The Ottawa Citizen
Fri Aug 14 2009
Page: A13
Section: News
Byline: Thomas J. Courchene
Source: Citizen Special
The Harper government recently released “Canada’s Northern Strategy,” anchored on the four pillars of sovereignty, environmental sustainability, socio-economic development, and devolution. Based on research published by the Institute for Research on Public Policy(IRPP), a dedicated strategy for our North is most welcome and long overdue. In general, most Canadians are comfortable with the government’s Arctic policies and are becoming increasingly aware that all Canadians, not just those who live north of 60, have a social, cultural and economic interest in the successful development of the North.
The one pillar where there may be some anxiety is that which is concerned with devolution, especially resource devolution. Some of this anxiety no doubt arises from the rather astonishing values of per-capita cash transfers to the territorial governments under the Territorial Formula Financing (TFF), the territorial version of the provinces’ equalization program. These values (with the percentage of total territorial revenue they account for in brackets) are: Yukon — $18,166 (65 per cent); NWT — $18,704 (65 per cent): and Nunavut — $30,265 (81 per cent). Compared to the highest per capita provincial equalization payment (PEI — $2,300) the territories appear to qualify as fiscal wards of the central government and as such one must be careful when it comes to further devolution, or so the story would go.
But this interpretation would be quite misleading. The first point to note in this respect is that the territories have very high values of per capita GDP. Indeed, the NWT has far and away the highest per capita GDP ($97,923), with Alberta a distant second ($69,789). Yukon ranks third and Nunavut eighth. To be sure, while some of this relates to their high transfer level, the reality is that the NWT has a strong mineral base.
The question then becomes: if GDP in the NWT is so large why is the TFF transfer for the NWT still so high? Part of the answer is that the expenses associated with northern resource enterprises (transporting workers and machinery, capital expenditure and depreciation, infrastructure spending) are very high and, therefore, serve to reduce profits and corporate income taxes per unit of output or GDP.
The second part is that these high resource-driven per capita GDP levels do not convert to large own-source revenues in large measure because the NWT does not have a resource devolution agreement with Ottawa.
Third, the territories get precious little in income tax revenues from the many “fly in” workers in the territorial resource enterprises: rather, the “provincial” component of these workers’ personal income tax is paid to the province where they reside on Dec. 31, and one presumes that most of the spending of these fly-in workers is also undertaken in their home province. Surely, this needs some rethinking: since fly-in workers are likely to be an important permanent part of the territorial economic model, why not allow the territories to collect the territorial personal income taxes from these workers and have Ottawa and the provinces agree that these territorial taxes will be a credit against any provincial taxes owing under the existing Dec. 31 tax convention?
Given all of this, since Ottawa’s decisions ensure that the territories’ own-source revenue capacity does not benefit much from resource development, Ottawa must therefore (following TFF requirements) fill the resulting gap between a territory’s expenditure needs and its revenue means with a correspondingly higher TFF transfer. Lest one think that this is a burden on the federal treasury, data for 2004 indicate that Ottawa’s revenues from the NWT were actually larger than the value of the TFF transfer to the territory. A more complete assessment of net flows would also take into account other transfers.
Thus far the focus has been on the NWT. But the economic future bodes extremely well for all the territories. In the case of Nunavut, for example, beyond its mining potential, it is estimated that it has at least 10 per cent of Canada’s total oil reserves and more than 20 per cent of Canada’s natural gas reserves so that Nunavut’s per capita GDP could begin to approach a magnitude larger than that of the average province.
However, there is another important and complex part of northern devolution. There are aboriginal governments and land claim settlement organizations (like Nunavut Tunngavik Incorporated) within each of the publically governed territories — First Nations governments in Yukon, Inuit governments in Nunavut, and both in the NWT. For those that have signed modern treaties, the associated land claims settlements also embody resource devolution agreements.
The obvious challenge for all concerned will be to move ahead with devolution in ways that do not lead to the Balkanization of the north economically. However, for governments (public and aboriginal) to look beyond their own interests and to consider how to work collectively to contribute to the strength of the territories in particular and the North in general, the devolution agreements need to be in place.
Canadians everywhere, from the South and the North, have to come to grips with the fundamental issue: whose North is it?
Thomas J. Courchene is the co-editor of “Northern Exposure: Peoples, Powers and Prospects in Canada’s North,” published by the Institute for Research on Public Policy (irpp.org). He is a senior scholar at the IRPP and a professor at Queen’s University.