Proposed Devolution Financial Arrangements

Mar 1 2011

Today, during Session, the Minister of Finance provided some clarity on the financial aspects of the Devolution Agreement-in-Principle.


Minister Michael MiltenbergerMr. Speaker, a recent report commissioned by the Gwich’in Tribal Council has raised some questions about certain financial aspects of the Devolution Agreement-in-Principle. The Government of the Northwest Territories does not agree with most of the conclusions of this report. We remain confident that the financial provisions of the Devolution AiP are fair and reflect the best deal available. I rise today to set the record straight and address some of the confusion this report may have caused.

First of all, Mr. Speaker, I would like to point out that Devolution is not just about money. It is about moving responsibility for public lands and resources from the Government of Canada to the GNWT. With Devolution, the people of the NWT will be making decisions respecting land, water and resource development that are currently being made in Ottawa. The financial components of the AiP are important, but they need to be considered against the entire Devolution deal. Anybody can pick and choose selected portions of the AiP and criticize them, but that isolated criticism is meaningless if it doesn’t take into account the benefits and advantages that have been achieved in other parts of the AiP.

The Gwich’in Report in fact concludes that “accepting the proposed AIP would be beneficial, but not optimal.” Taken along with the rest of the deal, it is the GNWT’s position that the financial arrangements of the AiP provide the basis for a final Devolution agreement that will create real benefits for all NWT residents. Devolution negotiators spent considerable time and effort maximizing the financial benefits of the deal. All of the issues were raised and discussed at the table – from the treatment of resource revenues from Norman Wells to the Net Fiscal Benefit and A-base funding. If there had been any realistic prospect of dramatically improving the financial components of the federal offer, the GNWT would have pursued it.

The Net Fiscal Benefit reflected in the AiP is a vast improvement over previous Federal offers. Once we have Devolution, the GNWT will collect the resource revenues that are currently going directly to Ottawa. These resource revenues will reduce our Formula Financing Grant, but only by 50 cents for every dollar collected. The Net Fiscal Benefit, or the difference between the resource revenues we collect and the reduction in the Grant, is subject to a cap equal to 5 per cent of our Gross Expenditure Base – about $60 million right now. By comparison, the Yukon devolution agreement only allows them to keep $3 million in mineral revenues and between 20% and 40% of oil and gas revenues, with everything above that going to Ottawa. It’s no wonder that the Yukon Government is already indicating a desire to renegotiate their agreement.

The arrangements in the AiP are completely consistent with what the Provinces would receive under the Federal-Provincial Equalization program. Under this program, 50 per cent of a Province’s resource revenues are excluded from the equalization calculation – not 100 per cent, like the GTC report claims. Certain Provinces did negotiate special time limited agreements for offshore revenues 25 years ago, but offshore resources are not part of the NWT Devolution AiP. While Provinces that do not receive equalization payments get to keep 100 per cent of their resource revenues, no Province receiving equalization gets better treatment than what is contemplated in the Devolution AiP.

The GTC report questions whether the NFB will be adequate for managing the resources being devolved to the GNWT, but this is not the purpose of the NFB. The GNWT will receive funding – known as A-base funding – each year to cover the cost of operating the programs and services that will be devolved to the GNWT. This is funding over and above any resource revenues the GNWT will retain. A-base funding will begin at $65.3 million per year and will escalate annually under the terms of Territorial Formula Financing. This amount was based on the work that the GNWT did to determine how much it would cost to operate devolved programs.

There has been some public discussion of a higher A-base amount supposedly negotiated in 2007. The GNWT and Aboriginal governments did propose a higher A-base figure to Canada in 2007, based on a best-case scenario that assumed very high levels of resource development in the NWT. There was never any guarantee that we would experience that level of development and Canada never did seriously entertain the proposal.

What Canada has agreed to, however, is to negotiate a post-devolution resource development cooperation arrangement. We recognize that there may be times when additional investment may be necessary to help the GNWT deal with the pressures of high levels of resource development. Where there are major projects with considerable national environmental, social and economic significance, it would be in the interests of Canada and the GNWT to work together to address their implications. Rather than try to accommodate that through higher A-base funding, those implications can be considered through a post-devolution cooperation agreement with Canada.

Mr. Speaker, it is the GNWT’s position that we have achieved a good deal on Devolution that includes fair and reasonable financial arrangements. After years of negotiations, we have an Agreement-in-Principle that can serve as the basis for a Devolution agreement that will create real economic benefits for all NWT residents, Aboriginal and non-Aboriginal alike. We have the basis of a deal that will give us access to substantial resource revenues and legislative authority over our public lands, water and resources. We have the basis of a deal that will establish government-to-government relationships with Northern Aboriginal governments and give them a share of revenues earned from resource royalties.

We have the basis for an agreement that will see Canada continue to contribute to the development of projects of national significance in the NWT. And we have a basis for an agreement that will see the NWT enter into negotiations with Canada over revenue sharing for offshore oil and gas resources.

Based on the current AiP, the GNWT would stand to receive 26.5 million dollars in one-time transition costs from Canada. The first year of the agreement, we would receive another 65.3 million dollars in A-base funding. On top of the A-base funding, we would also begin to receive annual revenues from the development of NWT resources. Over the past five years, we calculate that we have missed out on $200 million in resource revenues based on the current AiP. That’s money that NWT governments could have invested in economic development, infrastructure and programs and services for our residents.

Today we are faced with all the potential impacts of resource development, but have no control over the pace of development. This will be rectified with Devolution and the GNWT will have the tools necessary to manage risks. Every day that goes by without a Devolution agreement opportunity is lost. Non-renewable resources are being extracted from public lands in the NWT and resource revenues are flowing out of the North.

We can hold out for a marginally better financial deal from Canada, Mr. Speaker, but we will never be able to make a deal rich enough to make up for the millions of dollars that we are losing each year that we do not have a Devolution agreement. This is a fair deal and an important step. It’s time to get down to business and put NWT governments in charge of the decisions that affect our territory and our future.

Thank you.

For more information on devolution: http://www.executive.gov.nt.ca/initiatives/Devolution/


For more information, contact:

Press Secretary
Office of the Premier/Cabinet
Government of the Northwest Territories
Phone: (867) 669-2302