The Harper government recently released "Canada's Northern Strategy," which is anchored on the four pillars of sovereignty, environmental sustainability, socio-economic development and devolution. This dedicated strategy is most welcome and long overdue. Most Canadians are generally comfortable with the government's Arctic policies and are becoming increasingly aware that all of us, not just those who live north of 60, have a social, cultural and economic interest in the North's successful development.
The pillar where there may be some anxiety is devolution, especially resource devolution. No doubt, some of this anxiety arises from the rather astonishing values of per-capita cash transfers under Territorial Formula Financing (TFF), the territorial version of the provincial equalization program. These values, with percentage of total territorial revenue they account for, are: Yukon, $18,166 (65 per cent); Northwest Territories, $18,704 (65 per cent); and Nunavut, $30,265 (81 per cent). Compared to the highest per capita provincial equalization payment, PEI's $2,300, the territories appear to qualify as fiscal wards of the central government, and as such, one must be careful when it comes to further devolution - or so the story would go. In fact, this interpretation is quite misleading.
The first point to note is that the territories have very high values of per capita GDP. Indeed, the Northwest Territories has far and away the highest per capita GDP ($97,923) in the country, with Alberta a distant second ($69,789). Yukon ranks third and Nunavut eighth. To be sure, while some of this relates to their high transfer levels, the reality is that the NWT has a strong mineral base.
So if the NWT's GDP is so large, why is its TFF transfer still so high? Part of the answer is that the expenses associated with northern resource enterprises (transporting workers and machinery, capital expenditure and depreciation, infrastructure spending) are very high, which reduces profits and corporate income taxes per unit of output or GDP. Another part is that these resource-driven per capita GDP levels do not convert to large own-source revenues, in large measure because Yellowknife does not have a resource devolution agreement with Ottawa.
Also, the territories get precious little income-tax revenue from the many "fly-in" workers who staff territorial resource enterprises. The provincial component of these workers' personal income tax is paid to the province where they reside on Dec. 31, and one presumes that most of their spending also takes place in the home province. This needs some rethinking: Since fly-in workers are likely to be an important permanent part of the territorial economic model, why not allow the territories to collect the personal income taxes from these workers and have Ottawa and the provinces agree that these territorial taxes will be credited against any provincial taxes owing under the existing Dec. 31 tax convention?
Given all of this, since Ottawa's decisions ensure that the territories' own-source revenue capacity benefits little from resource development, Ottawa must therefore (following TFF requirements) fill the resulting gap between a territory's expenditure needs and its revenue means with a correspondingly higher TFF transfer.
Lest one think that this is a burden on the federal treasury, data for 2004 indicate that Ottawa's revenues from the Northwest Territories were actually larger than the value of the TFF transfer to the territory! A more complete assessment of net flows would also take other transfers into account.
Thus far, the focus has been on the NWT. But the economic future bodes extremely well for all of the territories. For example, beyond its mining potential, it is estimated that Nunavut has at least 10 per cent of Canada's total oil reserves and more than 20 per cent of Canada's natural gas reserves - the territory's per capita GDP could begin to approach a magnitude larger than that of the average province.
However, there is another important and complex part of northern devolution. There are aboriginal governments and land-claim settlement organizations (such as Nunavut Tunngavik Inc.) within each of the publicly governed territories - first nations governments in Yukon, Inuit governments in Nunavut, and both in the Northwest Territories. For those that have signed modern treaties, the associated land claims settlements also embody resource devolution agreements.
The obvious challenge for all concerned will be to move ahead with devolution in ways that do not lead to the economic balkanization of the North. However, for both territorial and aboriginal governments to look beyond their own interests and work collectively for the strength of the North in general, the devolution agreements need to be in place. And Canadians everywhere have to come to grips with the fundamental issue: Whose North is it?
Thomas Courchene is co-editor of Northern Exposure: Peoples, Powers and Prospects in Canada's North , published by the Institute for Research on Public Policy. He is a senior scholar at the IRPP and a professor at Queen's.