Newfoundland and Labrador Offshore Arrangements

• Newfoundland and Labrador currently receives offset payments under the 1985 Atlantic Accord and the 2005 Offshore Arrangement. These payments are separate from the Equalization program.

The 1985 Atlantic Accord

• The 1985 Canada-Newfoundland Atlantic Accord facilitated the development of the oil and gas reserves off the coast of Newfoundland and Labrador. In addition to allowing the province to tax these resources as if it were the owner, the Accord provided Newfoundland and Labrador with transitional protection, for a 12-year period beginning in 1999-2000, from large reductions in total Equalization that would otherwise have resulted once the province's offshore revenues began to grow.
• The 1985 Accord offset payments are calculated according to a formula set out in federal legislation. This formula has two components:
• The offset floor component guarantees Newfoundland and Labrador a certain percentage (at least 85%) of its total Equalization and offset floor entitlement for the previous year.
• The phase-out component provides additional protection against declines in payments, by guaranteeing a certain percentage of year-over-year declines in total Equalization and offset floor payments. This percentage gradually declines over the 12-year period.

The 2005 Offshore Arrangement

• On February 14, 2005, the Government of Canada reached an arrangement with Newfoundland and Labrador that builds on the 1985 Accord and, for a time-limited period, provides 100 per cent protection from Equalization reductions resulting from the inclusion of offshore resource revenues in the Equalization program. This was in recognition of the unique economic and fiscal challenges facing the province.
• The 2005 Arrangement provides the following benefits to Newfoundland and Labrador:
• 100 per cent protection from Equalization reductions resulting from the inclusion of offshore revenues in the Equalization program for eight years (from 2004-05 to 2011-12) as long as Newfoundland and Labrador receives Equalization payments. These payments are net of payments made under the 1985 Accord.
• An upfront payment of $2.0 billion, made in 2005, to allow the province immediate flexibility to address its unique fiscal challenges. This is a pre-payment in respect of the new 100 per cent protection.
• In addition, this arrangement provides for a further eight-year extension if the province receives Equalization in 2010-11 or 2011-12 and its per capita debt servicing charges have not become lower than that of at least four other provinces.
• During the second eight-year period, if the province no longer qualifies for Equalization, it would receive transitional payments for two years:
• In the first year, the transitional payment would equal two-thirds of the offset payments it received the previous year.
• In the second year, the transitional payment would equal one-third of the offset payments the province was entitled to the last year it received Equalization.
• The province could requalify for offsets and transitional payments if it again became eligible to receive Equalization payments.

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