Thank you, Mr. Speaker. Mr. Speaker, I would like to take this opportunity to provide an update on the government’s fiscal position and outlook.
Since February, a number of events have occurred that will impact our fiscal outlook, the most important being the federal budget on May 2nd and the release of two key reports on federal-provincial-territorial fiscal arrangements. We expect a third report to be released very shortly.
The federal budget included some good news for NWT residents and for the Government of the Northwest Territories (GNWT). The reduction in the GST from seven to six percent, along with a number if income tax measures, will decrease the tax burden and help lower the very high cost of living faced by our residents.
The federal budget’s proposal to increase the small business income threshold to $400,000 will encourage our small business sector. This increased threshold will also apply to the NWT small business tax rate. The immediate repeal of the 10 percent excise tax on jewellery is a positive signal for the diamond industry in Canada and for the development of our secondary diamond manufacturing industry in the NWT. Finally, the budget’s confirmation of support for the $500 million socio-economic impact fund for pipeline communities was welcome news.
With respect to the GNWT, the federal budget provides for up to $50 million for affordable housing for the NWT. This money meets the federal commitment references in my budget address in February and, when matched with an equivalent investment from this government, will allow for the construction of approximately 530 much needed new homes across the NWT over the next few years.
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The budget also included up to $3.6 million for other infrastructure programs and $1.9 million in additional funding through territorial formula financing in 2006-07. The final amounts to be provided for housing and other infrastructure will be known when the 2005-06 federal public accounts are finalized this fall and the size of the final federal surplus for the year is known.
Finally, the federal budget contained a commitment to consult with the Territories to put in place long-term fiscal arrangements that will support “transparent, principle-based territorial formula financing transfers that recognize the unique circumstances of the North.”
This commitment is critical, Mr. Speaker. In the past few months, two important reports have been released on the issue of fiscal arrangements. On April 3, the Council of the Federation Advisory Panel on Fiscal Imbalance submitted their report to provincial and territorial Premiers. This report concluded that there is a fiscal imbalance in Canada, an imbalance that favours the federal government. It also concluded that the three northern territories face enormous difficulties in providing basic public services to our residents and that we face important social issues. The Council of the Federation Advisory Panel on Fiscal Imbalance supported this government’s position that current territorial financing arrangements should be replaced with a formula-based approach tied to the expenditure needs and eligible revenues of each territory. The “fixed pool” approach currently being used is not appropriate.
The report also recommended that negotiations between Canada and the territories on devolution agreements be expedited. Northern governments must become the “principal beneficiaries of revenues and royalties” derived from northern resources. We welcome this support.
On May 2, along with his budget, the federal Minister of Finance released a report entitled “Restoring Fiscal Imbalance in Canada: Focusing on Priorities.” This report recognizes the issues created by the existence of large, unplanned federal surpluses. For the territories, the paper is a positive step in that it acknowledges territorial concerns about the cuts to formula financing made by Canada in the 1990s, and notes our consistent position that these cuts must be restored. Perhaps the most positive aspect of the paper is the commitment of the federal government and, in particular, the federal Minister of Finance, to engage the provinces and territories in discussions on the issues identified in the paper.
Mr. Speaker, we expect that within the next week or so the federal Minister of Finance will release the Report of the Expert Panel on Equalization and Territorial Formula Financing. This panel has a mandate to undertake an independent review of these two programs. The publication of this report sets the stage for formal discussions between Canada, the provinces and territories to address the outstanding fiscal issues. I will be updating Members on the report once it is released.
In this regard, the federal Minister of Finance, the Honourable James Flaherty, has laid out a process for reviewing federal-provincial-territorial fiscal arrangements. Minister Flaherty has committed to meet with his provincial and territorial colleagues, following the release of the report of the expert panel, to begin discussions. This meeting has been tentatively scheduled for the end of June. A number of other intergovernmental meetings will be held over the summer, with a First Ministers’ meeting to be held this fall. The 2007 federal budget will lay out the new fiscal arrangements. I look forward to meeting with Minister Flaherty to begin these very important discussions.
We have also raised another critical issue with the federal Minister of Finance. That issue is the lifting of the arbitrary $300 million limit that the federal government has imposed on our authority to borrow. Mr. Speaker, as I stated in February, this government is committed to fiscal responsibility. We have adopted and adhered to our fiscal responsibility policy, which sets clear guidelines and a responsible definition of acceptable borrowing limits.
Moody’s Investors Service has reviewed the fiscal plan we laid out in February, and has recently reconfirmed our Aa3 credit rating. At the close of this fiscal year, we are required to repay $290 million in corporate income tax to reflect an overpayment of taxes we received from Canada in 2002. We need to have the flexibility to meet our cash requirements and to borrow in a fiscally sound manner. The current borrowing limit goes against the principle of territorial political autonomy.
The budget I presented in February projected an operating surplus of $31 million for the current fiscal year. We are still on track to achieve this. However, the fiscal situation of the GNWT remains challenging. Resolution of the key issues of territorial formula financing and the borrowing limit are critical in order for us to effectively plan for the future. Until these matters are resolved, we will need to continue to be very cautious in our spending and our expectations.
Mr. Speaker, we will continue to follow the path outlined in the budget. We will continue to make our case for adequate and appropriate fiscal arrangements with Canada and we will continue to pursue the fiscal tools and authorities that will allow us to achieve the goals we have set for ourselves. Thank you, Mr. Speaker.
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Thank you, Mr. Roland. Before I go on to the next Minister's statement, I would like to draw your attention to the gallery again. As you can see, there's a number of dignitaries here today that will be introduced in due time; however, I would like to give a special welcome to Grand Chief George Mackenzie from the Tlicho Government who is here with us.
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With him is Mr. James Rabesca, a former Member of the 7th and 13th Assemblies.
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