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					                           Harnessing the Potential
             An Economic Revitalization Plan for Atlantic Canada


Introductory Message from Stephen Harper:


“From the days of my first boyhood visits to my grandparents’ Atlantic home, I have
always been fascinated by the proud history of the region and frustrated by its untapped
potential. Atlantic Canadians – beginning with my father – have been at the centre of my
life. Unfortunately, all too often, those friends, associates and family members have left
the region to seek opportunities elsewhere.


“I believe those opportunities can develop in Atlantic Canada as richly as anywhere else
in the country. The values of Atlantic Canadians are those of the pioneer, the builder, and
the explorer. Its people know that success and survival depend on hard work, community
and common sense. These are the qualities so scarce in official Ottawa, of which we
need more throughout the country.


“Unfortunately these qualities of Atlantic Canadians are being ignored and undermined by
our federal government. Officially branded as a “have not region” that will always be one,
federal policy has taken the wrong approach. The federal government has lacked a
commitment to fairness and success, and has failed to work with the people of the region
to find the best solution to economic prosperity.


“I hope these policy ideas will serve as a first step to setting things right.”


Stephen Harper, M.P.
Conservative Party of Canada Leadership Candidate
BACKGROUND


Politics is ultimately about making policy choices, of developing and articulating
alternatives. It is about the policies appropriate for any region or country to achieve its
potential.

In the 1960s, economic growth in Atlantic Canada was higher than in Canada as a whole,
and unemployment rates had been falling toward the national average. The massive
Liberal policy of activism in the 1970s – which has been deepest and most prolonged in
Atlantic Canada – resulted in the region reversing course and losing ground.

This disturbing reversal has persisted. A CD Howe study showed that compared to
American border-states, Canadian provinces have wider disparities in income and
employment. While poorer American states have largely caught up to the national
averages, the same cannot be said for poorer Canadian regions.

It is time to admit that past approaches to regional development in Atlantic Canada have
been ineffective, and that new approaches are needed. This paper lays out six proposals
to harness the full potential of Atlantic Canada.




                                               2
POLICY APPROACHES



Expanding the Economy: Tax Relief, not Corporate Welfare


 In his 2002 leadership race, Stephen Harper proposed redirecting inefficient corporate
 subsidies – whether in Atlantic Canada, in Ontario, in Quebec or in the West – to lower
 taxes. He pointed out in a February 2002 speech in Halifax that eliminating such
 subsidies could allow Ottawa to reduce corporate tax rates by at least 10 percent.


 A recent CD Howe Institute study reports that since 1988, the federal government has
 transferred nearly $4 billion to businesses, governments and non-governmental
 organizations through the Atlantic Canada Opportunities Agency (ACOA). That study
 repeated the conclusions of many others when it says of these types of grants:


    Grants often appear to be directed to infra-marginal investments – projects which
    would have been undertaken even in the absence of government support. As well, the
    grants create more demand for land and capital components, resulting in higher rents
    and capital good prices, without generating the new activity that was originally
    intended. Even when grants spur truly new investment, little evidence can be found to
    support the conclusion that such projects can be made sustainable and profitable in
    the long run. At worst, inefficient businesses favoured with grants drive out competing
    profitable businesses that are not given the same assistance. Because of the cost of
    raising taxes to fund grants, the lack of benefits would be a very serious concern to
    taxpayers who have to ultimately fund the activities. (Jack Mintz and Michael Smart.
    December 2003 Brooking No Favorites: A New Approach to Regional Development in
    Atlantic Canada. Toronto: CD Howe Institute.)


 The CD Howe Institute suggests redirecting these inefficient corporate subsidies into
 lower taxes. They suggest this could be done by either reducing the general corporate tax
 rate or by introducing a broad based incentive for capital investment.


 Stephen Harper will eliminate corporate subsidies in all regions of the country and
 redirect the money to lower taxes
 Stephen Harper will consult with Atlantic Canadians on whether the best approach
 would be to lower the general corporate tax rate, or introduce a broad based tax
 credit for capital investment




                                                 3
Expanding Revenue Capacity of Atlantic Provinces: Full Access to Non-Renewable
Resource Wealth


 A recent study by the Atlantic Institute for Market Studies (AIMS) points out that when the
 governments of Atlantic Canada receive revenues from their non-renewable resources
 (principally off-shore oil and gas revenues), the federal government reduces their
 equalization payments by up to 100 percent of their new revenues. This discourages
 investment in what is fast becoming one of the key routes to growth in Atlantic Canada –
 development of natural resources.


