$11-billion rift found on equalization: economist

A stricter interpretation of new equalization rules could widen the rift between Newfoundland and Labrador and the federal government over equalization, with billions of dollars in oil royalties at stake, according to a new independent review.

Memorial University economist Wade Locke who last week revealed that Newfoundland and Labrador stands to gain an additional $5.6 billion through the federal Conservatives' new equalization formula has recrunched his numbers.

Locke revisited his analysis after learning that theassumptions he originally used maynot be applied in Ottawa in the coming years.

"I've gone back to check into it and it required me to do some new calculations, which I've done some preliminary estimates on," Locke told CBC News Thursday.

Locke issued a statement early Friday outlining his revised findings, and said he will not comment on the political implications of his analysis. A draft of Locke's findings was circulated in political circles earlier this week.

In his new analysis, Locke found that a stricter interpretation of equalization rules as laid out in the federal budget in March could make it difficult for Newfoundland and Labrador to qualify for the Atlantic Accord after 2012.

Last week, Locke who spoke to a packed auditorium at Memorial University said that the province would receive $24.1 billion under equalization between now and 2020.

That's substantially more than the status quo of $18.5 billion, but substantially less than the $28.6 billion that Premier Danny Williams says the province would receive had Prime Minister Stephen Harper lived up to a written 2006 campaign promise to leave non-renewable resources out of the equalization formula.

Locke's new analysis, however, dramatically changes the equalization math, and exposes a much wider rift between the two levels of government. Locke said he received the clarification directly from the federal government.

If the new interpretation, which involves a complicated formula that determines fiscal capacity, is applied, then the new equalization formula will deliver about $17.5 billion or $1 billion less than the status quo to Newfoundland and Labrador between now and 2020.

That puts a gap of about $11 billion between what Williams said the province ought to receive and what the federal government may actually deliver.

'Strictly hypothetical,' Hearn says

Loyola Hearn, Newfoundland and Labrador's federal cabinet representative, said Locke's numbers are premature.

Hearn,who just last week issued a statement boasting that Locke's analysis last week proved that the federal Conservatives were not attempting to hurt Newfoundland and Labrador, told CBC News Thursday that the numbers are not definitive.

"What we're talking now is strictly hypothetical stuff, that isn't doing any of us any good, because we have no idea what figures we are talking about," Hearn said Thursday.

"If there is a problem, all I can assure you is, No. 1, we have made commitments [and] these commitments will be adhered too," he said.

"And if there is something that happens which is negative towards our province, that's where I get involved."

Williams is travelling outside the province this week and has not issued any comment on Locke's new analysis.

Williams and Harper have been locked in a rhetorical war over equalization since March, with Williams launching a national advertising campaign that cast Harper as a promise-breaker.

Harper responded in kind with a campaign launched only in Newfoundland and Labrador that criticizes Williams for not respecting facts and tells the province that it has been "blessed" by the new equalization formula.