Understanding Territorial Formula Financing

Measuring expenditure needs

The Gross Expenditure Base (GEB) is a proxy measure of each territory’s expenditure needs. It was based on the amount of territorial revenues in the Northwest Territories and Yukon in 1982–83, with some adjustments. It is not a measure of how much each territory actually spends on public services, but rather an approximation of what each territory would need to provide reasonably comparable public services. At the time the TFF program was established, it was considered adequate to reflect variations in both needs and the costs of providing public services in the territories.¹⁵

The GEB is adjusted every year by an escalator

It was assumed that, because territories have similar responsibilities as provincial and local governments in the rest of Canada, their expenditure needs would increase at roughly the same rate. Starting in 1990, changes in a territory’s population were also taken into account. The escalator used in the TFF formula to annually adjust for changes in expenditure needs (GEB) was called the Population-Adjusted Gross Expenditure Escalator (PAGE).

Other adjustments have been made to the GEB

A number of adjustments have been made to the GEBs for the territories since the program was introduced. As program responsibilities were transferred from the federal government to the territories (e.g., airports, implementing the Young Offenders Act), the federal government provided additional ongoing funding required in order to operate the programs. This amount was added to each territory’s GEB. Two important changes also took place in the federal government’s 1995 budget as part of its plans for eliminating its deficit. The grants to the territories for 1995–96 were frozen at their 1994–95 level and the 1996–97 GEBs were reduced by five percent. Also, when Nunavut was established in 1999, additional funding was added to the former Northwest Territories’ GEB, and then that GEB was divided between the new Nunavut Territory and the Northwest Territories.

15. 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, pp. 2-3.

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