Thank you, Mr. Miltenberger. Do you have any witnesses you wish to bring into the House?

Does committee agree?

Thank you. Sergeant-at-Arms, could you please bring the witnesses into the Chamber? Thank you.

Mr. Miltenberger, would you care to introduce your guests to the committee here? Thank you.

Thank you, Mr. Chairman. To my left I have Mr. Mike Aumond, deputy minister of Finance. To my right I have Mr. Sandy Kalgutkar, the deputy secretary to the FMB.

Thank you, Mr. Miltenberger, Mr. Kalgutkar, Mr. Aumond. Welcome back to the House. We are on Finance. I am opening the floor to general comments. I have Ms. Bisaro.

Thank you, Mr. Chairman. I don’t have too many comments here, but I did want to make a couple of comments. At the outset I have to say that I am dismayed that overall the government and in particular Finance, because this is where most of the revenues come from, is that there is no new source of revenue in the 2012-13 budget. There has been an opportunity in the last two years. The Minister has held a roundtable with organizations and individuals and has had lots of input into possible revenue sources and yet has not acted on that. I know the Minister feels that this is not the right time to go after a tax. I am not suggesting a tax. There are other opportunities for us to get revenue, particularly from our corporate entities that are operating within the territory.

I look at the statement by the Minister on the second page of his opening remarks. We are looking at an increase of $74 million in federal transfers, a projected increase of $55 million in corporate income tax. That is a fairly large increase in revenue, but on the other hand, the government is pretty much, they’re telling us we don’t have money, they’re telling us that things are very tight, we can’t spend, so to speak. I’m exaggerating a little here, obviously. Yet in the last day we’ve been advised that we need to spend $10 million perhaps on a capital project. We are looking at a supplementary appropriation already for this budget year. We haven’t even got ourselves one-quarter of the way into it. So I’m feeling that although I agree with the fiscal strategy that the Minister has put forward, I’m feeling like we are being asked to hold our nose and not spend money on the one hand, and yet the government can pretty much spend however much money they want on the other and the philosophy doesn’t really jibe for me. So I simply wanted to express my displeasure at that.

I note the renewal of the Financial Administration Act is a focus of this department’s budget and I’m really glad to see that. It is an act that does need renewal. It’s been sort of talked about for the last two years and I would hope that we would get to either an LP position this year so that we can start to move this forward, because I think there does

need to be some action relative to the Financial Administration Act.

As the Minister points out, we are looking at a fibre link through the Mackenzie Valley, I absolutely support that. I think that is something that we do need to look at and I wish the department good luck in trying to finance it.

The last bullet from the Minister is developing a strategy that plans to ensure stable revenues for planning and budgetary purposes. I’m not sure if he’s referring to a stabilization fund or not, but that is a concept that I agree with. We get huge swings in our revenues from corporate income tax and if we can find some way to minimize those swings and to provide sort of a fairly level income through our revenues from year to year, I think that would certainly be a good thing.

Lastly, I want to mention I’m hoping in the very near future that we will have a legislative proposal for the Northern Employee Benefits Service concerns. They need some legislation that can provide them with some security and some coverage through the law. So I’d like to know from the Minister whether that’s coming forward in the near future. I know that it’s being worked on, but it’s been in the works for probably five or six years and I think it’s time that we actually take some concrete action here. So I’m hoping that will be coming in this fiscal year. That concludes my remarks, Mr. Chair.

Thank you, Ms. Bisaro. Moving on with general comments, I have Mr. Bromley.

Thank you, Mr. Chair. Thanks to the Minister for these opening remarks. I guess the first item for me is the incredible $15.6 million of taxpayers’ money being added to the NWT Power Corporation, piled on already tens of millions of dollars in support of their general rate application. I guess this relates to the work done in the 16

th Assembly on electricity rate reviews. At least two Members of this Assembly in the House today said that there would be a price shock if we went ahead with the source of recommendations, I guess you would call them, that they came out with in the 16

th Assembly and it was repeatedly denied. Would the Minister agree that this is trying to deal with the price shock that we’re dealing with now as predicted by those two Members? Thank you.

