Thank you, Mr. Chairman. Regarding the funding under each heading, on page 02-42 and 02-43, I am wondering if these funds are set by the federal government under the formula whereby there is a conditional agreement between the GNWT and federal government, that the federal government would dictate the funding that is only spent under those headings we have on page 1 and 2, for instance, Nunavut land claim agreement, and the federal government would tell the GNWT that these are the conditions, this is the type of funding we will give to you, $146,000. There is no way you can spend that money other than for the Nunavut land claim agreement. Or is it the funding is coming from the general funding, from the general pot of this government? I am just wondering. Thank you.

Thank you. Mr. Kakfwi.

We are in details now. We have covered two items, details of grants and contributions on page 02-42 and details of work performed on behalf of third parties on page 02-43. Can we go back to page 02-42, please? Grants and contributions, a total of $750,000. Agreed?

Agreed.

---Agreed

On the next page, detail of work performed on behalf of third parties, a total of $311,000. Agreed?

Agreed.

---Agreed

All right. We will go back to the program summary on page 02-40, a total of $3.975 million. Agreed?

Agreed.

---Agreed

Does the committee agree that we have finished dealing with this activity? Agreed?

Agreed.

---Agreed

And also dealing with this department? Agreed?

Agreed.

---Agreed

That concludes this item, then. I would like to thank Mr. Kakfwi and his witnesses. Thank you. I will wait for the table to be cleared, and then I will ask where you want to go next. What is the wish of the committee? Mr. Dent.

Do Members agree?

Agreed.

---Agreed

All right. Mr. Minister of Finance, it is your day. Would you like to give us some opening comments, please?

Department Of Finance, Introductory Remarks

Thank you, Mr. Chairman. There is a small reduction in the 1994-95 expenditure budget of the Department of Finance as a result of the reduced interest expense on redeemed Northwest Territories Power Corporation bonds.

On the revenue side, the payroll tax, which was implemented in July of 1993, is estimated to generate new revenue to this government of $11.7 million in 1994-95. Partially offsetting this revenue is the estimated administration cost for 1994-95 of $222,000 and three person years.

During the current fiscal year, the department solicited proposals for government banking services. The contract resulting from this proposal will achieve the realistic objective of delivering limited banking services to communities.

The fiscal policy division of the department has devoted a significant portion of its time to negotiating formula financing with the federal government. A method was developed to eliminate perversity from the formula, which was proposed to the federal government. Discussions have been held with the federal government regarding this issue and proposed changes to the GDP ceiling and the treatment of investment income.

Mr. Chairman, the 1994-95 grant from Canada is forecast to be

$878 million, up $43 million from the 1993-94 main estimates. Increases in the grant are attributable to formula financing growth factors, such as population and national GDP, but also to the failsafe arrangement in the formula which offsets the decline in tax revenues.

Mr. Chairman, the taxation revenues for the Department of Finance, shown on page 04-14 of the main estimates, do not include the revenues from the two percentage point increase in the corporate income tax rate. Corporate income tax revenue for 1994-95 is now projected to be $28.853 million.

Tobacco tax revenues shown for 1994-95 were developed prior to the federal government's decision to reduce excise taxes on cigarettes by $5 per carton. Once this government decides on the territorial response, these figures will be adjusted appropriately.

Taxation revenues are expected to be $133 million in 1994-95, down $11 million from 1993-94 main estimates. This decrease is due to a very sharp decline in corporate tax collections which has resulted from a large fall in taxable income reported by a few large corporations and a general reduction in corporate profits associated with the recession in 1992. Because 1992 tax returns were not assessed until later in 1993, lower corporate incomes in 1992 will reduce our tax payments from the federal government in 1993-94 and 1994-95.

The increase from $8 million to $12 million in payroll tax collections between 1993-94 and 1994-95 is due to the fact that the tax was only implemented for three quarters of the 1993-94 fiscal year. Other tax revenues are showing only small changes.

In total, Mr. Chairman, revenues budgeted in the department of Finance are expected to increase by $29 million over the 1993-94 main estimates.

The expenditure budget has been reduced by $592,000 related to the interest on redeemed NWTPC bonds. This is partially offset by an expenditure increase of $222,000 for payroll tax administration and $223,000 for increased insurance premiums.

In total, Mr. Chairman, the department's expenditure budget will decrease by $147,000 over the 1993-94 main estimates and by $692,000 over the 1993-94 revised forecast. Thank you, Mr. Chairman.

Thank you, Mr. Pollard. There will be a report then from the Standing Committee on Finance. Mr. Antoine.

Thank you, Mr. Chairman.

Reorganization of the Department

A number of functions previously housed in this department have been transferred to the Financial Management Board Secretariat and the Department of Executive. The Department of Finance retains responsibility for external financial arrangements. All revenue generation functions are integrated in this department, including taxation and negotiations with the federal government.

The committee feels that the government may have gone too far in streamlining this department and, as a consequence, diminished the traditional role of the department and the Finance Minister as the fiscal watchdog of the government and a counterbalance to the more political Financial Management Board.

Property Taxation

The issue of property taxation was discussed with this department and with the Department of Municipal and Community Affairs. The committee feels that there are three issues related to the property taxation that must be addressed.

The first issue stems from the fact that treaty people claim exemption from paying taxes, most notably school taxes. Some treaty people living on lands reserved for Indians have never been taxed whereas their treaty neighbours living on Commissioner's land have huge accumulated arrears. The longer the situation is unresolved, the worse the confusion becomes. Committee Members feel that this issue has been outstanding for too long and that it requires that the government develop a strategy to deal with it.

Second, the committee feels that property taxation is not administered fairly and equitably across the territories. The tax rates for property owners in the general taxation area are very low compared to tax rates in the tax-based municipalities. There is an additional concern that low rates in the general taxation area may be acting as a barrier to some communities in obtaining autonomy through achieving a tax-based status.

Third, committee Members recommend that the department consider restoring the home owners' property tax rebate to its previous level or, alternatively, developing a new program which provides an incentive for territorial residents to buy their own homes. Members feel that the rebate was an important incentive program and that cutting it, without replacement, was premature.

Recommendation 18

Therefore, the committee recommends that the Department of Finance take the lead role with the Departments of Education and Municipal and Community Affairs to review the taxation policy in general taxation areas and develop a plan to resolve all outstanding issues in this area, with particular reference to treaty concerns. This plan, including incentives to home ownership, should be available for review by the Standing Committee on Finance during its review of the 1995-96 operations and maintenance estimates.

Investment Policy

The investment decisions made by government tend to be very conservative where the economic climate is portrayed very negatively. Opportunities for creative investment are overlooked. The committee encourages the government to reconsider its overall investment policy. More specifically, the Members would be interested in exploring further opportunities such as the development of a mortgage investment corporation. The committee understands that the government is currently investigating this possibility and encourages the timely completion of this important review.

Mortgage Investment Corporation

Committee Members understand that the government is considering a mechanism such as the establishment of a mortgage investment corporation to help address the housing shortage. Using a one-time capital investment from current resources to lever additional capital to invest in homes for northerners is a concept worthy of further consideration. As long as excessive overhead and bureaucracy can be avoided, the committee feels that such a corporation could prove to be a good investment.

Recommendation 19

The committee recommends that the government continue to investigate mechanisms such as a mortgage investment corporation and provide a status report to the committee by August 1, 1994.

(Microphone turned off) Mr. Antoine.

Mr. Chairman, I have two motions that I want to make.

We don't have a quorum to deal with the motions so maybe the Clerk will ring the bell. Mr. Antoine, you have a motion.