 When Alberta discovered oil in the 1940s and 1950s, no such clawback existed. Prior to
 its discovery of oil, Alberta, too, was a “have-not” region that received equalization type
 grants from the federal government. It is simply unconscionable that Paul Martin is
 crippling development in Atlantic Canada through the punitive equalization program.


 Non-renewable resources are one of the most promising avenues for real growth in
 Atlantic Canada. Developing these resources provides a critical short term investment for
 longer term growth. When the federal government taxes these revenues away dollar for
 dollar, however, they jeopardize the opportunity to establish longer term growth.


 According to AIMS, removing non-renewable resources from Atlantic Canada while also
 moving to a ten province standard (a key demand from Atlantic Provinces) would mean
 very little additional cost to the federal government, and fairly minor adjustments for most
 provinces. These changes could be phased in to minimize any reductions to recipient
 provinces. More importantly, removing non-renewable resources from equalization will
 provide a powerful opportunity for Atlantic Canada to increase its long term, sustainable
 growth.


 Stephen Harper will remove non-renewable resources from Equalization so that
 Atlantic provinces would have greater access to these revenues. This change
 would be phased in to ensure that recipient provinces did not see reductions in
 equalization payments from what they would otherwise have received.
 Stephen Harper supports increasing provincial control over natural resources,
 including offshore resources.




                                              4
Reinvesting in Atlantic Infrastructure: Direct Funding through Gas Taxes


 Downloading by Paul Martin to the provinces and municipalities is reflected in the quality
 of our municipal infrastructure as well as our health and education system. During Paul
 Martin’s tenure as Finance Minister, he cut a cumulative $16.3 billion from health and
 social transfers to the provinces. Accounting for inflation, the provinces lost $25.1 billion in
 revenues.


 Under the Liberal infrastructure program, the federal and provincial governments control
 funding decisions and municipalities are left to make long, unnecessary submissions to
 obtain funding. This program puts more power in the hands of federal politicians rather
 than where it belongs – at the municipal level. Across the country, Canadians are familiar
 with examples of patronage and favouritism from bocce courts in Toronto to canoe
 museums in Shawinigan and elsewhere. Meanwhile, municipal priorities such as new
 roads and sewer upgrades are not occurring.


 More recently, Paul Martin has been crossing the country using the rhetoric of the “New
 Deal for Cities.” Yet behind the rhetoric has been consistent waffling and flip-flopping on
 what this new deal means for our infrastructure deficit. Further, rural Canada has been
 left out of the entire debate on a “New Deal for Cities”. For the past ten years, the Liberal
 government has neglected rural Canada in virtually every major federal policy decision.
 Canada’s towns and villages have suffered under Liberal policies that neglect rural
 Canada. Two major policy initiatives, Kyoto and the gun registry, demonstrate a distinct
 lack of understanding or compassion for the needs of rural Canada.


 Stephen Harper believes that the current approach does not work and a better deal can
 be achieved with the provinces and the municipalities. Canadians expect us to work
 together to provide concrete solutions to their everyday problems. They do not want to
 see their hard-earned tax dollars wasted as has been the case under the Liberal
 government.


 Stephen Harper believes that provinces and municipalities need access to revenues to
 address the infrastructure deficit. Long before Paul Martin even heard of a “New Deal,”
 Conservative MPs have been promoting a transfer of gas tax revenues for infrastructure.
 The time to act is now.
 Stephen Harper will enter into an agreement with the Atlantic Provinces to vacate
 between 3 to 5 cents per litre of gasoline taxes conditional on this new money
 being directed towards infrastructure. As the economy grows, this will be an
 expanding source of revenue for the provinces and municipalities.
 Stephen Harper will retain federal responsibility for border infrastructure and
 enhance federal infrastructure such as ports, airports, national highways and
 railways.
                                                5
Protecting Fisheries Responsibly: New Co-Management Agreements with the
Provinces


 The recent Newfoundland and Labrador Royal Commission on Renewing and
 Strengthening our Place in Canada contained a wide variety of recommendations that
 would, if adopted, not only strengthen the place of Newfoundland, but all of the Atlantic
 region, within Canada. As Leader of the Opposition, Stephen Harper prepared a formal
 response to this commission that agreed with many of the recommendations – some of
 which are repeated in this document.


 One of the recommendations of the Commission was strengthening the role of the
 Atlantic Provinces in fisheries management. For the sad fact of the matter is that fifty
 years of federal mismanagement has wiped out five hundred years of conservation.


