Issues and ideas

Self-sufficiency and economic development in the territories

There’s a desire for self-sufficiency and independence. But, at the same time, there’s recognition that the barriers to self-sufficiency are substantial.

Reading through the various submissions and listening to people in the territories, 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. There’s a strong desire to take advantage of the huge potential for economic growth based on natural resource development. There’s a strong hope that these economic developments will result in long-term benefits for all northerners, particularly if they result in a better capacity to improve outcomes in health, education, housing, and a number of other social issues. There’s a desire for self-sufficiency and independence. But, at the same time, there’s recognition that the barriers to self-sufficiency are substantial. In the territories’ view, the cost of providing essential public services will continue to be beyond their fiscal capacity until and unless major economic developments materialize. There also are significant challenges in human and capital infrastructure.

“A key objective of all three territories is to reduce their dependence on federal transfers. All three territories agree that there must be incentives within TFF to make the investments necessary to encourage economic development and subsequently increase own source revenues.” - Joint Territorial Submission to the Expert Panel21

It is important to recognize that the TFF grant is not designed to resolve all of these issues. However, TFF should contribute to the territories’ goal of self-sufficiency and should not provide disincentives for economic development.

The territories (and the provinces, in the case of Equalization) argue that the way the TFF operates can act as a disincentive for promoting further economic growth. When there’s a new mine or new exploration activity, the territorial government benefits from a combination of more corporate taxes and more personal income taxes because more people are working. Under the previous TFF formula, the TFF grant would be reduced as a territory’s own revenues increased. This reduction in federal funding is typically referred to as a “claw-back.”

A number of participants also made the point that Aboriginal people should get their fair share of revenues from resource development, without reducing other financial transfer arrangements.

Depending on the specifics of the TFF formula, the TFF grant could be reduced by about 80 percent of the additional revenues raised by the territories. Although the territories offer no evidence in their Joint Submission to the Panel, in their opinion the additional revenue generated by economic development is not sufficient to offset the additional costs they incur in providing public services and supporting resource developments. On the other hand, few would argue that there aren’t significant overall benefits to northerners from economic developments that bring employment and future opportunities for young people.

Additional revenues from resource developments would provide territorial governments and Aboriginal people with a greater capacity to address the social and infrastructure costs associated with economic development.

The territorial governments and other participants at the Yellowknife Roundtable suggested that the territories should be able to retain a greater share of their own-source revenues, including those from natural resource developments, without seeing a corresponding reduction in TFF funding. A number of participants also made the point that Aboriginal people should get their fair share of revenues from resource development, without reducing other financial transfer arrangements. Additional revenues from resource developments would provide territorial governments and Aboriginal people with a greater capacity to address the social and infrastructure costs associated with economic development. Even the Economic Development Incentive (EDI) in the previous TFF formula is not considered by the territorial governments as adequate to support additional demands on public programs and services resulting from economic development, particularly since the impact of the EDI varies greatly among the three territories.

“The territories need to retain additional revenues generated from their investments in order to make such investments worthwhile. The capital investments needed to create the environment for economic development are substantial and beyond the territories’ current fiscal capacities. While these investments would generate economic activity and therefore more revenues for a territory, they also create other social and economic pressures that strain each territory’s financial resources.” - Joint Territorial Submission to the Expert Panel22

21. Government of the Northwest Territories, Government of Nunavut, Government of Yukon. (2005). Joint Territorial Submission to the Expert Panel on Equalization and Territorial Formula Financing, p.  9.
22. Government of the Northwest Territories, Government of Nunavut, Government of Yukon. (2005). Joint Territorial Submission to the Expert Panel on Equalization and Territorial Formula Financing, p.  18.

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