances flowed in waves back to Newfoundland, boosting incomes and allowing people to build homes, buy pickup trucks and have the prosperous lifestyles most Canadians crave.
Unfortunately, the east-west linkages went deeper. When politicians in Newfoundland hit their own gusher in offshore oilfields like Hibernia, they looked to Alberta for guidance. What to do with the billions in windfall royalty revenues that in 2008 turned Newfoundland and Labrador into a “have” province for the first time after decades of equalization payments from Ottawa?
Sock it away for a rainy day like those boring Norwegians? Hell no. We’ll have a big party like our buddies in Alberta.
At one point in the middle of the last decade, the Newfoundland government was swimming in revenue, collecting money from royalties, equalization payments and the Atlantic Accord all at once, according to Russell Williams, an associate professor of political science at Memorial University. As much as 30 per cent of revenues came from royalties.
“Most of the money went into increased spending and tax cuts,” said Williams, adding that Newfoundland tried to emulate Alberta and Saskatchewan by becoming a low income-tax jurisdiction. Spending shot up on things like infrastructure and pay rises for public sector workers. The province even started to give out $1,000 baby bonuses to boost low fertility rates.
Taxes have been raised across the board; the HST has been hiked to 15 per cent from 13 per cent, the gasoline tax is up 16.5 cents per litre and the province is introducing a highly regressive “deficit reduction” income tax levy that will cost $300 for a taxpayer earning $25,000 a year. Public servants will be laid off. Half the province’s libraries will close. Those $1,000 baby bonuses are long gone.
It's a repeat of the Alberta saga. There were other ways to deal with the boom. But they were paths less -- in fact, they are seldom -- taken. There is a very old lesson here.
How to botch an oil boom, Alberta-style: Lessons from Newfoundland – iPolitics (external - login to view)