The Department of Finance. Is committee agreed?

Thank you. We will do that, but we are going to take a short break first. Thank you.

---SHORT RECESS

Welcome back, committee. At this time, I would like to ask Minister Roland if he would like to deliver his opening remarks for the Department of Finance, Mr. Roland.

Thank you, Madam Chair. I am pleased to present the Department of Finance's main estimates for the fiscal year 2006-2007.

The Department of Finance, through its responsibilities of generation and management of our cash and borrowing activities, plays an important role in ensuring the government is able to deliver its programs and to make informed decisions.

The department's mandate has changed with the reorganization of the Government of the Northwest Territories' central agencies. The responsibility of the Bureau of Statistics has been transferred to the Department of Executive, and the Department of Finance's mandate to provide a macroeconomic policy analysis and advice has been clarified and strengthened.

The department's focus in 2006-07 will be on the major fiscal and economic issues highlighted in my budget address:

• • ensuring that the new formula financing arrangements reflect the needs of the NWT;
• • changing the $300 million federal borrowing limit to one that reflects our government's ability to finance debt;
• • working toward the conclusion so resource revenue sharing arrangements that provide a fair net fiscal benefit to the NWT; and
• • developing a macroeconomic policy framework for the Northwest Territories.

Other ongoing initiatives that continue to be a priority include:

• • participation in the analysis, information gathering and preparation related to the Mackenzie Valley pipeline;
• • finally, a key outcome for the department is the development of amendments to the Liquor Act for consideration by this Assembly.

For 2006-07, the Department of Finance has identified a total expenditure budget of $7.953 million, or 14.3 percent, or $994,000 more than the 2005-2006 Main Estimates amount. The net increase is composed of:

• • $491,000 to implement the department's macroeconomic policy responsibilities;
• • $117,000 for projected insurance cost increases;
• • $145,000 to help ensure that the department's tax collection function has the capacity to cope with the increased volume of tax activity resulting from our growing economy;
• • $375,000 to fund Collective Agreement, TSE and WCB premium increases; and
• • a reduction of $80,000 to reflect the sunsetting of the Liquor Act review in 2005-2006.

As I mentioned earlier, it is my intention to proceed with a broad inclusive process to develop a macroeconomic policy for the NWT over the next year. We will research and analyze the big picture policy options available to us. The resulting economic blueprint and policy direction will allow us to make effective investments and adopt positions and provisions that will maximize our opportunities and influence the direction and expansion of our economy and resulting government revenues. The funding proposed will provide the resources needed to implement this initiative.

The GNWT has seen large increases in its insurance costs over the last few years, although recent market reports indicate the rates are starting to decline in 2005. Last year's hurricane season will have some impact on the Canadian insurance property market and the department is focussing an increase in property insurance premiums. Forecasting, I'm sorry, the department is forecasting an increase in property insurance premiums. The liability insurance market is stabilizing and rates are expected to remain largely unchanged in 2006-2007.

The growth in the NWT economy over the past five years is having a significant impact on the workload on the department with respect to tax collection. The department is proposing an increase of $145,000, beginning in 2006-2007, to fund the cost of two additional tax collection and compliance positions. The financial resources allocated to tax collection will protect our existing tax base and generate additional revenues to the government.

The department received one-time funding in 2005-2006 to undertake a review of the Liquor Act. This initiative has recently been completed and a report has been provided to Members and to the public. I look forward to working with Members to bring forward amendments to the Liquor Act that will make the act more responsive to the needs of our residents.

The Department of Finance, as the lead revenue department of government, accounts for over 89 percent of total GNWT revenues forecast for 2006-2007. The main estimates include a forecast of departmental revenues for 2006-2007 of $984.119 million. This includes a formula financing grant of $752 million. Because the report of the Expert Panel on Equalization and Territorial Formula Financing will not be available before spring, the 2006-2007 grant will be fixed in federal legislation. This means that the GNWT will bear 100 percent of the risk of tax and revenue changes during the year.

The department's main estimates do not identify any increased borrowing cost for 2006-2007, but our medium-term fiscal outlook does forecast significant increases for 2007-08 and beyond, as the GNWT is required to repay almost $300 million by the end of 2006-2007 for the 2002-2003 overpayment of corporate income tax.

