Executive Summary

Achieving a national purpose

“The current fiscal fragility of the north is a leading indicator of a future greatly in need of immediate attention. Clearly, the north is very much in transition. There is a necessity to invest in the north if it is ever to achieve the self-sufficiency anticipated by the original objectives of the formula financing arrangements between Canada and the territories.”

Government of the Northwest Territories,
Government of Nunavut, Government of Yukon¹

Those words, written in 2003, certainly ring true today.

As part of its review of Territorial Formula Financing (TFF), the Expert Panel on Equalization and Territorial Formula Financing (the Panel) was struck by a number of key points.

• The situation in Canada’s territories is vastly different from the challenges faced by the provinces. Communities are small and isolated. Costs are substantially higher. Although economic diversification is currently limited, there are significant opportunities for resource development.
• Although the three territories share common aspirations and dreams for the North, there are substantial differences among the three territories that call into question the effectiveness of one-size-fits-all solutions.
• All three territories rely heavily on TFF and other federal transfers to pay for essential public services. In 2005–06, TFF made up between 64 and 81 percent of territorial budgetary revenues.²
• A number of indicators point to serious health and social problems combined with lower health and education outcomes, inadequate housing, and an urgent need to replace and expand existing infrastructure. Although there are challenges in all three territories, the situation in Nunavut is particularly serious.
• There is great potential for economic development from natural resources in the territories; however, there are significant financial and social costs involved. Additional investment is needed to address these costs and achieve the territories’ fiscal, economic, and social potential.
• The territories’ determination to become self-sufficient and self-reliant is an important priority for Canada. Changes to TFF should support the territories in achieving their goal of self-sufficiency.

These points provide an important backdrop for the Panel’s report and recommendations. They underscore the reason why TFF is distinctly different from the Equalization program in approach, in objectives, and in design. Because of the significant differences in the two programs, the Panel has chosen to devote a separate report to TFF issues and recommendations.

1. Government of the Northwest Territories, Government of Nunavut, Government of Yukon. (2003). Territorial Business Case: Joint Paper on Fiscal Issues, p.  3.
2. This percentage is based on 2005–06 Revised Estimates provided by the three territories in their 2006–07 budgets.

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