Thank you, Mr. Speaker. The Government of the NWT is in a difficult financial situation. The money we are receiving from Ottawa and from our own taxes and other types of income is not enough to pay for our current levels of spending. Our annual deficit will get bigger if spending is not reduced. We cannot continue to allow our spending to grow at a faster rate than our revenues. We must act now to avoid a crisis.
The main reason that the government is in financial trouble is the low growth in the grant from Canada over the last two years because of changes that the federal government imposed on us in the formula financing arrangements in 1988 and 1990. We estimate that the 1988 and 1990 changes in the formula will have cost our government more than $150 million by the end of 1993.
On a more optimistic note, Mr. Speaker, it is expected that we will have come through the worst of the effects of the formula changes by the end of 1993.
Mr. Speaker, we are currently projecting a $40 million deficit during the current fiscal year, largely because of the formula changes. If we continue with our current rate of spending, we will be faced with an even larger deficit next year. We cannot afford these deficits. If we allow ongoing deficits, we will be very quickly broke with nobody to help us out, not the federal government nor the NWT taxpayer.
Furthermore, Mr. Speaker, as a result of reductions in anticipated revenues which have not been offset by reduced spending, we are faced with a cash shortage. Although the government has an accumulated surplus, according to its books, the surplus is used up by loans to municipalities, by inventories such as petroleum products, and in other assets.
For example, Mr. Speaker, we currently have $44 million in loans to municipalities, some $30 million in petroleum products inventories and over $31 million in unpaid bills for hospital care for status residents that the federal government is trying to avoid paying.
If our spending and our receipt of revenues continues as projected, the government will have to borrow in the region of $50 million before the end of 1991-92 to provide the cash it needs to meet its financial obligations. This borrowing would be temporary. It must be eliminated in the future by taking strong expenditure reduction measures for this year and for next year.
Continued borrowing to finance operating deficits is not an option. The Northwest Territories does not have the capacity to finance a large amount of accumulated debt. If we continue on our present course and do not return to a balanced budget, the government would quickly go broke. Reduced spending, Mr. Speaker, must be the government's main objective. Putting our finances back on track means making do with less. This means making a permanent reduction in our expenditures now to eliminate the current deficit and then slowing down our rate of spending increases in the future to match the rate that our revenues are growing.
Mr. Speaker, last week the government announced a number of short-term measures to reduce our deficit for 1991-92. Although modest restraint measures of this nature will not solve the government's financial problems, they will prevent the deficit from climbing even higher while we prepare for the longer term and the more fundamental changes necessary to fight the deficit.
These short-term restraint measures were carefully designed to keep the impact on services to the public to a minimum, and procedures have been put in place that provide for common-sense exemptions. To seek an exemption a Minister need only provide a short explanation and request to the Government Leader, who will make a decision. For example, Mr. Speaker, we have already exempted teachers and community nurses from the hiring freeze as their services are considered essential.
These short-term restraint measures have caused some concern on the part of the business community, and we understand that concern, Mr. Speaker. The business community counts on government operations for a large portion of its revenues. However, these measures will not bring government activity to a standstill; necessary business will proceed.
We must all recognize that the alternative to taking immediate action to reduce expenditures is a larger deficit this year, which will only result in more drastic expenditure reductions down the road.
Mr. Speaker, the government realizes that actions such as the expenditure restraint measures are not the long-term solution to our fiscal problems. We have to manage our way out of this deficit. Wholesale and arbitrary cuts in existing operations are not the answer. To recover from the current deficit position and create a leaner, more efficient government will require fundamental changes in the way government does business.
Mr. Speaker, the recommendations contained in the report, "Strength at Two Levels," give us some options for becoming more efficient while actually improving service to the public and achieving some of our main objectives.
The Government Leader has already advised you of cabinet support for the general direction of "Strength at Two Levels" and has also advised you of some of the immediate initiatives we propose to take. Actual implementation of some or all of the recommendations will require the full support of the Legislative Assembly and its committees, and determination and perseverance by cabinet. Thank you.