First Nation chiefs are welcoming news that the Liberal government will reverse a despised 19-year cap on funding for First Nations.

Prime Minister Justin Trudeau made the announcement while addressing an Assembly of First Nations conference in Gatineau, Que., on Tuesday.

"Our government will immediately, as part of our first budget, lift the two per cent cap on funding for First Nations programs," Trudeau said.

"It hasn't kept up with the demographic realities of your communities, nor the actual costs of program delivery."

First imposed by a Liberal government in 1996, the two per cent cap was a limit Indigenous and Northern Affairs placed on annual increases to First Nations' budgets.

When it was first announced, the cap was greeted with protest. It meant that despite inflation and a fast-growing population, funding for First Nations communities, programs and services could only increase by two per cent each year.

The cap's demise drew quick praise from the Assembly of First Nations.

"Nothing will have a more immediate impact in helping to close the gap than lifting that two per cent cap and launching discussions on significant catch-up funding after decades of underfunding," said AFN National Chief Perry Bellegarde.

Housing, water 'grossly underfunded'

At the AFN assembly where Trudeau made the announcement, First Nation leaders spoke of the two per cent cap as a roadblock to prosperity for First Nation communities.

"We're grossly underfunded when it comes to housing, water and infrastructure as First Nations," said Manitoba Regional Chief Kevin Hart.

"Not only in my region of Manitoba but across Canada as a whole."

Hart said it's going to cost billions just to build the thousands of homes needed to "bridge the gap" left by the two per cent cap.

One of the places where the sting of that gap has been felt is education, particularly at the post-secondary level. A growing population has had to struggle to get a portion of the inadequate funding.

Mary Alikakos, a member of the M'Chigeeng First Nation in Ontario, was a first-year college student in 1996 when her band informed her that the cap had come into effect.

"We students were given an information session regarding the cap, which they actually called a 'community consultation,'" Alikakos said.

"I recall feeling that I was starting a program that I might not finish."

Alikakos did finish college and went on to university to get a degree in environmental science. Many students, she believes, never got that far. Fewer people with advanced degrees, she said, means fewer qualified people to work for and advocate on behalf of First Nation communities.

Liberal budget awaited

The lift on the two per cent cap officially takes effect when the Liberal government tables its first budget, sometime in the new year.

"As per the minister of indigenous and northern affairs mandate letter, [Carolyn Bennett] will be working with the minister of finance to establish a new fiscal relationship that lifts the two per cent escalator on annual funding increases and moves towards sufficient, predictable and sustained funding for First Nations communities," said a statement from the department.

But there's no word on whether this means funding for First Nation communities will immediately increase or by how much.

Clarifications

  • One of the headlines on an earlier version of this story incorrectly stated "Limit on funding for First Nations to take effect in new year, Trudeau says." In fact, the limit is being lifted in the new year.
    Dec 11, 2015 8:27 AM ET