The forecast, of course, is also dependent on our revenues and our spending decisions for both operations and capital over the next few years. That concludes my opening remarks and I would be pleased to answer any questions Members may have. Thank you, Madam Chair.

Thank you, Minister Roland. At this time, I would ask Mr. Menicoche if he would please bring the committee on Accountability and Oversight's remarks on the Department of Finance. Mr. Menicoche.

Thank you, Madam Chair. Members of the Accountability and Oversight committee had an opportunity to meet with the Minister of Finance on September 28, 2005, to review the draft business plan for the Department of Finance.

Members also received a briefing from the Minister of Finance on January 17, 2006, outlining the changes to the budget for the department since the committee reviewed the draft business plan in September.

Committee members made note that the department is proposing to spend $7.953 million in operations expense in fiscal year 2006-2007.

Committee members offer the following comments on issues arising out of the review of the 2006-2007 Draft Main Estimates and budget-planning cycle.

Borrowing Limit And The Fiscal Responsibility Policy

The borrowing limit for the GNWT is arbitrarily set at $300 million by Order-in-Council of the federal Cabinet. The Standing Committee on Accountability and Oversight notes with concern that the current fiscal framework projects that the GNWT will exceed the arbitrarily imposed borrowing limit, often referred to as the 'debt wall,' in late 2007-2008.

During the last business planning cycle, the Standing Committee on Accountability and Oversight supported the Finance Minister's initiative to establish a fiscal responsibility policy to replace the arbitrary debt limit. Since that time, the GNWT's fiscal situation has taken a turn for the worse, making the need to establish the fiscal responsibility policy all the more urgent.

The Standing Committee on Accountability and Oversight continues to offer strong support for the government's efforts to advance the fiscal responsibility policy with the federal government. The committee believes it is a positive step to move away from the arbitrarily established debt limit, and to establish a borrowing limit that recognizes the GNWT's capacity to finance debt. Not only is this consistent with practices in other jurisdictions, but moreover, it places responsibility on the GNWT to be accountable for its own debt management.

Formula Financing

During the review, the committee noted the federal government has extended the interim approach to formula financing for another fiscal year while it waits for the delayed report from the expert panel. The Finance Minister advised the committee of the government's intention to increase efforts to move the GNWT's position forward, especially on the key issue of resource revenue sharing. The committee sees the change in government in Ottawa and the Council of the Federation report on Fiscal Imbalance as opportunities to raise the profile of GNWT.

The standing committee strongly supports the Finance Minister to be aggressive in his lobbying efforts. Thank you, Madam Chair.

Thank you, Mr. Menicoche. I would like to ask Minister Roland if he would like to bring witnesses into the Chamber.

Yes, Madam Chair.

Thank you, Mr. Roland. Is committee agreed?

Agreed. Thank you. I would ask the Sergeant-at-Arms to please escort the witnesses to the witness table.

Minister Roland, for the record, could you please introduce your delegation? Mr. Roland.

Madam Chair, joining me today is the deputy minister of Finance, Ms. Margaret Melhorn; and, the director of finance and administration, Mr. Mel Enge.

Thank you. I will now ask the committee if you have general comments on the Department of Finance. Mr. Ramsay.

Thank you, Madam Chair. For the Minister of Finance, I welcome him this afternoon to the proceedings and welcome to your staff, as well. I am going to sound a bit like a broken record again this afternoon, but it's something I feel like I am obligated to say because when you see something happening that you don't think should be happening, you had better say something, and now is my time to say it and I am going to say it again.

The addition of the staff positions in the macroeconomic policy area within the Department of Finance is, in my mind, something that's just been dreamt up to replace the Bureau of Statistics, which happens to no longer be within the Department of Finance's mandate and has switched over to the Department of Executive. I think the macroeconomic policy unit is just to fill that void. I will certainly have a number of questions as we go through detail and I will try to keep these strictly to comments.

It would seem to me that given the economic history of the Northwest Territories with the pipeline from Norman Wells, the boom we had in the Beau-Del in the '80s, the fact that the Northwest Territories produces 14 percent of the world's total production of diamonds, for a government to admit in the year 2006 that it doesn't have a macroeconomic policy, or any type of direction, or nobody was doing this work before, I find that completely unbelievable that the government could admit to something like that, an oversight like that.

