Your guide to the NWT’s financial health for 2019-20

Want to know how the territorial government thinks its finances are looking for the year ahead? Here’s the latest outlook.

Territorial MLAs spent Friday questioning Finance Minister Robert C McLeod about the territory’s financial health and its plans for 2019-20 and beyond, as part of the annual process of coming up with a budget.

The public session revealed the territory is relatively optimistic about its revenues for the coming year, but the medium-term outlook is not especially rosy and the NWT is nudging toward its current federally imposed debt ceiling.

McLeod told MLAs he has asked Ottawa for a dialogue about further increasing the amount the NWT can borrow. An increase was last granted in 2015.

Below, we’ve summarized the various points made by McLeod, his staff, and MLAs during the meeting.

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The coming year

Financial year 2019-2020 should be almost pleasant compared to recent years, the Department of Finance suggested.

“There is going to be some good news on the revenues side,” said David Stewart, the deputy minister of finance.

According to Stewart, the basic amount received by the Northwest Territories through its per-resident federal government grant, and one or two other federal sources, will increase by around $53 million.

Stewart also said revenue sources like corporate tax and resource revenues “are going to stabilize to more historical levels” in 2019-20, according to the department’s forecasts.

This year, McLeod told Cabin Radio in February, the territory was hit by at least one large corporation exercising a legal financial mechanism allowing it to write off tax obligations relating to infrastructure investments for one year. That cost the territory millions.

In sum, said Stewart, 2019-20 should be “a reasonably positive year” for the territory’s bottom line – an improvement on the past few years.

The list of things occupying the territory as it budgets for 2019-20 includes:

• Stanton Hospital nearing completion – the territory will need to account for $18m annual payments as part of the public-private partnership under which the hospital was built;
• Continuing investments in youth, the economy, the environment, energy projects, and community governments, per the territory’s mandate;
• Collective bargaining is still unresolved – “we have to acknowledge there is going to be some expenditure growth there,” said Stewart;
• Carbon tax in the NWT, which is due for July 2019 implementation but should be “largely revenue neutral” according to Stewart; and
• Forced growth – in other words, the money the government has no choice but to spend as inflation increases the cost of goods, services, compensation, benefits, and so on. A question about this from Yellowknife Centre MLA Julie Green was cut off as it appeared to involve information that’s not yet available to the public, but Stewart said if you took two percent as an arbitrary figure for forced growth each year, that would mean having to find an extra $35 million.

The big picture

If you have already moved to the fridge and are undoing that little wire thing at the top of your champagne bottle, maybe take a moment to keep reading first.

“The more medium trend suggests we are not going to be … bouncing back to where we were, by all indications,” Stewart told MLAs on Friday. Translation: the old days where the territory’s resource revenues could leap by tens of millions year on year are not coming back any time soon. A modestly successful 2019-20 doesn’t mean the following years will see more of the same.

Meanwhile, revenues now are lower than they were at the start of the present government in 2015, so increases don’t mean the territory is getting richer over time; at best, it’s recovering lost ground. This year, for example, revenues are likely to be $46 million down on where they were in 2015.

The territory was pretty conservative in its revenue forecasting for 2015-19 in the first place, and yet revenues came in lower than even those expectations.

Kieron Testart, the MLA for Kam Lake, expressed concern that for all the recognition of a less-than-stellar long-term outlook, the territory appears to him not to be taking much action.

Calling the NWT “essentially a welfare state” because of its reliance on federal grants, Testart said: “We know the diamond mines are shutting down. We’ve got a 10-year window. And the current economic plan from this government is to manage our expenditure so we can continue to stay the course, but we haven’t seen any transformative measures.

“How are we going to get out of this never-ending cycle of busts in the resource sector?”

McLeod unsurprisingly conjured no new answers in response, saying: “We have tried to promote economic activity in the NWT and it’s been a bit of a challenge … It’s a never-ending challenge for any government in any jurisdiction.”

We’ve ‘stopped the bleeding’ on debt

The territory currently has debts of around $1.1 billion, which should put your next credit card bill into perspective. Of that debt, around $321 million is short-term debt, meaning it’s more susceptible to changes in interest rates as the NWT pays it off.

That’s what has Stewart worried, because the Bank of Canada keeps hinting at interest rate hikes and that’ll mean the territory coughing up more until that debt is cleared.