Your opening remarks are concluded, Mr. Bromley?

No, that was a question, Madam Chair.

We will leave questions until later on. We’re on opening comments.

I’ll leave that question, Madam Chair. Of interest, of course, is the renewal of key

federal transfers, in particular the Territorial Formula Financing Agreement, the 2018-19. I must have been dreaming, but that’s the first I’ve heard of that and I know we had a pretty good one in place up to 2014. I’m wondering if the Minister could comment on how it looks for the subsequent four years, if the previously existing one is still good through 2014 or if this one replaces that. That would be good to know about. Of course, the others are important too. We’ll hear about those eventually, I’m sure.

I also agree that the Financial Administration Act needs a lot of attention and we had some discussions before on that. I’m sure we’ll have lots more. So I’ll be looking forward to what comes forward on that.

I was disappointed that the Petroleum Products Act wasn’t mentioned again. Just for clarity, the concern there, one of the concerns is the taxes are very random in that for the different fuels and there’s little explanation or reason to them. So I think they need a good review and revision. But the big one is that the natural gas is currently not taxed. So anybody that uses them, the biggest corporations in the world can use them for energy generation and pay no tax, whereas the municipalities next door would be paying tax on what they use in terms of diesel fuel generation and so on.

I’m wondering what this department is doing in terms of preparation for devolution and I didn’t see much on that. I was also disappointed that there wasn’t a commitment to doing a review of resource rents, especially given devolution and our anticipation of very soon taking over those authorities and I would hope that there would be some work started on that soon. Thank you, Madam Chair.

Thank you, Mr. Bromley. Next on my list, Mr. Dolynny.

Thank you, Madam Chair, and welcome to the Minister and the delegation here this evening. I know everyone is a bit tired.

I have two items that I would like to bring; observations during the process or preparation for the Department of Finance being here today. One in which is an observation in accounting practices and it has to deal with the issue of amortization.

Coming from the corporate side or the corporate sector for most of my adult life, amortization I know is dealt with a little bit differently in the public sector. That said, in a lot of cases throughout the process of the Finance review, as well as some of the departments, it was very notable that the amortization numbers were identical from year to year, and as a person who came from the corporate world, that would raise a lot of flags. Whether the departments weren’t prepared in time for the

budget numbers or the main estimates, but this repeated itself multiple times in multiple departments, and when questioned, the finger kept being pointed back, well, these are the numbers we got from Finance. So I’ll let the Minister comment as to why, or he may want to let one of his designates comment on it, but as a corporate executive I found it quite I would say concerning, that amortization numbers… There’s a depreciation calculating factor, there’s a sliding calculating factor that has to happen. To have that number repeated or to have the same number in departments and the different expenditure summaries is, I guess, somewhat questionable.

My second area of open comments – and I’ll do it in this context instead of doing it in the detail – is no stranger to the Minister and Department of Finance, because I know I spent some time with him and this has to do with the tobacco tax and the collection thereof. When this was brought forward, we were told as Members that the internal Audit Bureau was involved in the investigation of how this government was dealing with the tobacco tax. Subsequent to that, discussions pursued with myself and the Finance team, but there’s still gaping holes, Madam Chair, in terms of how I believe this government is calculating the tobacco tax. There is no doubt there is a loophole in the system. There’s a manual component in the system and whenever you have manual components, there is doubt and it creates lot of questions. Subsequent to that, the department is using statistics to validate their numbers and those are also statistics which are questionable.

Smoking rates for the Territories are considered much higher than the Canadian average yet this government is using averages that are less than Canadian averages. If you take that to any senior people throughout the Territories, they would be somewhat amused with those numbers. The calculations and statistical calculations that the Department of Finance is apparently using to validate tobacco tax collection, in my humble opinion, is wrong.

