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Nunavut Votes 2004
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  Main > Indepth Features > Nunavut Budget: Facing Tough Decisions Voting Day February 16, 2004   
Indepth Features

Nunavut Budget: Facing Tough Decisions
John Boivin | CBC Online News | Jan. 20

Kelvin Ng had to find proper footwear for his budget speech, something that reflected the serious message he had to give his fellow MLAs.

So when the finance minister stood up in Nunavut's house last March, he wore kamiik.

And not even new ones. The used pair of seal-skin boots symbolized what he wanted to tell the house. Money was going to get tight, so it was time to be frugal and sensible.

Ng's budget speech spelled out in detail how it was getting more difficult to balance the needs of the young and growing Nunavut population with a limited revenue base. He warned tough times could be ahead if a firm hand isn't kept on the books.

"The next challenge in our evolution is to ensure sustainability, given limited revenue and ever-pressing needs," said Ng. "Our capacity to meet increasing expenditures is limited and will require strong fiscal discipline."

It was to be Ng's last budget. After more than 10 years in politics in the N.W.T. and Nunavut, Ng is retiring from the public arena. But he agreed to speak to CBC about Nunavut's finances and the future of the territory.

"I could count numbers" he jokes, when asked how he was chosen to be finance minister in the nascent Nunavut government in 1999.

Back four years ago, those numbers were working in Nunavut's favour.

"I thought we would be OK at the start, having a new government, not being staffed up, but knowing there would be high expectation of a new legisature for a new government to deliver everything that they could," he says.

The territory didn't start with a dowry, or any extra money from Ottawa to get going.

"In reality we just inherited our portion of the budget from the N.W.T., with a little increment add on, really, and we had to work with that," he recalls.

With the N.W.T. budget essentially chopped in half, 46 per cent
went east to the new territory, about $560 million.

But not all of that money would be spent right away. Because the government was starting fresh, it didn't have all of its staff in place. With only two of every five positions filled, there were substantial payroll savings. Program budgets were also left
unspent, as government systems were just getting underway.

That left tens of millions of dollars available to be put in the bank. Ng says that accumulated surplus was essential for the government in its initial stages.

"In the last three years we really took advantage of that, did some strategic spending of our accumulated surplus," says Ng. "So when we close off books this year for the new government, we're basically back where we started."

As the wheels of government slowly started turning - with staff being hired, programs evolving and growing - the surplus quickly vanished. Simply put, the government is now spending more than it makes, and its savings have disappeared.

"We'll be even from an overall pespective," Ng says. "We won't be in debt but we won't have an accumulated surplus to start with."

Nunavut began the 2002-03 fiscal year with an accumulated operating surplus of $96.2 million. With an increase in spending and a drop in revenues from Ottawa, that surplus shrank to just $14.2 million by year's end.

When the books close in March of this year, the government will have just $1.5 million in the bank – and will still be spending tens of millions more than it takes in. The operating deficit could be $50 million, maybe more by the end of the fiscal year.

"The honeymoon is over," quipped one MLA after hearing the news from Ng.w

Population Pyramids comparing Nunavut and CanadaNunavut faces special challenges

Nunavut's financial situation makes Newfoundland, the place usually considered the economic basket-case of Confederation, look positively robust.

The territory depends almost exclusively on Ottawa, through federal transfer payments and administration of federal programs, to support it. Ninety per cent of the territory's $729-million budget comes from federal support.

The annual amount that Nunavut receives through the formula financing arrangement is not a fixed amount. It changes according to the country's overall economic performance and health, Nunavut’s tax revenues and the annual change in the territory's population relative to the rest of the country.

With little non-governmental economic activity, no mines, and little or no trade with the outside world, Nunavut catches a cold when Ottawa sneezes. Last year formula financing dropped $26 million, having a direct impact on the territorial government's bottom line.

Ng doesn't see that dependence lessening soon.

"It's probably not realistic to see that happen, we have real limited capaticty to generate our own revenues because of our small tax base, and no royalties."

