Thank you, Mr. Speaker. I just have a short budget address.
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Mr. Speaker, Members of the Legislative Assembly, people of the Northwest Territories, as I deliver my second budget address, I am pleased to advise this House that the fiscal circumstances of the GNWT are much more positive than when this Legislature met last year.
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A year ago, as a new government, we faced serious and pressing challenges. We faced significant pressures on government programs and services, resulting partially from the impacts of resource development and economic growth. While this growth provided much needed jobs and investment, it also put significant strains on our infrastructure, on our communities, and on our social fabric in general. At that time, we did not have the fiscal flexibility to make the strategic investments to respond to those challenges.
Our first order of business was to put our fiscal house in order. The second was to consult with northerners so we could set our course for the term of the 15th Assembly. We have done both.
We are now better able to focus on what we want to accomplish as a territory: "self-reliant individuals and families sharing the rewards and responsibilities of healthy communities and a prosperous and unified NWT".
This vision, Mr. Speaker, was developed last May by this Assembly, working in partnership with aboriginal and community leaders. In turn, the government has responded with a long-term strategic plan that sets out the priorities and actions that support the vision and goals of the Assembly.
The budget passed by this Legislative Assembly last year was an important first step in our plan to restore our fiscal sustainability. We limited our spending growth and increased our tax revenues. We were successful in negotiating additional funding for two years under our formula financing arrangements and these negotiations are ongoing for the longer term. We have also been able to secure funding for other priority areas such as health care and infrastructure development.
Today's budget has two objectives. First, we must make strategic investments in the NWT and its people. Second, we must continue the critical work of ensuring our long-term fiscal sustainability. We cannot achieve one without the other.
This budget supports the work of the Members of this Legislative Assembly towards accomplishing our vision. It also sets out the steps we must take to ensure we do not end up back where we started financially. Fiscal responsibility must be more than just words. Our spending must be responsive to the needs of our residents, but we, as a government, must also spend responsibly.
Mr. Speaker, during the course of developing this budget, I have received many comments and suggestions from Members of this Legislative Assembly. We have also received recommendations from the committees of this Assembly, which have significantly strengthened the budget I present today. I want to thank Members for their constructive comments and input, both individually and through the committee process. It is by working together that we can stay focused on our vision of a self-reliant, prosperous and unified NWT.
Economic Review And Outlook
Mr. Speaker, our economic growth continues unabated. Fuelled by non-renewable resource development, the NWT's real gross domestic product, GDP, is estimated to have grown 79 percent from 1999 to 2004. To put this in perspective, the comparable number for Canada is about 16 percent. We are forecasting that it will grow by a further 10.1 percent in 2005.
This growth is driven mainly by diamond exports, and non-renewable resource development is expected to continue to drive strong economic growth for the foreseeable future. We have come a long way from 1998 when the opening of the Ekati diamond mine started the Canadian diamond mining industry. The NWT is now the world's third largest supplier of rough diamonds by value. Production from the Ekati and Diavik diamond mines was worth $1.7 billion in 2003 and is estimated to have grown to $2.1 billion in 2004. The Snap Lake project received final approval last May to become the NWT's third diamond mine. Construction will begin this year and full production is scheduled for 2007.
Mr. Speaker, this government continues to support the development of a Mackenzie Valley natural gas pipeline. We continue to work with aboriginal leaders as we proceed into the next phase of the pipeline development process.
Pre-construction work for the Mackenzie gas project is expected to start in 2006 with pipeline construction scheduled over the period 2007 to 2010. If the Mackenzie gas project is approved, and this work schedule holds, natural gas will begin flowing south from the Mackenzie Delta by the end of this decade.
Other sectors of the economy are also growing, spurred by the various non-renewable resource development projects. Retail trade has increased over $150 million, or 41 percent, since 1999. Wholesale trade increased 20 percent from 1999 to 2004. Manufacturing shipments have grown from $22 million in 1999 to an estimated $63 million in 2004.
Mr. Speaker, the tourism industry is an important part of our renewable resource sector. Tourism, and particularly aurora tourism, is rebounding from the setbacks caused by the terrorist attacks on the United States and the SARS outbreak.
