Analysis
Mark Rendell
Mark Rendell

Not Austerity: Parsing the 2016 Budget

In a much gentler budget than feared, the GNWT offers cuts that amount to a mere three percent of its total, and finds the government still spending more than it takes in

“No, it’s not an austerity measures budget.”

So sayeth Finance Minister Robert C. McLeod about the 430-page, $1.66 billion budget he tabled in the Legislative Assembly today. And, for the all preceding hullabaloo, this seems to be mostly true.

Certainly the fiscal pruning shears came out, cutting some $31 million from government programs and allowing another $27 million worth of programming to “sunset” without being renewed. But the government also announced $35 million in new initiatives.

 “I looked up up the definition this morning and it’s definitely not an austerity budget, I Googled it.”

And although “in excess” of 50 unfilled positions were axed, of the 58 current employees who were given an “affected job notice” last week, 39 have already been offered jobs elsewhere in the government. A further 28 new positions were added, thanks to forced growth — essentially expansion driven by factors outside of the government's control. (We don’t yet have confirmation of which departments are gaining or losing jobs).

“An austerity measures budget is one where there’s a lot of job loss and you're raising your taxes to offset your expenditures,” added McLeod. “I looked up up the definition this morning and it’s definitely not an austerity budget, I Googled it.”

The cuts announced today are equal to around three percent of the total budget — that’s compared to economically hard-hit places such as Newfoundland, where, according to Deputy Finance Minister Mike Aumond, the government is trying to slash expenditures by up to 30 percent. Even with $58 million in expenditure reduction, and $15 million in new revenues — which together make up 45 percent of the four-year $150 million expenditure reduction/revenue growth goal laid out by McLeod earlier this year — the government is still spending more than it’s taking in, and will have to borrow $54 million this year to grease the wheels of government programming.

What got hit?

Although job cuts were apparently spread across a number of departments, not all departments have been treated equally when it comes to belt-tightening. Biggest loser? Industry, Tourism and Investment, which saw their budget reduced by 8.8 percent, or $5.8 million. The largest slice of that comes from the closure of the Mackenzie Valley Petroleum Planning Office in Hay River, which cost $665,000 a year.

The NWT Housing Corporation likewise saw a 4.3 percent budget drop, equal to $3.6 million — this, however, was largely due to the GNWT ending two years of subsidies offered to the Housing Corp to ease a drop in federal funding.

All told, eight departments saw their budgets decline compared with last year, while seven saw growth. In each department, the budget growth or decline was made up of a mix of outright cuts, programs not being renewed, new expenditures and forced growth.

Some savings were the result of efficiencies, like combining Employee Services and Financial Shared Services in the Department of Finance ($1.2 million) or merging the administration of the adult and youth corrections centres.

The departments that got nailed hardest were the ones that provided non-statutory programs, i.e. nice-to-haves like tourism and population recruitment campaigns, not need-to-haves, like seniors care.

What’s new?

On the out-of-pocket side, we’ll now have to pay an extra $20 each time we fly south, and an extra $10 when we fly to points north, as part of a new Airport Improvement Charge, intended to bring in around $10 million in additional revenue each year. Airlines themselves are going to have to pay more to land their planes, and businesses that operate out of the airport are likely to see their leases go up.

Other leases and fees on GNWT-owned land, such as property taxes, are also likely to see increases, though those will probably track closely to inflation, according to Aumond.

On the new goodies side, NWT students will be seeing something of a windfall when it comes to post-secondary education. Student Financial Assistance is getting an extra $2.2 million, with remission rates increasing by between $2000 and $4000 depending on where in the territory students relocate to after graduation, and maximum tuition grants are going up by $475. Of particular interest is a new “Northern Bonus” of $2000 payable against student loans for all students, not only those from the NWT, who relocate to the NWT after graduation and stay for at least a year.

Here are a few other highlights from the new initiatives:

  • The Housing Corp is putting an additional $900,000 toward homelessness initiatives, including increasing the “Shelter Enhancement Fund, Victims of Family Violence” by $300,000 and adding $600,000 in new funding for Transitional Supportive Housing.  

  • $3.5 million to build six new RCMP housing units in Fort Smith.

  • $2.6 million in additional funding is going to Hay River to help operate the town’s health centre and the long-term care unit in its hospital.

  • $1.1 million to the Tlicho Community Services Agency to run the expanded seniors home in Behchoko.

  • $500,000 to implement the new Mental Health Act.

  • An additional $5.9 million in annual core funding for forest fire management.

  • $450,000 for additional Aboriginal tourism initiatives.

  • Changing the Income Assistance Program so income from the Canada Child Benefit, NWT Child Benefit and spousal support is excluded from the calculation of income assistance payments.

So where does this budget leave the government?

We’re putting the pieces together, so we’re not at this cliff or looking over this cliff,” says McLeod of the GNWT’s financial situation post-budget. But it’s far from blue skies and easy sailing from now on.

Despite a solid showing this year thanks to Gahcho Kue's construction, the territory’s overall growth is essentially flat. Private capital investment is expected to decrease by 35 percent this year compared to last, and, as McLeod took pains to point out in his address, “In a little as seven years, one, and possibly two, of our world class diamond mines may close. New resource projects in the planning stages today will not replace the jobs and opportunities for NWT business and the government that these mines represent.”

With this in mind, we can be sure this is just the first in a series of budgets that, if not austere, will be at least restrained.

“Clearly, $1.98 billion in spending [which includes the capital expenses agreed upon last fall] lined up against $1.8 billion in revenue is not sustainable… [and] will require the GNWT to increase short term borrowing by $54 million,” said McLeod. “This rate of borrowing is like maxing out our credit cards. At some point the balance has to be paid.”

On this front, things are looking relatively positive, at least from a fiscal responsibility point of view. Following this budget, the short term debt is expected to drop from a high of $312 million this year down to $152 million by 2019/2020. Had the government not reduced expenditures, the forecast suggests they would have owed $348 million by 2019/2020.

The Finance Department wants to totally eliminate the short term deficit, which is currently costing us around $14 million a year to service, as well as grow the operational surplus — the difference between revenues and expenditures before you count capital expenditures.

This year the surplus is $119 million, but that’s expected to drop to $53 million by 2019/2020. This is a key number to watch.

The government’s Fiscal Responsibility Policy states that half of all capital expenses need to be funded out of operational surpluses. In other words, we’re not going to be building too many highways unless that projected $53 million grows significantly. Not to mention the fact that we have $3.4 billion worth of infrastructure in need of replacement or repair.

“If we don’t bring our operating expenditures in line with revenues, our ability to address our $3.4 billion infrastructure deficit will continue to erode,” said McLeod.

The budget will be debated over coming weeks, and will likely be the main topic of discussion in during the sitting of the Legislative Assembly which began yesterday.