Obviously somebody in this government, of the 4600-odd workforce that we have, has been doing work in this area. I mentioned it to the Minister of ITI that was before us today, they have an investment in economic analysis division within his department. If you are looking at something like this, like an economic policy division, to me it just doesn't belong in the Department of Finance. Absolutely not. I think the Department of Finance should concentrate on what it does best and that's the numbers. I don't think it should concentrate on policy, especially economic policy. I think that belongs somewhere else. I don't know how much more I can plainly say that. I think the department has its hands full trying to wrestle with the federal government on trying to get a better arrangement.

The way things have gone here lately -- and I have said this before today and I will say it again today -- it's no way to govern a territory. How we just limp from month to month and year to year on the scenarios that play themselves out here is beyond me. It's so hard to believe that we even manage to exist, given what we are up against. The fact that we need some fiscal surety from Ottawa remains something that's very elusive.

I would like to think that we are close to getting some kind of resolution to this in Ottawa. The Finance Minister was with us at a public meeting earlier today when we talked about the lowering of the corporate tax rate from 14 percent to 11.5 percent. If you start looking at the whole scenario around this, the reason why the Government of the Northwest Territories thought it was forced into making a decision on lowering that tax rate from 14 percent to 12 percent just to appease the federal government, forced into a corner, and now here we are, two years later, lowering it back from 14 percent to 11.5 percent to try to save what tax filers haven't left the Northwest Territories, so if they do file their taxes here we can at least maintain some revenue streams. It's hard for me to believe that we just sit back and let this type of thing happen.

I said it earlier in the public meeting today, we just take it. We're forced to accept that that's the reality that the Northwest Territories is faced with. It doesn't seem to me that we stand up. Somewhere if somebody put me in a corner and made me make a decision where I lost $30 million and that's just the start, $30 million, it could be 60, it could be 80, it could be $100 million that that decision that the Government of the Northwest Territories was forced into two years ago comes back to cripple us for another $100 million. If somebody forces a decision like that on me, I'm going to take them to court. I'm going to challenge them and I'm going to do everything in my power to show somebody, say something that, listen, this isn't our fault, it's your problem, you made us make the decision, you fix it, and I haven't heard our government stand up and say these things to Ottawa. Stop taking advantage of us, give us what we need.

I know the report from AOC says, and I want the Finance Minister to know this, he has my support, 100 percent of my support, stand up, be aggressive, go after these guys and I think they've done us wrong on forcing us on that decision two years ago, and I think the federal government should have to pay us back once we can quantify. We might not ever be able to quantify what it's going to cost us, but we should go back after them for that money. It was no fault of ours, Madam Chair. So, again, I just want to say for the Finance Minister that he be aggressive, go after them and you'll have my full support. I know he's doing his best and it's a tough position to be in, Madam Chair, but I think we have to get tougher and we have to get more aggressive. Thank you.

Thank you, Mr. Ramsay. General comments. Ms. Lee.

Thank you, Madam Chair. I just want to offer some comments on the Department of Finance, as well as I guess the budget address too on the issue, and I'd like to speak about the new positions being put into Finance. I've mentioned those positions on a number of other occasions and I happen to think that this is not such a bad idea. I don't know exactly what relationships this section will have with the work that the ITI is doing, but I'm of the opinion that any government should have an economic think tank. We should be aware of what's going on in the macroeconomic picture, and certainly in our jurisdiction there's a lot going on and it's funny because we have a dichotomy of constantly arguing with the federal government about what share we are not getting and the fact that we don't have a resource revenue sharing agreement and devolution negotiation and such, but at the same time we, in some corners of our territory, seem to be awash in cash, or at least it seems like that, or maybe because we didn't have this kind of situation before where we have $500 million of SIFF money, even though it's not coming to the GNWT, but it is money that's going into communities where communities are needing to talk about what to do with this and with all of the cross-jurisdiction. I'm sure the communities want to maximize the opportunities with this money, but not fund things that are the jurisdiction of the GNWT or Canada. That in itself could be a challenge because we are so intermeshed and then we've had community transfer money, I mean community transfer from MACA, the gas tax money and the infrastructure money. I mean, it's hard for us to keep track of all the impacts on that just in numbers.