 Stephen Harper heartily agrees with the Commissioners that the federal government has
 much to answer for in being party to the near destruction of a fishery that had sustained
 Newfoundlanders and Labradorians for five hundred years.


 Stephen Harper agrees that the Atlantic Provinces at the very least co-manage the
 fishery. It is only through meaningful provincial involvement can responsive and
 sustainable policies develop. To be sure, the federal government has a significant role to
 play in terms of providing the scientific evidence for policy makers. However, as the
 consequences of fishery policy decisions rest most heavily on the communities involved,
 they, through the provincial government, should have a critical voice in key resource
 allocation decisions. The Nordic states provide several examples of community-based
 fishery management worthy of serious study.


 Stephen Harper would also accept the recommendation of the Commissioners for a
 substantial reform of the North Atlantic Fisheries Organization. If progress cannot be
 made in that form, a Stephen Harper government would reserve the right for unilateral
 action in the Nose and Tail of the Grand Banks.


 Stephen Harper would expand the Commission’s call for a “New Partnership
 between the federal government and Newfoundland” to a “New Partnership
 between the federal government and the Atlantic Provinces.”
 Stephen Harper would undertake to negotiate agreements between the federal and
 provincial governments for co-management of the fisheries.
 Stephen Harper would work to substantially reform the North Atlantic Fisheries
 Organization to better protect our fish stocks. Failing that, he would reserve the
 right for the federal government to take unilateral action to protect those stocks.


                                              6
Expanding free markets for Atlantic hydro-electricity: Upper Churchill Falls and
beyond


 Considerable irony attends the fact that Newfoundland and Labrador may not have
 needed equalization payments over the last twenty years if successive governments had
 upheld Newfoundland and Labrador’s right to trade across provincial barriers. This refers,
 of course, to the electricity generated at the Upper Churchill Falls that the then Liberal
 federal government forced Newfoundland and Labrador to sell to the province of Quebec
 at a fraction of its true value.


 Stephen Harper has long argued in favour of freeing up inter-provincial trade from the
 myriad of self-defeating protectionist measures. As part of that commitment to free
 internal trade, Stephen Harper supports re-examining the Upper Churchill Falls
 agreement. That said, Stephen Harper does agree with the above mentioned
 Newfoundland and Labrador Royal Commissioners that “Issues related to the Churchill
 Falls development should not be directly linked with negotiations to develop the Gull
 Island site.”


 Stephen Harper notes the Commissioners’ call for the development of the Gull Island site.
 The North American Free Trade Agreement, originally opposed by the Liberal Party
 including Paul Martin, now allows Newfoundland and Labrador to “wheel” its power into
 the New England states thus providing the province with the bulk of the benefits.


 A Stephen Harper government would strive to ensure the “wheeling” of Labrador
 power across the country and into a continental electricity grid. Electricity, no less
 than oil and natural gas, should have access to markets under fair contractual
 terms.
 Stephen Harper is committed to measures to combat genuine air pollution. That
 includes a commitment to support hydro-electric power generation – the cleanest
 energy source available.




                                             7
Supporting Atlantic Heritage and Economy by Enhancing our Military


 In a time of growing international instability, Canada’s military is inadequately equipped,
 under funded and short of personnel. A crisis in defence exists. Canadians are proud of
 the men and women who serve in the Canadian Armed Forces, but are increasingly
 uneasy, or even embarrassed, by the government’s continued neglect and politicization of
 our national defence capabilities.


 Since the Chretien-Martin Liberal government took office in 1993, they have cut over $20
 billion real dollars from the defence budget. These cuts, that have hit particularly hard in
 Atlantic Canada, must not only be stopped, they must be reversed. Stephen Harper
 believes that we must adopt the target of bringing our defence spending in line with the
 NATO average. This includes new expenditures to replace equipment, hire additional
 personnel, and improve our training capacity.


 Atlantic Canada plays a large role both in procurement – particularly for our Navy – and in
 being an important location for our remaining bases. A strong commitment to rebuilding
 our national defence will therefore provide a needed boost, both in the short and longer
 term, to the Atlantic Canada economy.


 Stephen Harper will immediately increase the defence budget by $1.2 billion over
 the modest increases announced in the 2003 budget, bringing the immediate
 increase to $2 billion per year.
 Stephen Harper will, over the longer term, bring Canadian defence spending, as a
 percent of GDP, into line with the NATO average.




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