The NWT government presented a largely unsurprising budget almost entirely driven by federal money on Tuesday – but the finance minister promised a big shift in philosophy to come.
The budget forecasts a $203-million operating surplus driven almost entirely by increases in federal funding. Spending will increase by $94 million, though most of that money pays for things that won’t result in new programs and services.
There are no cuts and no new taxes. However, the carbon tax will go from $20 to $30 per tonne in July – as was always the plan (the rebates you get will increase, too).
Tuesday’s budget comes after the territory suffered a worse-than-expected 2019, seeing a forecast surplus morph into a $70-million deficit.
The NWT now expects to rebound somewhat, driven by economic growth through expected increases in diamond prices and production. But there are longer-term signs economic forces could all but wipe out the territory’s annual surplus in the next four years.
Explaining how she will tackle that, Caroline Wawzonek pledged to take more risks and not be “stalled in fear” over her four-year term as finance minister.
“What we can do walking in, in January, isn’t the whole story of what this government can do,” she said. (A $25-million fund over four years is being set aside to pursue mandate priorities published this month – on top of whatever changes departments make to how they spend money in years to come.)
Wawzonek’s promise of much still to come only partly addressed a criticism that Tuesday’s budget included little of significance to address several of the territory’s unfolding crises.
Wawzonek said her government would not rush big financial changes before identifying the best ways to proceed – acknowledging that was itself “risky because of the fallout” if residents perceive inaction.
“The approach we want to take is to stand up, take the criticism of not acting fast enough, and instead take the time to make sure we’re using our money in the best possible way,” Wawzonek said.
“If we don’t stop and make sure we get this right, and invest appropriately, and evaluate our programs and really ask departments to be collaborative, then we won’t actually make those investments wisely.”
Ottawa or bust
The raw numbers show the NWT expects to bring in $2.186 billion in 2020-21 and spend $1.983 billion, creating the $203-million surplus.
The surplus isn’t just unspent money – it all gets sent to pay for infrastructure like schools, roads, healthcare facilities and so on. Under its current philosophy, the bigger the surplus, the more the NWT can build or rebuild.
While the NWT says its revenues are expected to go up by $333 million this year, almost all of that is either through existing federal infrastructure grants or increases in the territory’s core federal funding.
More than four fifths of the territory’s revenue comes, ultimately, from Ottawa. The territory alone does not have the money to fix its big-ticket problems.
Now, the NWT is working on ways to get even more money from the federal government.
Wawzonek and her department say they are trying to get more flexibility in federal funding, which in practice means two things: being given more control over how federal cash is spent, and changing the amount the NWT must contribute when federal funding is involved.
Right now, federal grants almost always come with a 75-25 rule: for every $75 the federal government pays, the NWT must pay $25. Wawzonek is hoping that can be changed so the feds contribute more and the NWT less.
The NWT government also wants to increase its borrowing limit, which is set by the federal government.
At the moment, that limit is $1.3 billion. The NWT expects to hit $1.2 billion in borrowing by the end of 2020-21, then break through the $1.3-billion cap the following year, so talks to extend the limit are under way.
Wawzonek said she was confident the NWT could manage the debt within its existing policies. She said with the economy stagnant and in need of stimulation, now was not the time to start “aggressively” paying down existing debt.
Fiscal situation ‘not what was hoped’
There is $94 million in “increased spending” promised in Budget 2020. However, vast swaths of it are not the kind of spending that will bring new programs and services.
For example, $39 million of that is related to collective bargaining changes. $4.5 million is extra money to pay for debt servicing, and another $4.5 million is to pay the City of Yellowknife for the equivalent of the new Stanton hospital’s property tax.
Another $10.6 million is to increase rebates and cost-of-living offsets that counteract the increasing carbon tax.
Similarly, $15 million in “expenditure savings” is mostly made up of changes that residents won’t notice. (For example, $2 million of that saving comes simply from not having to pay for an election this year.)
The NWT’s economy is now 16.3-percent smaller than it was in 2007. Even if the economy rebounds as forecast this coming year, it will still be smaller than it was in 2018.
Wawzonek described the economy as roughly stable this year, but added that is about to change.
“Economic stability does not describe the longer-term outlook,” she told the legislature. “The closure of the diamond mines will result in a large drop in economic output and there are no other confirmed projects on the horizon large enough to fill this gap.”
The territory’s operating surplus is forecast to plunge to just $3 million by 2023-24, in part because of the decline of diamond mining but also because of a drop-off in federal infrastructure funding. (This means the surplus could yet be bolstered by new agreements the NWT is able to sign with Ottawa.)
2019’s surplus becomes a deficit
A forecast $60-million operating surplus for the past year, meanwhile, is now expected to become a $70-million deficit.
The minister admitted the $130-million gap between the estimate and reality was “quite the distance.” The territory took a big hit in corporate income tax as diamond mines reported losses, and some federal infrastructure funding ended up being pushed from last year into this year (in effect making last year look worse than it was, and this year look better than it might otherwise).
“Our immediate fiscal situation is not what was hoped [but] it is manageable. We are not in a crisis. This is a time for cautious optimism,” said Wawzonek, comparing the territory’s finances to an ice sculpture (without acknowledging ice sculptures eventually melt).
“Creating takes time, it requires patience,” she said. “It succeeds with thoughtfulness and planning.”
The NWT government will now switch to four-year business plans, instead of annual business plans, as one example of how the new government wants to change things. Wawzonek promised significantly improved measurement and evaluation of programs and services. (The Auditor General recently concluded education, for example, sorely lacked that kind of data collection and analysis.)
“We will not be afraid to take risks because risk is where the opportunities arise,” said Wawzonek. “We will not be stalled in fear that decisions, proposals, solutions, or new programs may not deliver as hoped.
“We will have the courage to start taking measured risks with incremental evaluation of our efforts.”
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