This week's federal budget came with both good and bad news for the North, from extended health funding to less funding for a program that subsidizes the costs of shipping food to remote communities.

Thursday's budget pledged two-year funding for the federal food mail program, which pays for part of the costs of flying nutritious perishable food to northern communities that are accessible only by air.

However, the promised funding will not be enough to keep the program going at its current budget of $56 million a year.

The program will have to operate with $6 million less in each of the next two years, but Indian and Northern Affairs Minister Chuck Strahl said at least the program's funding remains stable.

"That means whatever the total number is, that's what we'll have to run the program with," Strahl told CBC News on Thursday.

"We have to do the renovation of the program and deliver it with these numbers, so this will allow us to do that. I mean, I'm happy with these numbers."

The food mail program helps stores in 135 communities across the North to offer healthy food at prices that are not prohibitive.

Strahl said major improvements will be coming to the program, which is currently under review.

Health funds extended

Meanwhile, the federal government is extending the $150-million Territorial Health System Sustainability Initiative (THSSI) by $60 million over two years.

The funding initiative has bolstered health-care systems in Nunavut, the Northwest Territories and the Yukon since 2005, but it was supposed to expire this month.

Nunavut Finance Minister Keith Peterson said given rising health-care costs in the territories, many officials worried about how they could manage without the extra funding.

"The Territorial Health Sustainability fund, we'd been lobbying for that for quite a while. I started actually lobbying for that extension last January," he said.

"Our legislative assembly passed a unanimous motion in December to get an extension. So that was indeed very good news."

Peterson said he has contacted federal Health Minister Leona Aglukkaq, who is also Nunavut's member of Parliament, to get more details on how the funding will be distributed to the three territories.

As well, Peterson said he is also pleased to see $18 million earmarked in the budget to start the pre-construction and design phase of a High Arctic research station.

Three Nunavut communities — Cambridge Bay, Pond Inlet and Resolute Bay — are vying for the opportunity to host the research station. Federal officials are expected to announce the location sometime this year.

The $18 million will be provided to the Indian and Northern Affairs Department over five years.

Public servants fear cuts

Federal government employees are worried about the budget's proposal to lock departmental budgets and salaries, in the hopes of saving $17.6 billion in administrative costs over the next five years.

"The costs have been rising at twice the rate of inflation now for the past five years," Strahl said.

But labour leaders say the spending freeze could mean fewer services and no wage increases for the hundreds of federal workers across the North, including roughly 300 workers in the Yukon and 500 in the Northwest Territories.

"There is nothing in that budget that gives anyone any hope that there is going to be true, solid, long-term job creation," Jean-François DesLauriers, northern vice-president of the Public Service Alliance of Canada.

"It's all about cutting, cutting, cutting, and privatizing public services."

DesLauriers said the freeze could also affect current contract talks between the Yukon government and unions representing territorial government workers and teachers.

Strahl said there was no choice but to freeze federal departments' operating budgets, but that does not mean layoffs are imminent.

Rather, he said it will be up to department heads to propose ways to rein in spending, which could include leaving some positions vacant.