And Ng says there is "extreme pressure" on the territorial government to deliver services to its people.

While the territory makes up more than one-fifth of the Canadian landmass, there are only about 30,000 Nunavumiut, spread over 25 communities ranging in population from a few dozen to the largest, Iqaluit, at 6,000.

And the needs of those people are huge. A look at a population-age graph tells the story: while the country as a whole has a baby-boom bulge in the middle of the graph, with fewer younger and older people, Nunavut's graph is a pyramid: fully 60 per cent of the population is under the age of 25.

There is massive unemployment in Nunavut, 80 per cent or higher in some communities. And with the population boom comes a desperate need for new schools, training, and jobs. Municipal governments need water systems, sewage treatment plants, roads and arenas. Vast amounts of money go to health care. Then there are the social problems – alcholism, depression, violent crime, and suicide. People need help, support, and programs.

The government's need to deliver housing is a good example. Fully half the population of Nunavut relies on the government to put a roof over its head.

The government maintains close to 4,000 public housing units. But demand is skyrocketing: 100 families in Iqaluit are waiting for public housing, triple the number from the time of division. In Clyde River, there's a 10-year waiting list for a home.

The territorial government gets $60 million annually from the Canada Mortgage and Housing Corporation to help operate and maintain housing, and a special infrastructure grant of $20 million to build new units next year. Still, with the high cost of building in the North only about four new homes will be built in each community next year, barely affecting the waiting lists.

"We know we're fighting a losing battle. Without some significant federal investment to catch up to make it a level playing field, relative to the rest of the country, it can only get worse," says Ng.

Looking to Ottawa

The first four-and-a-half years were a shake-down period for Nunavut's government. Now Ng says it's time to refine exactly what the territory gets from Ottawa, and seek more support.

A big job for the MLAs chosen in this election will be to wrestle new or better-targeted funding from the federal government.

He says the framework for that has already been done. Just after division, Ng met with then-finance minister Paul Martin, and the two agreed that for a few years, the territory's accumulated surplus would cover any extra needs.

"At the same time he committed and agreed to an overall review of our fiscal situation, what we have, our programs, demographics," Ng says. "That work's been completed. It's up to
the next federal finance minister and Nunavut finance minister to follow up on that, and what can be done to address those deficiences."

Though Nunavut could have gold and diamond mines operating in a few
years, and has oil and gas deposits, and unexplored fisheries and mineral potentials, none of that will directly benefit the territory.

That chafes territorial politicians. As in the Northwest Territories, wresting control from Ottawa over resources and the revenues they generate will be a major task for the next government, Premier Paul Okalik has said.

But Ng says it's important for Nunavut to get its own house in order first. He says the territory needs to renegotiate its formula financing agreement with Ottawa, get improved spending on specific programs, and act as the delivery agent for Ottawa-funded programs. It needs capital dollars for roads, housing, and other infrastructure.

With expenditures skyrocketing, the territory has to find new revenue sources quickly, and the federal government is the only source of that.

What if Ottawa won't free up any extra cash?

"You have to be realistic, look at revenues you're getting in, what programs you're delivering," he says. "[They will have to] sharpen their pencils and take a hard look at what really is required for thier constituents."

Communication is going to be essential for the new government.

"It's going to having to be tougher, have a firmer hand and control of the finances of government, and being able to articulate," Ng predicts. "And when there are impacts as a result of having to change spending patterns of government, articulate to the electorate at large to let them know why."

Ng says he was around for the good years, and regrets not being around for the tough ones. But while he feels he has a good overall understanding of Nunavut's financial situation, and ideas where future politicians could save money or spend money better, he's going to leave it up to the next draft of territorial politicians to make those decisions for themselves.

"In short, we have lived up to our obligations, and have not passed on significant debts or unresolved issues to the next assembly," Ng told the legislature in his March budget speech.

Ng has left them challenges for the future however, challenges he's confident they'll be ready to take on.

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The Speaker of the Nunavut Legislative Assembly

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