Devolution Agreement-in-Principle: Net Fiscal Benefit
The Minister of Finance, J. Michael Miltenberger, addressed a key element of the draft Devolution Agreement-in-Principle – the net fiscal benefit that would accrue to Northwest Territories governments and residents once a Final Agreement has been reached and implemented.
Mr. Speaker, I would like to address a key element of the draft Devolution Agreement-in-Principle – the net fiscal benefit that would accrue to Northwest Territories governments and residents once a Final Agreement has been reached and implemented.
Once devolution is achieved, 100 per cent of the resource royalties that are currently paid to the Federal Government will stay in the NWT. However, our Government’s transfer payments from Canada under Formula Financing will be reduced, but not dollar for dollar. The difference represents the net fiscal benefit. The draft Devolution Agreement-in-Principle provides for a net fiscal benefit of 50 per cent of resource revenues, up to a cap.
This means that for every dollar of resource revenues received by the GNWT, 50 cents would be deducted from our Formula Financing Grant. The cap would come into effect if the net fiscal benefit is greater than 5 per cent of the Gross Expenditure Base set out in our Formula Financing arrangements, which stands in as an estimate of the GNWT’s spending needs.
The cap would amount to $61 million now, but would increase annually as the GEB grows. For example, if total royalties amount to $100 million, the net fiscal benefit would be 50 per cent of that, or $50 million. If royalties are $200 million, the net fiscal benefit would be equal to the cap. Based on the royalties actually collected by Canada from the NWT over the last 10 years, we would have reached the cap only twice. In all other years – had we finalized a Devolution agreement on the terms we have currently negotiated – the NWT would have received its full 50 per cent share of resource revenues in addition to regular transfer payments from the Federal Government.
The arrangements contemplated in the AiP are completely consistent with what the Provinces would receive under the Federal-Provincial Equalization program. Under Equalization, 50 per cent of a Province’s resource revenues are excluded from the equalization calculation, and the net fiscal benefit is subject to a cap.
Therefore, no Province receiving Equalization receives better treatment for their resources than is contemplated in the draft Devolution AiP. Newfoundland and Nova Scotia, over the years, have negotiated special, time limited, arrangements with Canada for revenues from the offshore. The draft Devolution agreement applies to the NWT’s onshore resources, which if they were in a Province, would be subject to the Equalization cap. Treatment of revenues from the offshore will be negotiated during future discussions with Canada.
The Yukon achieved devolution from Canada in 2003. Their net fiscal benefit provisions are different from those in our draft AiP, but not better. We have compared the results using the Yukon formula to the provisions of our draft AiP, under a number of NWT revenue scenarios, and the arrangements in the AiP always come out ahead.
Some Provinces, like Alberta, keep 100 per cent of their resource revenues, but this is because Alberta’s revenues are high enough that the Province is not entitled to Equalization payments, and therefore there is nothing for the Federal Government to claw back. If, sometime in the future, the royalties received by the GNWT are high enough that we don’t qualify for Formula Financing, we would also get to keep 100 per cent of resource revenues.
In the meantime, every year that passes without a Devolution agreement means that we forgo another year’s net fiscal benefit. Over the last five years, the NWT has lost $208.6 million in potential net fiscal benefit.
Finally, since we cannot know how the world might change in the future, the net fiscal benefit provisions will not be written in stone. The AiP contemplates periodic reviews of the net fiscal benefit.
Thank you, Mr. Speaker.
For more information, contact:
Office of the Premier/Cabinet
Government of the Northwest Territories
Phone: (867) 669-2302