This is a pursuit that I will not let go. This is a pursuit I will take the levels that I need to take to make sure that the revenue that is entitled to the taxpayers is put back in the coffers in its capacity. Calculations up to and including anywhere from $4 million to $10 million, in my estimate, is not being collected appropriately. This could be a value-add for days like we had today when we were having to spend another $10 million on the bridge. More importantly, I would rather take this money, since it’s a tobacco tax, and put it towards prevention, which these Regular Members have been fighting desperately to get back into the budget so that we can help the people and their health care in the Northwest Territories.

I’m a bit dismayed, again, that this issue has been in its opinion. It was looked at to a certain degree by, like I said, the Internal Audit Bureau. I’m not denying the fact that they spent some time doing that. Auditing is an art and I can tell you that when you’re auditing a big topic such as tobacco, there are many shoeboxes in the bedroom, and picking one shoebox and auditing and saying everything is fine is not the way to prove beyond a reasonable doubt that there is a problem. There are many shoeboxes in the closet and we don’t have the resources, we don’t have the manpower or person-power to go and audit every one of those shoeboxes. We need to close those elements of doubt. That element of doubt is the manual process of tobacco tax collection. That was the only way we can validate, if we’re truly collecting every dollar out there. Otherwise we’re using statistics, and again those are statistics that can be questioned as to where your source is, what year you’re picking it from, and there’s a lot of interpretation into statistics.

I think the people of the Northwest Territories deserve facts. The people of the Northwest Territories deserve actual numbers. As I said, this will be something that this Member will not drop until I see solutions.

Thank you, Mr. Dolynny. Mr. Bouchard.

Thank you, Madam Chair. My comments on this department will be mainly on the revenue summary and the projections that are projected for this year’s main estimates. I’m looking at most of them and most of them are showing a positive side. I’m looking at the difference from the revised estimates and main estimates, and I’m showing an increase of $132 million. My question is: If those numbers don’t materialize, where will we be without that?

I’d like the Minister and the department to maybe explain where some of these projections are coming from. The Minister has indicated in his opening statements that $55 million will be coming from corporate income tax revenue, which is a phenomenal amount from what I can see, and is well above what’s happened in the last couple of years. I’m interested in seeing where those numbers come from.

As well as in the taxation area of the eight items that deal with taxation, some of them show an increase, and my indications are that the economy in the Northwest Territories is on the upturn, a bit, but that seems like a very optimistic projection in taxation, as far as I can see.

I also wanted to put my comment in there, as well, about the amortization within departments given to Finance and how some of that stuff was a cookie-cutter approach to the costs. A lot of times it was repeated. Like my colleague Mr. Dolynny indicated,

it’s phenomenal that that could happen, and would happen, and most likely was done out of a quickness of projections, I think.

My biggest concerns are the revenue. If that $132 million doesn’t show up, what position does it put us into for years to come? It creates our positive $74 million that the Minister indicated in his opening address, to what could be a negative $50 million, so there’s a big influence there in where those projections and how solid we feel those projections are.

That’s everything.

Thank you, Mr. Bouchard. We are on opening comments. Are there any further opening comments? Mr. Yakeleya.

Thank you, Madam Chair. The Minister has been telling us, the people and the public, through the newspapers, and telling everybody that we really need to watch our financial spending for the next couple of years before we start to look at how we reap what we sow in year three and four. The Minister, for me, has his hands on the pulse of the fiscal. He’s like when these big planes are flown and there’s the pilot and the co-pilot and he is navigator. The navigator is there to tell you how much fuel you have, what kind of weather, where it’s raining, everything. The Minister is like that within our government. He knows where the fiscal is, what’s happening. We’re coming close to our borrowing limit or we’re getting broke or we’re spending too much. Just like the navigator. He’s telling the pilot how far we are from the town we’re going to. He will tell you how far we’re going. He watches everything. The Finance Minister, for me, is like that on the fiscal realities of our government.

In here the Minister has pointed out some things that we need to be aware of. One of the things that we have made a decision on was to help the small communities and we’re making this contribution back to the NTPC to support them. More important, it’s to support our residents in the communities.

