Finance Committee on Nov. 29th, 2007

[Lynda Gunn, Chief Executive Officer, Nunavut Association of Municipalities]

Yes, I am.

[The Chair, Conservative, Rob Merrifield]

The floor is yours, for five minutes, please. The last presenter went a little long, so if you could keep it to five minutes, we'd appreciate it. I don't want to cut you off.

Thank you.

[Lynda Gunn]

Thank you, and thank you for permitting us to speak with you today.

The focus of our written submission to the committee is that successive federal governments have failed to live up to the spirit and the intent of their statutory responsibilities under sections 4 and 5 of the Department of Indian Affairs and Northern Development Act since it became law some 40 years ago.

In the first instance, the federal responsibility is to manage northern resources for the benefit of the north and to support northern political and economic development. It has not happened. The federal government retains control of the most significant source of northerners' wealth, namely their non-renewable natural resources, and takes for itself all the public wealth derived from them. At the same time, it has downloaded responsibilities for costly services--including health, social services, and education--onto northern governments and then underfunded them.

This federally created structural dependency, with its resulting poverty, is not being addressed. Instead the size of the per capita grants to northern governments is offered as definitive evidence that the federal government is spending generously on the north, but the federal government does not identify the proportion of those grants that are used to cope with the effects of the long-term endemic poverty.

For example, last year the government in Nunavut spent $47 million, about $1,600 per capita, on air transportation to fly sick people to southern hospitals. Many were children with respiratory illnesses resulting from overcrowded, poorly ventilated, and sometimes mould-infested housing.

The everyday problems of people living in poverty in the cold climate with no affordable means of transportation do not come into the committee rooms of Parliament, nor do they come onto the floor of territorial legislatures, but they do confront local governments in their communities every day.

The once common practice of central governments taking the resource wealth and leaving the people and communities of resource-rich regions in perpetual poverty is slowly disappearing in such third world countries as Sudan and Nigeria, but it remains firmly entrenched in northern Canada.

The people in the communities of Nunavut cannot afford to have their economic future foreclosed by either the federal or territorial governments in this way. The wealth from such mines as Polaris and Nanisivik has been taken, leaving no lasting benefit for the local people. But mineral exploration is at an all-time high, and it is important that resource revenue sharing agreements be in place before significant production begins again.

Nunavut Association of Municipalities recommends, first, that as an interim measure, any resource revenue royalties be held in escrow pending completion of the resource revenue sharing agreements with the territories. Without such a measure, the federal government, as the recipient of the revenues, has a strong disincentive to negotiate a fair revenue sharing agreement.

Second, it recommends that a forum be struck in accordance with the O'Brien equalization and territorial formula financing report recommendation that the Government of Nunavut, the Government of Canada, Inuit leaders, and a wide range of organizations, groups, and agencies come together to address the interrelated critical deficits in Nunavut that, if not addressed, will prevent the majority of people in Nunavut from participating in their economy.

Third and lastly, it recommends that resource revenues be shared with local governments in accordance with the Minister of Finance's principles defined in the 2006 federal budget.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to our last presenter, Nunavut Economic Forum, Glenn Cousins, executive director.

Glenn, are you with us?

[Glenn Cousins, Executive Director, Nunavut Economic Forum]

Yes, I am.

[The Chair, Conservative, Rob Merrifield]

Okay, Glenn, the floor is yours, five minutes.

[Glenn Cousins]

Thank you, Mr. Chairman.

Good evening, and thank you for the opportunity to make this presentation to you today.

For the purpose of these hearings, the NEF wishes to discuss the northern residents tax deduction, referred to in our submission and this presentation as the NRD.

In the past weeks and months northerners have heard more and more that our interests are at the forefront of national interest and that the north is a main concern for the federal government, which has developed four priorities under a northern strategy, recently referred to in a speech by the Minister of Indian Affairs and Northern Development to the northern development ministers forum. These points are: strengthening Arctic sovereignty; promoting social and economic development; protecting our environmental heritage; and improving and evolving northern governance. At the same time, we have heard messages and seen action from the federal government regarding tax reduction and tax fairness.

In our submission to the standing committee, the NEF makes five recommendations for improvement to the northern residents deduction that would fall in line with the government's tax fairness and tax reduction objectives while supporting the priorities of the northern strategy, in particular the promotion of social and economic development.

In the short term the implementation of these recommendations would help reduce the burden of the high cost of living, provide greater access to federal programs geared toward lower-ncome earners, and help achieve taxation parity for northerners when compared with southern Canadians.

In the longer term, an enhanced northern residents deduction will contribute to the building of human resource capacity by making working and living in the north a better financial option. This will assist in the attraction and retention of experienced skilled workers who will provide the services and training required to help develop a fully capable local labour force, ensuring increased participation and benefits for northerners.

