10/02/2011 04:05 EDT | Updated 12/01/2011 05:12 EST

NDP oil surtax is a political hammer for Tories as N.L. election heats up

ST. JOHN'S, N.L. - The party poised to challenge for Opposition status in Newfoundland and Labrador would pay for its election promises with a surtax on offshore oil royalties — a move some say could risk future investment.

Polls have suggested the New Democrats have a historic shot at finishing second to the Progressive Conservatives in the vote Oct. 11 if Liberal support slides.

But NDP Leader Lorraine Michael raised eyebrows with plans to pay for about half of the $142 million needed for the party's health and social spending platform by charging oil companies a three-per-cent surtax on offshore royalties.

She concedes that such a move could require rewriting offshore deals that were months or years in the making. Michael has also said she would impose legislation if necessary to ensure the province gets the oil dollars it deserves.

Tory Leader Kathy Dunderdale chided Michael during the only leaders debate last week, saying: "We honour our deals."

Michael later told reporters that she believes offshore contracts can be renegotiated without legal challenges.

"I believe it can be done. And I disagree with the premier when she sort of alluded to court cases. I don't think there will be court cases."

Michael said the party will seek a legal opinion on the matter. Asked why she did not do that before releasing her platform, she said the surtax is only an issue if she becomes premier.

"We won't do it until we're government."

At dissolution, the Tories had 43 seats compared to four Liberals and one NDP seat held by Michael.

The Liberals started the three-week campaign with a $600,000 debt and a sudden change in leadership. Former provincial Liberal cabinet minister Kevin Aylward replaced Yvonne Jones, who's recovering from breast cancer.

The party has struggled to attract cash and candidates, while the New Democrats have appeared to be on the upswing by comparison.

Two NDP MPs were elected last May as the Jack Layton wave that swept New Democrats to Official Opposition in Ottawa was felt in Newfoundland and Labrador.

But the notion of changing royalty rules midstream is "bad policy" that could drive away investment, said Finance Minister Tom Marshall.

"Government has the right to assess taxation," he said Friday in an interview. "But the problem is, (Michael) is going to slap a surtax on contracts that have already been negotiated and the terms and conditions agreed to.

"The whole notion of a negotiated royalty regime is certainty."

The government may have the legal authority to impose additional taxes "but there's going to be consequences for future contracts," Marshall said.

"We compete with other jurisdictions throughout the world to try to attract these oil companies to explore and invest and develop here. They've got other places where they can go."

Michael has countered that companies making big money from oil off Newfoundland won't be put off.

Robert Cadigan, president and CEO of the Newfoundland and Labrador Oil and Gas Industries Association, did not want to comment specifically on NDP policy.

But he said in general terms, the province needs to send a good-faith message to companies investing billions of dollars to drill for oil deep in the rough North Atlantic.

Related revenues sent the province soaring to so-called have status and now account for about one-third of government spending.

"It's really the goose that laid the golden egg," Cadigan said in an interview. "It's a very critical industry to the people of the province. It creates over 10,000 jobs directly and indirectly."

Offshore oil production has peaked, he said.

"We need further investment in order to keep the levels of production up, which will sustain royalties and so on. And we also have to attract additional explorers.

"Certainty is a really critical issue to the industry," Cadigan said. "They need to understand what the royalty regime is going to be."

Christopher Dunn, a political scientist at Memorial University, said the New Democrat surtax proposal may appeal to disaffected voters. But it will also be a political hammer for the Tories as the campaign heats up.

"They will try to beat back the NDP by paying attention to this as a wedge issue and trying to portray them as irresponsible, impractical socialists."

That tactic could be especially effective in oil-rich ridings in and around St. John's where New Democrats hope to gain ground.

"It's a little bit dangerous for the NDP at this point because it's going to be a focus," Dunn said. "They'll have to do some fancy dancing."