For Nunavut, good times can be bad times

As many readers know already, finance ministers and central bank heads from the group of wealthy nations known as the G7 — Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States — will gather in Iqaluit early next month to continue talks on how to make sure the global financial collapse of 2008 does not repeat itself.

Don’t expect to see much of them. They plan to hold a quiet set of weekend meetings behind closed doors, where they can air their differences in private, divided as they are over issues like banking regulation and how much their governments should continue to spend on economic stimulus schemes.

They will do this at a time when the global economy is starting to recover its health. So is Canada’s.

But for Nunavut, this is where our real problems will begin.

On balance, Nunavut territory was likely a net beneficiary of the global recession. Because our economy is almost wholly dependent on government spending, Nunavut did not suffer the shocks felt in places like Ontario, where many tens of thousands of workers lost jobs. In Nunavut, people continued to work, buy and sell.

The only exception is mineral exploration, which fell last year in Nunavut. But the Meadowbank mine, which produces a commodity, gold, that increased in value during the recession, will likely open on time early this year, creating hundreds of jobs for those who are ready for them.

At the same time, fossil fuel prices fell dramatically last year. This led to big reductions in fuel and power bills, as well as lower retail prices for gasoline and home heating oil.

And Nunavut’s share of the federal government’s economic stimulus package produced a building boom in 2008, driven by more than $300 million in spending on social housing, municipal infrastructure and other projects.

For Nunavut, bad times around the world often mean good times within the territory. This is why the territory’s politicians and bureaucrats should start preparing for the perverse consequences of an economic recovery between now and 2014.

First, they should brace themselves for higher fuel and electrical power prices, which are inevitable.

Unfortunately, the federal government’s spending in Nunavut has done nothing to help wean the territory away from its utter dependence on fossil fuels. The Nunavut government, for example, still has no idea how it will pay for a proposed hydro-electrical plant near Iqaluit, a project that could replace millions of litres of diesel every year.

Second, Nunavut officials should prepare for a reduction in federal government spending.

Finance Minister Jim Flaherty has said that his government does not plan to renew its economic stimulus program, and that they will allow the national economy to recover on its own.

But because of a combination of economic stimulus spending and lower tax revenues, the federal government is likely to run up a deficit of $54 billion for 2009-10. And for each year between now and 2014, it’s likely to post deficits running between $12 billion and $16 billion a year.

So the federal government, no matter which political party holds power, must soon turn its attention to the reduction of those big deficits.

This does not bode well for government-dependent Nunavut. The territory’s residents had better cross their fingers and hope the federal government doesn’t eliminate today’s deficit the way Paul Martin’s Liberal government did it during the mid-1990s.

Many Nunavut residents will remember this led to a $150-million reduction in Ottawa’s annual transfer to the territorial government in 1996. The territorial government reacted by cutting public service wages by 6.5 per cent, eliminating vacation travel assistance, and selling most of its staff housing stock. Capital spending fell too, aggravating Nunavut’s appalling infrastructure deficit, which has been partially mitigated by more recent federal programs, but not corrected.

All this happened during the planning period for Nunavut. It’s a big reason why the Nunavut territory began life on April 1, 1999 as a dependent, handicapped child. The territory has yet to recover fully from the consequences of the Chrétien government’s policy of neglect.

As always, Nunavut’s options are limited. But as the global economy recovers over the next five years, the territory could be in for a rough ride. JB