Annex 2: Some Evidence of Expenditure Needs and the Costs of Providing Public Services in the Territories

The Panel’s assessment

There is significant evidence that the two components of expenditure need (workload and costs) are higher in the three territories compared with Canadian averages. TFF grants to the territories are already substantially higher per capita than Equalization payments to receiving provinces in recognition that expenditure needs are much higher in the territories compared with the provinces. However, after reviewing data on expenditure need and indicators of health and social well-being in the territories, the Panel believes that there is sufficient evidence to warrant an increase in TFF funding through a rebasing to 2005–06 funding levels contained in the New Framework. In addition, to maintain some comparability in the future, the Panel recommends a return to the PAGE escalators for TFF funding, which, in its view, more appropriately reflects changes in territorial expenditure needs than a fixed growth rate.

Since there are significant data and conceptual challenges in estimating expenditure need, a comprehensive study of expenditure need in the territories was beyond the ability of the Panel to complete during the time available. The Panel believes that a study of expenditure need and the cost of providing services in the territories may be useful to indicate whether or not the TFF program is achieving its objectives in the longer term, but it would be complex, costly and time-consuming. Identifying workload and cost factors and differentiating between them poses a number of methodological challenges. In practice, assessing the weights to be assigned to these factors and isolating them from policy choices requires considerable judgement. The Panel therefore recommends that an extensive and detailed study of expenditure needs in the territories may not be useful at this time. Furthermore, the Panel suggests that the federal government’s assessment of TFF funding levels in future may include a review of the progress on a number of indicators of health and social well-being and comparisons of expenditure needs in key territorial expenditure areas.

In the Panel’s opinion, the situation in Nunavut is substantially different. In its view, an adjustment to the TFF funding base and ongoing escalation of TFF are not sufficient to address specific gaps in programs, services, and infrastructure in Nunavut. The immediate objective of a study to address these challenges should be to identify particular areas of need and to provide additional funding where required, through targeted programs rather than through adjustments to TFF. In this way, the federal and territorial governments can ensure that funding is provided to assist in resolving problems in specific expenditure areas and that appropriate financial accountabilities are in place for these additional funds. The Panel recommends that further work be done to assess expenditure needs in Nunavut as a starting point for addressing those needs on an urgent basis.

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