NWT Budget 2021: Stability now, but not sustainable much longer

The NWT’s budget for 2021-22 will keep things stable, the territory’s finance minister said, as officials warned the current financial approach cannot last much longer.

Debt is going up, mining royalties almost totally disappeared in the past year, and federal cash is being relied upon more than ever as the NWT tries to deal with the Covid-19 pandemic on top of what was already a weak economy.

The NWT’s economy has shrunk markedly for two years in a row and the territory has posted an operating deficit for the past three years. Both corporate tax and personal income tax revenues are declining.

Facing those circumstances, the budget for 2021-22 – presented by finance minister Caroline Wawzonek on Thursday – sets out to deliver an operating surplus of $69 million.

Generating a surplus is important for the territory’s goals: that money pays for the NWT’s share of new projects like buildings, highways, and other infrastructure needs.

Increased federal help means the projected surplus can be delivered with no need for cuts, Wawzonek said, and no new taxes. (The budget in fact adds nearly 300 GNWT jobs, many already filled in the past year, though most are expected to disappear again once the Covid-19 Secretariat is wound down post-pandemic.)

But the forecast surplus comes amid the territory’s increasing reliance on debt.

Ottawa increased the NWT’s debt cap – the amount the territory is allowed to borrow – from $1.3 billion to $1.8 billion in September 2020.

By the end of next month, the territory expects to owe $1.33 billion. By March 2022, that figure is forecast to be $1.59 billion. By the 2023-24 financial year, the NWT projects even its new $1.8-billion cap will have been reached.

In big letters, an NWT government briefing document warns the current approach “is unsustainable.”

Wawzonek, however, said it remained the right approach for the middle of a pandemic – and added she was “cautiously optimistic about our future.”

“It’s not the time for cuts,” Wawzonek told reporters at a Thursday briefing.

“We have added new spending to this year’s operating and capital budgets, without finding any savings or new revenues to pay for them, in order to be a source of stability while we navigate globally uncertain times.”

But the minister acknowledged the territory’s need “to set ourselves on a better expenditure track” and reiterated her plan to fully review all government budgets with the aim of spending the same amount of money – just over $2 billion a year, in total – much more effectively in future.

Where is the money coming from?

Even before the pandemic began, the territory’s economic outlook was not great.

Documents published on Thursday show the territory forecasting zero dollars in revenue from mining, oil and gas royalties in 2020-21 – down from an initial expectation of $30.7 million, pre-pandemic.

While that number is expected to be fractionally above zero in the final accounting – and the NWT intentionally does not spend mining royalties on operations (only on construction, a heritage fund and debt repayment) to avoid running too much risk – the published zero figure still represents the near-total demise of income associated with industries that are key to the NWT’s economic wellbeing.

Thursday’s budget suggests royalties will at least return to around $1.5 million in the year ahead, but that’s a tiny fraction of what the NWT normally expects to generate annually.

Corporate tax is down partly through Covid-19 but also in part because businesses were already suffering in 2019. Personal income tax is down, too, and the NWT believes its tax base is likely to shrink further.

More: Where will money get spent in this budget?

Meanwhile, federal payments to the GNWT now account for more than 85 percent of the territory’s total revenue, up from a previous average of 81 percent – making the NWT more reliant than ever on Ottawa.

“Our fiscal independence has weakened as a result,” Wawzonek told MLAs on Thursday afternoon.

However, the increase in federal cash has offset the NWT’s drop in its own income from royalties and taxes, to the point where the territory actually expects to receive more money overall this year ($2.192 billion) than it did last year ($2.176 billion).

Wawzonek also expects spending will level off, for example by winding down the Covid-19 Secretariat as more people are vaccinated and restrictions are loosened. The NWT forecasts spending $2.124 billion this coming year, down from $2.207 billion in 2020-21.

Government Renewal

But concern about the territory’s long-term financial future goes beyond Covid-19.

In Thursday’s briefing, officials said the population was still not growing in a way that would meaningfully increase federal transfer payments (which operate to a formula that rewards the NWT for having extra residents).

Meanwhile, the territory has committed to what it calls a “fairly aggressive” set of infrastructure projects, all of which are considered much-needed – ranging from schools and the replacement of ageing power generation facilities to big-ticket mandate items like the Slave Geological Province road and Taltson hydro expansion. While the federal government will be asked to pay for around 75 percent of that work, the NWT must still find hundreds of millions of dollars to meet its anticipated 25-percent commitment.

Senior Department of Finance officials worry that while revenues stagnate and big infrastructure spending lies ahead, departments’ base budgets continue to inflate each year without any real sense of how that money is helping.

“In three or four years, the pressure will grow,” one official said. “It’s important for the government to avoid getting to where we don’t want to get to.”

In response to that fear, Wawzonek said, a years-long process entitled Government Renewal will force departments to change how they compile their budgets and do a better job of spending money.

The first results of Government Renewal are expected in the next budget, though reviewing every department is set to take until at least the 2023-24 financial year.

Wawzonek stressed multiple times on Thursday that Government Renewal did not mean cuts, but did mean using money more effectively.

“It’s not a cut exercise. It’s what can we do to increase the evaluation of our programs and services … to support departments, to go through this in a really organized and systemic way,” the minister said.

“It will take some time. As we go through every department, we’ll start to better see all the programs and services we offer, where we are getting value, and where there is duplication. That’s the vision of what it is.

“Then, to take our $2-billion budget … what’s the value we’re getting back for it? It’s an opportunity not to eliminate programs, but deliver them better and more efficiently.”

Wawzonek’s own Department of Finance will be the first to face the scrutiny of Government Renewal.

In the year ahead, the NWT government must also reopen collective bargaining negotiations with the Union of Northern Workers.

Some 4,000 staff are affected. Their current agreement, only reached in 2019, expires next month.

“We have a good relationship with the union right now. We’re not going in with the expectation of cuts, I really do want to emphasize that,” said Wawzonek, who underscored her belief in the public sector’s importance when the private sector is visibly suffering.

“The public sector is a huge component of the economy and salaries end up recycling into the economy in terms of our retail numbers, the ability to take staycations,” she told reporters.

“That’s allowing a lot of other areas to not see the impacts some sectors might be seeing.”