N.L. says it will take Ottawa to court over equalization formula

Justice Minister John Hogan and Finance Minister Siobhan Coady speak with reporters Thursday at Confederation Building. (Darrell Roberts/CBC)

Two Newfoundland and Labrador cabinet ministers said Thursday the province will take the federal government to court to try to push a change in the equalization formula, arguing the province is being cut out of potentially billions of dollars in the long term.

Finance Minister Siobhan Coady and Justice Minister John Hogan said the province decided to head to the courts when the federal Liberal government extended the current formula to 2029, effectively rejecting a series of pleas for change.

"Our concerns have not been addressed. They have been dismissed," Coady told reporters Thursday. "Fairness for all citizens — as currently designed, equalization does not achieve this objective for the people of Newfoundland and Labrador."

Because equalization — the federal program that provides recipient provinces with cash to allow for a fair level of services across the country — accounts for the role of oil in gross domestic product, Newfoundland and Labrador has not received equalization since 2008.

The province announced earlier this year that it will receive $218 million in equalization in the next fiscal year, but Coady said they're losing out on hundreds of millions more under the current formula.

Hogan told reporters he hopes the issue can be resolved without a trial.

"Going to court is a last option," said Hogan, who is also the province's attorney general.

"Settlements reached out of court are always preferred, and I have always advised my clients to consider out-of-court settlements."

Hogan said Coady and Premier Andrew Furey have been advocating for changes "to make the formula fair."

Hogan said documents will be filed in Supreme Court of Newfoundland and Labrador in the coming weeks.

"The federal government will put forward their position, and we look forward to hearing what they have to say," he said, adding notice has also been given to other provinces who may want to make submissions.

In a letter to federal Finance Minister Chrystia Freeland last June, Furey said the formula does not account for the challenges that Newfoundland and Labrador has serving a small population over a vast terrain.

Furey noted in his June 1, 2023, letter that Newfoundland and Labrador is "geographically nearly three times the size of the Maritime provinces combined, but with roughly only one-quarter of the population."

"While the Maritime provinces have received $45 billion in equalization payments in the last 10 years, N.L. has received $0."

He also asked for the removal of what's called the fiscal capacity cap.

Coady said the cost that comes with provincial resource revenues, like the development and regulation of wind energy, isn't considered in the formula, which she said penalizes the province for working to diversify the economy. The formula's use of resource revenue is also inconsistent, she added.

"In one part of the formula, only a portion of resource revenues in included. However in another part of the formula, 100 per cent of resource revenue is included to determine the fiscal capacity cap on equalization payments," Coady said.

CBC News has asked Freeland's office for comment.

Too little, too late?

Members of Newfoundland and Labrador's opposition parties say the fight for a new formula might be too late.

Jordan Brown, the NDP MHA for Labrador West, said the party supports the decision to take Ottawa to court but they weren't consulted and found out about the challenge at the same time as the media.

He says he wonders why the challenge is being made now.

"This government's been in since 2015," Brown said. "This should have been taken care a long time ago."

NDP MHA Jordan Brown questions the timing of the challenge, saying the problems with equalization have been well known for years. (Darryl Murphy/CBC)

Brown said the timing of the announcement could be an attempt to boost the party's popularity following losses in consecutive byelections, comparing Thursday's announcement to former premier Danny Williams's frequent clashes with Ottawa in the 2000s.

"When things are low and you're slumping in the polls, it seems to be the go-to is to pick a fight with Ottawa."

In a news release Thursday, Progressive Conservative Leader Tony Wakeham said the challenge is an attempt to distance the government from Prime Minister Justin Trudeau.

"We have always supported the fight for fairness on equalization, but the Furey Liberals have woken up a bit late. After refusing to fight for fairness all those years when they had the chance, they are now pulling a desperation move at their 11th hour," said Wakeham.

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