The problem is the territory has only two options for getting any of its big-ticket projects – highways, power grid hookup to the south – off the ground. Those options are persuading Ottawa to pay for most of it, or going into more debt itself to get it done.

However, the federal government imposes a debt ceiling on the NWT that’s currently set at $1.3 billion. So even if it wanted to, the territory couldn’t dig much deeper into debt to get things moving.

Responding to a question from Sahtu MLA Danny McNeely, McLeod said he has told the federal government “we would like to have a discussion” about both the size of federal transfer payments and raising the territory’s debt limit again. McLeod said, so far, there has been no “definite answer” from Ottawa.

In the meantime, the territory has made it a priority to stop adding to its short-term borrowing and creeping ever closer to the present debt limit. Stewart, on Friday, said that has actually been a big success in recent years.

The change in short-term debt will be only $2 million in 2018-19, he told MLAs. “Generally, what we’ve done over the past few years is stop increasing short-term debt. This assembly has successfully stopped the bleeding, for the lack of a better term,” he said.

Regardless, the thought of 40,000 people being collectively more than a billion dollars in debt – your share is about $27,500, if you wouldn’t mind writing a cheque – is enough to give some MLAs pause.

“That’s a staggering number,” said Hay River North MLA RJ Simpson. “Where do we rank?”

In response, Stewart said he didn’t have comparison data for Canada’s 13 jurisdictions immediately to hand. However, he added, “our level of debt – and this depends how you measure it – is not as significant as most provinces and territories, certainly compared with Newfoundland, or Quebec, or even Ontario.

“The percentage of their budget that goes toward their debt tends to be around 10 percent, whereas ours is closer to one percent.”

One way to look at the figures, not discussed during Friday’s meeting, is debt as a percentage of gross domestic product. That’s roughly equivalent to taking how much you earn in a year and comparing it to how much you owe.

In 2016, the latest year for which confirmed figures are available, the territory’s debt was around 20 percent of its GDP. By comparison, a fiscal summary compiled by RBC in February this year – which included only the provinces – gave Quebec’s 2016-17 debt as 46 percent of its GDP, Newfoundland & Labrador’s as 44 percent, and New Brunswick’s as 40 percent.

Alberta’s debt sits at just three percent of its GDP; Saskatchewan and British Columbia also have better debt-to-GDP ratios than the Northwest Territories, but the data suggests the NWT is by no means one of Canada’s worst performers on this measure.

On Friday, Simpson said it was “still troubling” to owe so much. McLeod, however, used the exchange to bemoan Ottawa trying “to turn the NWT into a giant park for the rest of the country to enjoy” – a rallying cry first deployed by Leona Aglukkaq in 2013 even while serving as the federal health minister, and since trotted out by a range of northern politicians.

Population isn’t the number one priority

In 2014 and 2015, much was made by the territorial government of a plan to increase the NWT’s population by 2,000 people over five years.

With most of that time now elapsed, that goal has been quietly boinked off the table, out of sight, Friday’s meeting would suggest.

Cory Vanthuyne, the Yellowknife North MLA, brought up the issue in a question.

“We talked about an aggressive plan for growing the population. We don’t seem to be talking about or revisiting that plan,” said Vanthuyne. “We can see now how critical that is to us, as a territory. Transfer payments are a big revenue generator for us. Where are we, as a government right now, in terms of our plan to grow the population?”

In response, McLeod said creating more economic opportunities would help grow the population – adding population growth in itself had not been a specific goal of the present government since the 2015 election.

That answer did not impress Vanthuyne, who replied: “In the near future – in a five to 15-year time frame – we’re looking at significant potential for a loss of population because the diamond mines will start to be on the decline. They impact every industry.

“Also we have an ageing population, which will put significant pressure on our government with regard to social spending. We’ve got to find ways to generate revenues.”

If you’re wondering about that whole “2,000 more people” thing, here are some figures. In January 2014, a month before that specific goal was published, the NWT had a population of 43,763. At the end of March 2018 – roughly four years out of five later – the territory’s population was reported by its bureau of statistics to be 44,736.

In other words the territory is about halfway to meeting the goal, regardless of having apparently abandoned the specifics of it, with a year to go.