Fix the funding formula, premiers’ group says

SARA MINOGUE

Nunavut’s politicians need more money for housing, hockey rinks, sewage lagoons and almost everything else, but first, they need one other thing from federal officials in Ottawa: sympathy and understanding.

They got one step closer at the end of March, when Canada’s provincial and territorial leaders issued a report — including a special chapter on the three northern territories — on their financial relationship with the federal government.

The report acknowledges the longstanding pleas of Nunavut’s cabinet ministers, and recommends the federal government give the territory an annual base grant, topped up each year according to specific spending needs and the rate of population growth.

John Todd may be the reason that message was heard loud and clear.

Todd was the finance minister for the Government of the Northwest Territories and MLA for Keewatin Central when Jack Anawak, then the interim commissioner for Nunavut, signed the first formula funding deal for Nunavut. Todd was one of just five people on the advisory panel on fiscal imbalance, which produced the report.

The report, called Reconciling the Irreconcilable: Addressing Canada’s Fiscal Imbalance, was delivered to Canada’s premiers on March 31. It came just in time for the federal government to review before its panel on equalization and territorial formula financing releases its report this spring.

This report will set out the federal government’s spending plans for the North, but the document released in March provides some important groundwork.

A chapter devoted to the territories describes the higher cost of living, poorer health and education, and huge need for basic infrastructure.

The report also includes a brief history of northern finances.

In the past, the territorial governments were funded like a government department: a budget was drafted and spending was approved for the year. That system was replaced in 1985 with something called “Territorial Formula Financing.”

Under that system, the federal government grants a base amount of funding to each territory, and adds on top another chunk of money calculated according to the size of the population. They then subtract the amount of taxes paid to the territorial government to come up with the amount of money available for one year.

This formula was designed to be more flexible and take into account the higher cost of everything in the North. But disaster struck in 1995, when the Liberal government arbitrarily cut base funding for the territories by five per cent.

In 2004 and 2005, they sought to repair that damage by suspending territorial formula funding, and instead issuing grants based on the previous year’s spending. The grants come regardless of how much revenue the government’s are able to earn locally.

This ad hoc measure remains in place today. In 2006-2007, the Nunavut government will receive the same amount of money it did last year, with a small increase of 3.5 per cent (though this increase applies to the money spent in all three territories; each territory’s share of this total remains to be determined).

The report says: scrap this system and return to territorial formula funding, which offered more base money, and more money based on population.

It is clear that the territories need more money to provide services comparable to other regions of Canada.

Territorial governments spend three to five times more per capita than the provinces, but achieve poorer results. (The higher spending is partly because of higher transportation costs, but also because northern people — who have poorer health, less education, and few jobs — use more services.)

In its northern chapter, the report’s authors recommend “Nunavut receive extraordinary investment in the areas of housing, infrastructure and economic and social development,” in order to raise the standard of living closer to other parts of Canada, and over time, reduce Nunavut’s dependence on federal money.

The report uses grand rhetoric to make its point: “Investment in the North is an investment in the unfinished business of nation building.”

There is widespread support for this kind of investment, the report notes, even though “the traditional political consensus” to provide the money has waned.