'We'll probably look at ways to decrease our expenditures.'

Federal tax cuts and a worldwide recession mean Nunavummiut can expect a deficit in their own territorial budget this year, says Finance Minister Keith Peterson.

In last month's federal budget, the Conservative government announced an increase in the basic amount people can earn before paying income tax, and changed the tax brackets so people can earn more before moving up to a higher tax rate.

Because territorial income taxes are based on the federal rate, that's going to mean a drop in revenue, Peterson said in an interview after the federal budget was tabled Jan. 27.

"We estimate that's probably going to reduce our territorial tax revenues by $13.9 million between now and fiscal 2013-14," he said.

If that pushes the books into the red, it will mean the Government of Nunavut has two options: cut spending or raise taxes.

"I kind of doubt that we'd want to increase taxes," Peterson said. "We'll probably look at ways to decrease our expenditures."

But Peterson also said that funds from the budget, like the $100 million for housing, more than make up for lost tax revenue. Ottawa, looking to kick start a national economy that is now shrinking, set aside hundreds of millions of dollars for Arctic projects, including money for the Clyde River cultural school and the harbour in Pangnirtung. Nunavut will also share in $305 million for First Nations and Inuit healthcare.

The budget also assumes the GN is operating with all its jobs filled. But the most recent report on the state of the public service shows that the government is running with 75 per cent of positions filled.

The territorial budget won't come down until April at the earliest, Peterson said. Finance department officials still have to prepare capital estimates for the Legislative Assembly's winter session, which starts March 17.