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Newfoundlander and former federal Tory finance minister John Crosbie thinks the current Conservative government is making a big error in its handling of the offshore resources issue.

"I'm a Conservative and I intend to continue to support the Conservative government for many reasons, but here they've made a mistake," Crosbie told Â鶹´«Ã½net's Mike Duffy Live on Tuesday.

Crosbie helped push the original Atlantic Accords signed back in 1985 and 1986 when he was a cabinet minister in the Progressive Conservative government of then-prime minister Brian Mulroney. The previous Liberal government had won a court battle entitling it to control of offshore resources.

However, the original accords with Newfoundland and Labrador and Nova Scotia still didn't allow the provinces to fully benefit from the development of their offshore oil and gas resources, he said.

Then-Liberal prime minister Paul Martin formally updated those accords in 2005 and made the provinces the principal beneficiaries, he said.

The current Conservative budget -- which forces the provinces to maintain the old equalization formula and the accords or the new, enriched formula without them -- changes the arrangements of those accords without the consent of the provinces affected, Crosbie said.

Roland Martin, a former N.L. deputy minister of finance, and Crosbie wrote the following in commentary published Tuesday in The Globe and Mail:

"Those who tell us that Newfoundland and Nova Scotia should stop complaining that the new deal contains a fiscal cap demonstrate a profound lack of understanding for the history of the 1985 Canada-Newfoundland Atlantic Accord and the 1986 Canada-Nova Scotia Offshore Petroleum Resources Accord. Worse, they mislead Canadians by implying the provinces are greedy and want to continue getting equalization once they reach the national average fiscal capacity.

"Quite the contrary. The 2005 offshore agreements do not get renewed in 2011-12 if either province is no longer receiving equalization. Newfoundland's equalization payments have already declined from a peak of $1.2-billon in 1999-2000 to a forecasted $477-million in 2007-2008. Recent studies estimate it may no longer get equalization by 2009-2010."

Crosbie told MDL: "It's not a question of Newfoundland and Nova Scotia having their cake and eating it too. We haven't had any cake yet."

Since N.L. might not be receiving any equalization in two or three years, Crosbie said he didn't understand why Ottawa pushed through this change now.

This situation is creating a major political problem for the Conservatives in Atlantic Canada, he said.

"We've been waiting almost 20 years to get our hands on some real economic development," Crosbie said. "We can taste it, and suddenly the cup has been snatched away again."

During a Senate hearing on the government's budget implementation bill, Sen. Bill Rompkey of N.L. told Finance Minister Jim Flaherty: "This is a window of opportunity for us, Mr. Minister. This is a life preserver for us or we're stuck; we're stuck where we are forever."

Flaherty said the point of the changes is that a province "that is a non-recipient of equalization should not have a fiscal capacity that is lower than a province that is receiving equalization."

Fiscal capacity means the amount of money that a province can raise from its taxpayers. Richer provinces obviously have more fiscal capacity.

In their commentary, Crosbie and Martin wrote: "Don't forget that in the 1950s and 1960s, Alberta received both equalization and its oil and gas revenues until its economy had sufficiently developed."

N.S.'s MacDonald

Nova Scotia Premier Rodney MacDonald told the committee that have-not provinces are only asking for their fair share from federal transfer payments, and no more.

He wants the bill amended to ensure that Nova Scotia remains the full beneficiary of its accord.

Ottawa subsidizes Ontario automakers, the Quebec aerospace industry, Prairie farmers and British Columbia's Pacific Gateway initiative, he said.

"All of these economic development agreements are essentially federal transfers," MacDonald said.

"For that reason, they are not subject to clawbacks. But the 2005 (Atlantic) accord, also a transfer, is clawed back in the 2007 budget. In fact, the 2005 accord is the only transfer in federal history that we are aware of that is clawed back. It comes down to an issue of fairness."
 
On MDL, MacDonald rejected Flaherty's fiscal capacity argument. "Our fiscal capacity is about 75 per cent (of the average). Ontario's is about 106," he said.

The accord accounts for the possibility of Nova Scotia becoming ineligible for equalization, so that point is moot, he said.

Flaherty said he's still negotiating with Nova Scotia, which is unlikely to move into 'have' status during the life of its accord, to ensure it will not lose money whichever option it chooses.

Another part of the dispute, in terms of making federalism work, is simply having the agreement honoured, MacDonald said.

"How can we go into any arrangement in the future with the federal government ... and expect it to be upheld?"

Some Atlantic senators have vowed to defeat the bill, but observers see it as likely to pass with the backing of Ontario and Quebec Liberal senators plus Conservative ones.

With files from The Canadian Press