According to the document prepared in 2004, previously referenced by Mr. Ryan, special tax treatment for northern and isolated areas has been a justifiable policy based on the following points: to maintain remote population to defend Canada's Arctic sovereignty claims; regional development; to facilitate the recruitment of workers; to offset regional differences in wages and the higher cost of living; equalize regional differences in the level of available goods and services; and to offset environmental hardship and isolation.

It is interesting to note the similarities between these five points, the priorities of the northern strategy and the recommendations included in the NEF submission. Each has a significant economic development component.

The NRD has been seen as a cost-effective way to help attract and retain the skills required for the labour force in northern Canada and to provide some compensation for the higher cost of living and lower levels of service compared to the south. However, the landscape in which this policy is functioning has changed dramatically in the 20 years since it was implemented. There is now intense nation-wide competition for a far too shallow pool of skilled labour in many sectors. With the challenges and opportunities of a young and rapidly growing population, a quickly emerging resource development sector, the need for improved education, health, and financial services, the north requires more human resource capacity than ever before.

However, we require a competitive edge. We deal with basic capacity challenges in both public and private sectors that impact on all aspects of our lives. There is urgent need to support human capital development objectives, building capacity that will be to improve governance, a thriving private sector, better education and health outcomes, which will lead to a higher living standard and greater self-reliance.

The ability to attract and retain the skilled labour required to meet current demand and to facilitate skills transfer to northerners is critical for our economic development.

The tax system provides a mechanism to raise funds for public purposes to provide for redistribution of wealth in order to reduce poverty and inequality for individual Canadians, specific segments of society, and for geographic regions with particular development needs.

The NRD is one component of the tax system intended to achieve a range of objectives for Canadians living in the north, in particular the far north, where the cost of living is much higher than the Canadian average.

An increase and enhancement of the NRD would be consistent with the government's tax relief and tax fairness objectives, and in order to achieve the objectives for economic development in the north the Government of Canada should carefully consider the objectives and effectiveness of the NRD in the context of the northern strategy and take appropriate steps to enhance the deduction to provide appropriate incentives and benefits for northern residents.

The need to support the development of the north has never been greater.

Thank you again for your time and your consideration today.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We will now move to the question and answer period. We will start with Mr. Massimo Pacetti, five minutes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

[The Chair, Conservative, Rob Merrifield]

You have five minutes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you to the witnesses for appearing. Once again, thank you for your hard work.

I have a quick question, Mr. Johnson, on the school board. I know that we made a recommendation last year--this finance committee made a recommendation--regarding the full rebate of the goods and services tax being paid by universities and school boards and hospitals. Did you get any feedback on why that didn't happen?

[Rick Johnson]

It just did not come through when the budget was presented.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

It seemed to have been logical. We thought it was going to happen. I know that we thought it was going to come through.

Do know how much that is going to cost?

[Rick Johnson]

Well, you could estimate. If you look at, for example, capital spending of $3 billion a year, nationally, the GST on that would be about $72 million, which would mean a difference to boards.

I could go right to my own school board, which is in central Ontario. We spent $30 million last year on building a high school, an elementary school, and a gymnasium. After the rebates we currently get, we still paid $720,000 in GST, and that could have bought a lot of textbooks and supplies.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So you can use that money for your own purposes.

[Rick Johnson]

Absolutely. It's for the children.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you. We'll try to make sure that it shows up again.

This question is for the north. I'm not sure if it's for Mr. Ryan or Mrs. Gunn. With regard to the recommendation--I think it's in the municipality brief--that resource revenues be put into a fund until negotiated, what happens right now? Do the resource revenues not belong to the territory at all?

[Lynda Gunn]

No. They've only ever been collected by the federal government. The federal government puts them back into the general fund to be used across Canada.

The major mines we had in Nunavut.... That was when we were still part of the NWT. There's the Nanisivik mine and Little Cornwallis Island with--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I'm sorry to interrupt you, Mrs. Gunn. So there's no ability for the territories to assess a tax on those resource revenues.

[Lynda Gunn]

No, there have been no benefits streaming back to the territories.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Can the territory itself assess a tax on those resource revenues? Would you have the ability? Do you have the legislation--

[Lynda Gunn]

No.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

--or the ability to do so? You don't?

[Lynda Gunn]

No. Devolution needs to happen with the Minister of Indian and Northern Affairs as the lead minister. He had a special consultant create a report with recommendations regarding devolution for Nunavut. The name was Paul Mayer. He is a lawyer.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay. Our time is limited. I don't mean to interrupt.

What would happen if you were able to receive some of the money? Would you reinvest it, or would you be able to reinvest it in what we call private-public partnerships? That means you would go looking for private funding and perhaps gets some additional funding from the private sector to realize some of the projects you've mentioned in your briefs.