Aurora lights tours have completely recovered and are continuing to grow. Tourists and business visitors contribute $90 million in direct spending annually into the NWT economy and the tourism industry has the potential to provide an even larger contribution, especially in smaller communities. We need to continue to support the tourism industry in its efforts to market the NWT as a four-season destination.
Economic growth is benefiting NWT residents. As of December 2004, the territorial employment rate, which is the percentage of people over 15 years of age that are employed, was almost 71 percent, the second highest in Canada.
Despite our booming economy, we continue to observe quality of life indicators that are significantly below national standards. The distribution of economic activity in the NWT is not even. The NWT Bureau of Statistics 2004 community survey shows unemployment rates ranging from five percent in Yellowknife to almost 40 percent in some smaller communities. One of the main priorities of this government is to ensure all northerners have the opportunity to benefit from economic development. Economic growth must not only benefit large corporations, it must also benefit the young men and women who call this land home. The development that we are experiencing must result in improved social conditions and help provide a better quality of life for all NWT residents.
It is important to point out, Mr. Speaker, that while the NWT receives some benefits as a result of our economic boom, the rest of Canada benefits even more from our non-renewable resource development. Until we negotiate new arrangements with the Government of Canada, they will continue to receive more than 90 percent of government revenues from non-renewable resource development. Further, the majority of the direct and indirect employment created by resource development would benefit Canadians living outside the NWT. Clearly, the negotiation of an agreement that ensures that northern governments receive a fair share of resource revenues is a critical requirement for continued development in the NWT.
Fiscal Review And Outlook
Turning now to our fiscal situation, Mr. Speaker, I am pleased to report that the negotiated increases in federal transfers and the successful implementation of our fiscal strategy have greatly improved the government's fiscal outlook over last year.
2003-04 Year End Results
Our final numbers for the 2003-04 fiscal year showed an operating deficit of $65 million, $13 million less than estimated last March. This was primarily the result of higher-than-expected revenues.
2004-05 Update
Last March we predicted a $46 million operating deficit for the current fiscal year, 2004-05. I am pleased to advise this House, Mr. Speaker, that we are now projecting a $44 million operating surplus.
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The current 2004-05 revenue forecast is $103 million higher than last year's budget forecast. Higher formula financing grant and health fund transfers account for $92 million of this increase, but our tax revenues are also estimated to be higher than forecast. Expenditures for the current year are now forecast to be $14 million higher than budgeted last March. This increase is primarily due to expenditures beyond our control, such as costs incurred for additional fire suppression activity due to a severe forest fire season in 2004.
In short, the strategy we adopted a year ago -- a strategy composed of securing additional revenues under our formula financing arrangements and implementing both expenditure reallocations and limited tax measures -- has been successful.
2005-06 Outlook
Mr. Speaker, this budget holds the line on spending growth. Our 2005-06 operating expenditures are budgeted to grow less than one percent from the 2004-05 Main Estimates. This, combined with increases to the formula financing grant, will produce a budgeted operating surplus of $49 million for 2005-06.
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Medium-Term Outlook
As late as last fall, we were forecasting that this government would exceed its authorized borrowing limit of $300 million by fiscal year 2006-07. I am pleased to announce that the negotiated increases in federal transfers and the expenditure restraint that we are continuing to exercise mean that the GNWT will not exceed its borrowing limit in the medium term. However, our fiscal strategy must take into account the requirement set out by the federal government to repay them the $290 million corporate income tax overpayment that we received in 2002-03.
Mr. Speaker, the good news on the revenue side is that we have been able to negotiate increased funding in the short term under formula financing. However, our funding arrangements after 2005-06 are uncertain. The new rules for formula financing after 2005-06 will be established
after an Expert Panel on Equalization and Territorial Formula Financing provides recommendations on how funding should be allocated among the three territories. The panel will report in late 2005, which adds uncertainty to our fiscal framework beyond 2005-06.
This uncertainty means we must continue to exercise fiscal discipline. We cannot make expenditure commitments that we cannot finance. Although we have significantly higher revenues than forecast last year, we need to continue with our fiscal plan and meet the expenditure targets we set last year. I say this, Mr. Speaker, because we needed $46 million to balance the 2004-05 budget and we continue to face forced growth of over $40 million annually to cope with growing population and inflation.