I want to ask the Minister in here if he has looked at all the revenue. One of the things we talked about, I think Mr. Bromley talked a little bit about it, was called the resource rental revenue. I think we talked about the Resource Management Act as something that we could take advantage of all the resources that are possibly happening here in the Northwest Territories. How do we do that? Is that through a devolution process? For me in here we are in devolution and we are in that process. We are going to implement the devolution deal. The way it reads here, there are no ands, ifs or buts about it. We’re going through that process. Having the Aboriginal governments with us through that process, we’re going to put a deal together. That’s what I read. That supporting the efforts to ensure the success or completion of a Devolution Final

Agreement and then the implementation of that agreement. For me, we are walking that road. It’s plain and clear here. I guess now we need to get our ducks in order to make this happen, to make it to our best advantage.

I want to just ask the Minister on the resource revenue, the avenues that we could look at to take advantage of the tax regimes and how do we continue to watch our spending for years one and two, and then look at how do we go about making some of these tough decisions amongst ourselves, to know which projects will get the green light and which ones will get the red light and wait until the 18

th Assembly. With devolution, how are we going

to see some of this revenue stay here for sure, in the Northwest Territories?

The previous Minister we had was on the position of decentralization, and there are some numbers here that I looked through again, and as I told the previous Minister about some of the positions that stay in Yellowknife, we’re pretty close to some numbers here. I know that some of these positions, I quoted at 62 full-time positions and six part-time positions being added to the GNWT because of the sunsets and deleted positions, Yellowknife is probably about to 30 to 34 positions. I may be a little off with those numbers for accuracy. Probably we’re looking at the $4 million coming into Yellowknife. That’s still quite a lot of money.

Those are some of the questions, I guess. Throughout the life of this government, we could have some debate as to the merits of them. I want to close off this discussion with my comments here.

Thank you, Mr. Yakeleya. We are on opening comments. Are there any further opening comments from Members? We will move to the Minister of Finance for a response to opening comments. Mr. Miltenberger.

Thank you, Madam Chair. I will quickly give a response. The Member for Frame Lake indicated that the government gets to spend what they want and MLAs are told we have no money to spend and, I would, just for the record, make it clear that we spend what the Legislature votes us to spend. It is a collective budget of this body here, this august body that we are now before.

The Member also commented that a major concern is that we don’t have a lot of new money to spend. As you look around at the landscape around us, pick a province or another country where there’s layoffs, freezes, rollbacks, pension cuts, benefit cuts. Yes, the fact is that we could always spend more money, but the fact that we are here spending and discussing how to spend $1.5 billion dollars and we have had no layoffs, we’ve had good collective agreements signed, we’re going to continue to invest in all the things we need to, I think we should take comfort and solace and some

pride in the fact that our glass, in this case, in my opinion, is half full.

We are working towards new revenue. The most imminent source of new revenue, and not resource rents at this point, but the most imminent source of revenue is going to be the signing of the Devolution Agreement. When that money flows, the resource revenue sharing agreement gives us about $60 million a year and our share will be about $45 million a year. New money. It’s not anywhere in our budget yet because the deal is not signed. We will have the discussion of how to put that money to use. Over time as we take over authority for land, water and resource development we will look at what other opportunities are there. The most immediate one that will come within 18 months is that.

The issue of no new taxes in this time, I think, is still pertinent. I know we will have other discussions about other revenues, but we’ve been focused on efficiencies and working towards the issue of devolution. The legal authorities are absolutely critical but there’s also those fiscal benefits that are there waiting for us. We’ve already left over $300 million on the table, as we’ve talked about this. Three hundred million dollars that we could have put to good use.

We will be bringing forward an LP on the Financial Administration Act by Christmas is the plan. We are very confident in the economic viability of the fibre optic link and Inuvik becoming one of only two places in the world that does that type of remote sensing. It will add significant stability to the economics in Inuvik and the Inuvik region.

