Issues and ideas

Adequacy of Territorial Formula Financing in meeting needs in the territories

In 2005–06, the TFF grant made up between 64 and 81 percent of territorial budgetary revenues. Not surprisingly, the adequacy of TFF funding was a dominant theme and overlapped with discussions about the unique challenges in the territories.

The Joint Submission from the three territories argued that when TFF was first introduced, the funding it provided to the territories was adequate.¹⁷ The three territories also supported the annual escalator for the GEB, (PAGE) which was based on relative growth in population in the territories and growth in spending by provincial and local governments. However, the submission indicated that subsequent changes to the TFF formula have led to inadequate funding, including introduction of a ceiling on TFF funding, a five percent reduction in territorial GEBs introduced in 1996–97, and the introduction of the Tax Effort Adjustment Factor (TEAF) in 1990–91.

The Submission indicates that, although the New Framework implemented in 2004 provides additional funding, it does not restore TFF to the level required to meet its original objectives. At the same time, it’s important to note that the territories have received significant new investments in recent years through both TFF and other federal funding initiatives. The New Framework provided an additional $100 million in 2004–05 and an additional $100 million in 2005–06, and provided for an annual 3.5 percent increase in overall TFF grants. Other federal investments include increases in funding for health and social transfers ($44 million), a new Northern Strategy ($120 million), the New Deal for Cities ($37.5 million), infrastructure funding ($211 million), and the Territorial Health Access Fund ($150 million). This does not take into account a number of other investments in northern economic development, health, northern oil and gas development, and environment.¹⁸

In November 2005, the meeting of First Ministers and Aboriginal Leaders resulted in a commitment of $5 billion in funding over the next five years, some of which would be allocated in the three territories to address education, housing, health, and infrastructure needs.¹⁹

It’s hard not to be struck by a sense that the territories are on the brink of major change, particularly in the Northwest Territories.

Other submissions and discussions underscored the unique needs and challenges of the territories. As noted in an earlier section, despite the enormous potential of the territories, “there are many barriers to realizing that potential as well as ensuring that northerners, especially Aboriginal people, have the capacity to fully participate in it.”²⁰

There is little doubt that costs are significantly higher in the territories, demands for certain public services are also higher, and outcomes in health and education are poorer. As well, the combination of devolution and resource revenue sharing agreements, Land Claims and Aboriginal self-government agreements add a layer of complexity to fiscal arrangements not seen in southern Canada.

Throughout the consultations and in submissions to the Panel, proposals were made about how to adequately measure expenditure needs, simplify the measurement of revenue capacity, and improve incentives for economic development.

17. Government of the Northwest Territories, Government of Nunavut, Government of Yukon. (2005). Joint Submission to the Expert Panel on Equalization and Territorial Formula Financing, pp. 2-3.
18. Information provided by Finance Canada.
19. Government of Canada.(2005) First Ministers and National Aboriginal Leaders. Strengthening Relationships and Closing the Gap and News Release.
20. J. Feehan.(2005). Summary Report: The Expert Panel Roundtable held at Yellowknife, Northwest Territories, August 25, 2005. www.eqtff-pfft.ca/english/documents/FinalReport-Yellowknife.pdf.

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