But in our visits to communities during pre-budget session, elders have come to me and said, you know, we have to get ready for what's going to happen to our community with the residential money. I mean, sometimes we need to deal with the impacts of money coming in and we have a different economy in the North that government plays still such an important role in terms of how the money is infused into our economy. I think Yellowknife and some of the major centres have a market economy and there's a lot of private investment happening, but in many communities, government and

public money is still the major purse string and it is a good thing to understand how all these relate to each other. Now, how do we maximize the benefits out of that end? I don't know exactly. Maybe the Minister will have a chance to speak further when we get to the specific sections about exactly what the Minister has in mind in terms of what he thinks this section could do, and what the new economists in this section are going to be studying. I'm going to have some assignments for them, as well. So in that respect, I do support that.

The second thing that I want to briefly mention is I think some of the things that this section should do and that I've been told that when I ask questions about it when we were reviewing ITI or Housing, even that the Finance department has taken over analyzing impact of Novel, or, sorry, I wasn't supposed to mention that name, ABCD Company, a new housing concept, and I want to speak that just in terms as an economic project. Five hundred million dollars under socio-economic impact money is a huge infusion of money. That's $500 million. That's half of our budget. It may not be enough, but it is a big, big chunk of money.

Residential students' healing money, if that does come through with this new government, that could be in the hundreds of millions and that is an infusion of money into our economy. Expenditure of $500 million for the new housing concept, or even all the money that's going to come in with the pipeline, seven to nine billion dollars, all the labour force that's going to come. I do believe there's got to be an engine in there, in government somewhere, to study what the impact of that might be and how do you best engineer, and how do you best make public policy decisions in that regard, and the better information we have, the better public decisions we're going to make. So in that regard, I do support that.

So I'm going to reserve specific questions under this area when we hit those relevant sections. So for now, those are my general comments. Thank you, Madam Chair.

Thank you, Ms. Lee. Next I have Mr. Braden.

Madam Chair, an overriding event or aspect of our fiscal future is going to come before us we're told sometime this spring when the report of the panel, this expert panel on taxation and equalization, is going to deliver its verdict on how things are managed across the country. If I understand the process here, there is kind of a side table or a side panel that has been set up to look at the special circumstance of the Territories.

Madam Chair, we're at such a crossroads with our fiscal potential. Right now, as the Minister has indicated, three-quarters, almost exactly three-quarters of the billion dollars in revenue that we're expected to glean in the coming fiscal year comes directly from Canada. The opportunity that we're looking for is to, of course, gain more royalties, but also to restructure the way in which Ottawa finances the Northwest Territories and make it, I think, a more modern and progressive system and one that doesn't have so many sort of penalties or consequences built into it. It is especially something that I hope we can achieve, Madam Chair, with the fiscal responsibility policy. I've been a supporter of that since day one, as a way in which we can much more responsibly and I think realistically manage our own affairs, and disengage ourselves from this ancient colonialist approach of setting this $300 million borrowing limit on us, regardless of the needs, or the strength, or the ability of our economy to finance debt and call our own tune.

So I guess a perspective that I have here, and I'd be interested in whether the Minster cares to comment on it now or at some point in our detail, is that we're in a holding pattern right now. There's nothing we can do to really impact the kind of help we'd like to see from Ottawa, or the kind of adjustments we'd like to make. We're locked down until this panel comes into play. I guess what I'd appreciate hearing from the Minister is some sense of the program, or his expectations of how are we going to deal with this panel's recommendations once they're delivered both to us and, of course, to Ottawa. Should we anticipate that we're going to have a chance to debate, or appeal, or negotiate anything that may be in these recommendations? Are we going to have any choice or any say at all in what goes on? Are we going to be kept in limbo again for months and months and months and months until some kind of decision is made? Some forecasting, if the Minister has any sense of what we can anticipate, how is the process going to go once this panel delivers our fate and delivers our future? That's it, Madam Chair. Thank you

Thank you, Mr. Braden. Any further general comments? No further general comments. Then we will proceed with the detail and I would as Members please if they would turn to page 3-10, information item, revenue summary. Any questions?

Agreed. Thank you. Page 3-13, activity summary, directorate, operations expenditure summary, $1.515 million.

Agreed. Thank you. Page 3-14, 15, information item, directorate, active positions. Are there any questions?