{"id":176790,"date":"2022-09-07T14:55:12","date_gmt":"2022-09-07T18:55:12","guid":{"rendered":"https:\/\/irpp-policy-options.local\/issues\/unique-challenges-of-canadas-north-require-unique-fiscal-arrangements\/"},"modified":"2025-04-14T03:26:39","modified_gmt":"2025-04-14T07:26:39","slug":"unique-challenges-of-canadas-north-require-unique-fiscal-arrangements","status":"publish","type":"issues","link":"https:\/\/potestlaunch.irpp.org\/fr\/2022\/09\/unique-challenges-of-canadas-north-require-unique-fiscal-arrangements\/","title":{"rendered":"Unique challenges of Canada\u2019s North require unique fiscal arrangements"},"content":{"rendered":"

Fiscal federalism has been a frequent point of contention<\/a> in Canadian politics. Yet, the three territories have received little attention in public debates on the issue. Instead, the provinces, especially Alberta following its recent provincial referendum on equalization<\/a>, have been the focus.<\/p>\n

This is unfortunate. The territories represent unique case studies, due to their limited revenue-generating powers, distinctive demographics, economies, natural resources and political institutions. Our research suggests that the current fiscal relationship the territories have with the federal government may fall short in addressing their future challenges.<\/p>\n

To be clear, there have been deep dives into federalism and the territories. The Expert Panel on Equalization and Territorial Formula Financing,<\/a> for example, or the Mayer Report on Nunavut Devolution<\/a>, which explored the prospects of natural resource devolution in Nunavut, were important. But new challenges are mounting, and reforms to fiscal federalism affecting the territories should be examined.<\/p>\n

For several important reasons, the issues facing the territories are distinct from those facing the provinces.<\/p>\n

National policymaking must respect federalism<\/a><\/p>\n

Canadians are still committed to decentralized federalism<\/a><\/p><\/blockquote>\n

First, and most important historically \u2013 though still relevant today \u2013 is control over Crown lands, which is constitutionally within the federal government\u2019s jurisdiction, unlike the situation with the provinces.<\/p>\n

While recent devolution agreements have eased this fiscal constraint, it has not been eliminated. For example, the 2014 N.W.T. devolution agreement<\/a> allows the Northwest Territories to keep half of resource revenues up to a fixed share of its budget needs. The rest goes to the federal government. This is a far cry from the provinces, which receive 100 per cent of natural resource revenues from within their land borders.<\/p>\n

Second, while the territories vary on their dependence of natural resources<\/a>, their economies are all more heavily resource-based than most provinces. This adds volatility to their economies and to their budgets through sometimes large swings in corporate income taxes.<\/p>\n

Third, due to vast geographies, dispersed populations, limited infrastructure and several other factors, providing services to Northern residents is more expensive. These factors also inhibit higher levels of economic activity and resource development.<\/p>\n

These unique circumstances require unique fiscal arrangements.<\/p>\n

Unlike the provinces, the territories do not operate under the federal equalization program. Instead, territories receive territorial formula financing (TFF)<\/a> transfers. There are important similarities between the TFF and equalization. They are both unconditional transfers<\/a> from the federal government, and eligible federal transfers are calculated based on fiscal capacity.<\/p>\n

Yet, unlike equalization \u2013 which is received by some provinces and not by others \u2013 the TFF is not a zero-sum game. In other words, all three territories receive federal TFF payments every year.<\/p>\n

Natural resource revenues are also treated differently within the TFF than equalization. They are negotiated separately by each territory as part of broader federal-territorial devolution negotiations.<\/a><\/p>\n