We are looking at a Revenue Stabilization Fund. We indicated that in the budget address. We want to move forward, because we agree with the Member, there are these price shocks or revenue shocks, and if we can come up with a way to level those out and cushion them, similar to what we are trying to do with the cushioning of the power rates, that would be a good thing.

With the NEB we intend within 18 months to have, as well, a legislative proposal that we can put on the table. Mr. Bromley indicated the concern about the $15.6 million we’re putting in to cushion the impact of the general rate application. I want to make a clear distinction: The rate restructuring is a separate issue from the fact that there were no rate increases for five years. That five-year no rate increases would be impacting us regardless of what kind of rate structure we now have. The fact is, when you have no new revenues as your expenditures go up, there’s a widening gap that is not sustainable. We’ve acknowledged that we have to come up with a better way, through regulatory reform, to even those out, to minimize them, as well as look at efficiencies to the system to do that.

Our transfers have been done. When we were in Victoria last December and the federal Minister of Finance came into the room, when he laid the document on the table, it covered the health transfer, the social transfer, equalization and the formula funding arrangements with the territories, and those amounts were laid out. There is some work being done to clarify some of the information that was in there, but it covered, pretty well, the majority of our fiscal relationships with the federal government.

We are going to do a review of petroleum products to deal with some of the issues and application issues that the Member has mentioned. Once again, the intent is not to look at raising taxes, but if there are efficiencies and loopholes, we want to look at those.

Devolution is a priority, as well, for finance. It’s on the third bullet, I think, on the last page of my opening comments. It’s in our mandate letter from the Premier. We are fully engaged at all the tables that deal with the negotiations with the organizational structures. All the work that’s being done given the financial implications, Finance is there.

Amortization is done according to the accepted practices. We work with the Auditor General of Canada. They review our books yearly. It’s an issue that has grown in profile over the years. It’s become much more visible, and their need to account properly, so we do that. During detail I’ll ask Mr. Kalgutkar to speak to that.

Mr. Dolynny said some fairly strong things about tobacco collection, and his assertion that somewhere out there is $4 million to $10 million going missing every year. We have spent over 600, more like probably 700 now, hours of auditor time and a significant amount of time of other staff going through this. We’ve reviewed it with everybody, and at this point Mr. Dolynny indicates he still has these significant concerns. He questions the stats we use, which are either our own stats or from Stats Canada. He makes some assertions. We’ve opened every shoebox that we’re aware of that we’ve seen. We’ve put a lot of time to this. He says, in his opinion with his experience with the folks he’s talking to, that there is some clear smoking gun out there that is not visible to us, so we’ve asked. We’ve asked Mr. Dolynny, we’ve asked other folks that have raised this issue, give us that smoking gun so we can backtrack and have the evidence to track this $4 million to $10 million now, because like Mr. Dolynny, we are very interested in if that money exists and it’s not coming to where it should be, which is to the government and to the people of the North. We want to work with the Member to track it down. We need that piece from him. Barring that, of course, the work that I’ve seen, the work we’ve reviewed that all the folks have done, is the

evidence that we have before us, and all the copious amount of effort that was put into that.

In regard to the revenue summary questions, the corporate income tax, if you could stretch the corporate income tax back into the past another three years, you would see that at one point we received an overpayment in corporate income tax, a big overpayment, and we had to pay that back. The last three years we’ve been paying that overpayment back, which has dropped our normal corporate income tax down much lower than it would if you had longitudinal view of, say, 10 years. We’re finishing that now and our projections are that our corporate income tax will go back to those normal rates that you would see over a longer span, that aren’t visible the way they’re laid out in the document that’s before this House.

Amortization, we’ll have that discussion, as I indicated.

Devolution, as the Member for the Sahtu talked about, I’ve spoken to that. Decentralization is critical. The Premier has outlined the commitment. In regard to finance, we have three positions in this document. One of them is forced growth. The other two have reprofiled positions using our own internal resources. Thank you.

Thank you, Minister. We are on page 5-7, finance, department summary, operations expenditure summary, $142.121 million. We will defer this page until we have done detail. Are we agreed?