Fiscal Strategy
Mr. Speaker, in many ways our fiscal strategy can be compared to the operations of a well-managed household. A family would be in dire circumstances if they had to borrow to buy groceries. If they found themselves in this situation and could not earn more income, their only alternative would be to look at how they spend their money. If money is tight, they may need to choose between buying their children toys or new winter coats. Most families make these choices on a daily basis. The GNWT is no different. Our operating expenditures are not fiscally sustainable if we have to borrow to finance them. However, just like a family is prepared to borrow to buy a house if they can afford the monthly mortgage payment, we are prepared to borrow to make necessary capital investments.
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We do not want to find ourselves in the fiscal situation we faced last March. We must take steps to ensure ongoing fiscal sustainability. Our fiscal responsibility policy is a cornerstone of this budget and our new fiscal strategy.
Our government must invest in programs, services and public infrastructure for NWT residents. The new fiscal responsibility policy sets out the guidelines for how much we can borrow, what we should and should not borrow for, and how we will be held accountable for our borrowing decisions. We are prepared to borrow for infrastructure and other investments. We are not prepared to borrow for day-to-day operating requirements. The fiscal responsibility policy will ensure the government has a coordinated strategy for responsible spending, borrowing and debt repayment.
The NWT requires significant investment in infrastructure. The fiscal responsibility policy establishes an ongoing means of financing that investment. The policy requires that, at a minimum, 50 percent of our annual capital infrastructure investment will be financed by the cash generated from operating surpluses. A maximum of 50 percent of annual capital infrastructure investment will be financed by debt. This means we need to plan for, budget and achieve operating surpluses on an ongoing basis that are sufficient to generate the cash to finance 50 percent of capital investments, as well as make the principal and interest payments on what we have borrowed. Ensuring we have cash operating surpluses sufficient to fund critical capital investments is one of the disciplines we must exercise to be truly fiscally responsible and accountable.
Our fiscal responsibility policy means that we must focus on priority areas and be cautious about ongoing program commitments. This budget limits expenditure growth in 2005-06 to critical new initiatives and forced growth. Our priority initiatives are those that support the goals and the needs identified in our strategic plan.
By restraining spending in 2005-06 we can reduce the likelihood of further major spending reductions. Of course we must also be vigilant to ensure we are spending wisely and achieving acceptable results. Responsible management and sound fiscal stewardship means continually monitoring our expenditures on programs and taking actions to further improve efficiency and results. We must be able to make these decisions without the pressure of a fiscal crisis.
Mr. Speaker, as part of our fiscal strategy we requested that Moody's Investors Service, a respected international rating agency, undertake an independent credit rating for the GNWT. I am pleased to report today that yesterday Moody's announced that it has issued an AA3 credit rating for our Government. This is an excellent rating.
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This high-grade rating represents an independent assessment of the strength of our economy and recognizes the sound fiscal position and outlook of this government. The rating is built on the commitment to long-term fiscal planning and balanced fiscal outcomes made by the Members of this Legislative Assembly.
Mr. Speaker, as a result of the sound fiscal position of the government and the implementation of the fiscal responsibility policy, I will be asking the Honourable Ralph Goodale to change the current borrowing authority from its arbitrary level of $300 million to one which reflects this government's capacity to finance debt. We believe affordable debt to be the level at which annual debt payments do not exceed five percent of total annual revenues.
Expenditure Measures
Fiscal sustainability not only means living within our resources but also ensuring that the fundamentals and necessities are in place. That means we spend on priority programs first. Total budgeted expenditures in 2005-06 will grow to $974 million, an increase of less than one percent from last year. The budget includes $20 million in forced growth for current programs and services, and $16 million for new initiatives that will help us achieve the goals set out in our strategic plan. But we are offsetting these increases with expenditure reductions of $26 million.
When we took office last year, our fiscal situation required strong action to reduce spending. We set a target of reducing spending by $10 million in 2004-05, $20 million in 2005-06 and a further $20 million in 2006-07. Today I am able to report that we have exceeded our reduction goals for 2004-05 and 2005-06 by $5 million in each year. By making these hard spending decisions early, and with our improved revenue outlook, we have met our short-term expenditure objectives. By remaining aggressive in looking for efficiencies and better ways of doing business we will be able to make strategic investments in areas of priority to the people of the NWT.