Editors note: This story was revised to reflect a clarification that the letter was sent on behalf of the Standing Committee on Economic Development and Environment and does not reflect to personal opinion of Cory Vanthuyne as chair of the committee.
As the legislative assembly resumes, revamping the NWT’s resource royalty regime and royalty reporting transparency rules is not on the table, says Industry, Tourism and Investment (ITI) Minister Wally Schumann.
In a Sept. 7 letter to house leader Glen Abernethy, MLA Cory Vanthuyne, on behalf of the Standing Committee on Economic Development and Environment, slammed ITI’s response to concerns about a new Mineral Resources Act under consideration.
The confidential correspondence between both parties was anonymously provided to News/North.
“The (Legislative Proposal) and the responses to our concerns show an unwillingness to truly create ‘world class legislation,’” the letter states.
The committee will oppose bringing forward a bill based on the legislative proposal and was “surprised” the royalty regime would not be addressed in the revamped legislation, the letter states.
At the Conservative Party of Canada’s national convention in August, delegates voted 99 per cent in favour of a hypothetical policy to keep 100 per cent of royalties within the three northern territories.
The promise prompted a conversation about what such a policy could do for the North.
The GNWT will review the Mineral Resources Act and the Petroleum Resources Act, but any questions around royalty collection and public reporting transparency will wait until the following assembly, said Schumann.
There is no incentive to collect additional royalties in the NWT because there is no significant increase to what the territory keeps, said consultant Andrew Bauer, whose 2017 report analyzes the territory’s resource regime.
The cap on what the GNWT can retain – 50 per cent of royalties up to five per cent of the GNWT’s gross expenditure – limits its retention to an estimated $50-million dollars, said Bauer.
Of that 50 per cent, the territory shares 25 per cent with Indigenous governments.
In 2017, mineral production in the NWT was valued at over $2-billion, according to federal statistics. The value of that mineral production can largely be credited to diamond production, which accounts for nearly the entire value at $2.06-billion, according to a March 19 news release from the NWT and Nunavut Chamber of Mines.
“Fifty million is nothing. It’s nothing,” said Bauer.
“In most countries, there is a huge incentive with government to make sure they’re monitoring mineral production, the value of the resource … especially when you have a resource like diamonds that are tough to value and easy to avoid taxes,” said Bauer.
“Because they’re maxed out, there is very little incentive to collect more revenue,” said Bauer.
Changes to royalty regime would trigger need for new negotiations, says ITI minister
If a hypothetical federal government was willing to give 100 per cent of the royalties to the GNWT, and it did not affect the transfer payment, the GNWT would have to renegotiate with Indigenous governments signed on to devolution, said Schumann.
“I was (Hay River) Metis president when we talked about how we’re going to share our resource royalties in this territory,” he said. “What people don’t realize is that this conversation wasn’t an easy one – how their governments were going to divide that money up,” he said.
“The other part that people seem to forget to talk about is that these are the richest resource sharing agreements with any Indigenous governments in the country. You don’t hear them – myself included – complaining about the deal,” said Schumann.
The concept of a 100 per cent royalty police is purely hypothetical, said Schumann.
“Lots of campaign promises are made and some of them don’t become policy, so who knows what will happen?” said Schumann.
“We welcome increasing royalties, sure, but at this point it’s just a federal party. It’s not people in power who are proposing this,” he said.
GNWT royalty regime unchanged since devolution, says MLA
Since inheriting devolution, the territorial government hasn’t altered a word of devolution related to resource royalties, but has the legislative power to do so, said MLA Kevin O’Reilly in an interview.
O’Reilly has pressed the government to improve reporting transparency rules so residents can see if they’re getting a “fair shake” of what the territory is entitled to.
There is no requirement in legislation for any public disclosure and ITI argues those numbers are proprietary, he said.
The GNWT is trying to be as transparent as possible while protecting public companies information and following federal rules, said Schumann.
More royalties are collected on cigarettes and alcohol than they are on mining, said O’Reilly.
Residents in the NWT hear consistently that there is not enough funding to improve services in the territory – much of which could be ameliorated by higher royalty revenues and better transparency, he said.
“Why did we get devolution if we’re not going to improve the revenues that we get as a government, and provide proper programs and services for our people,” he said.
“In whose interest are resources being managed?” said O’Reilly.
Mines have to turn a profit in commercial production before they can pay royalties.
Of all NWT industries, mining generates the smallest return per dollar of revenue for NWT residents, according to Bauer’s report.
If the GNWT collected as many royalties as the Democratic Republic of Congo, Chile and Norway, it could have some of the most robust services in the country, said Bauer.
“A royalty in Canada does not have the same definition as most countries around the world,” said Bauer.
Though intended as compensation for a country’s resources, companies in Canada are able to deduct the costs of their royalty payments, which turns a royalty into a tax based on production.
“Royalties could be a significant amount of money for the GNWT and the North,” said Bauer.
They aren’t, however, because the Government of Canada has created a “massive disincentive to raise more revenue and for the North to get a fair share on their resources,” said Bauer.
“There is a mentality of dependence on the feds. From a totally rational perspective on their part, why would we collect more taxes and peeve off our mining sector in the North when the net benefit to us is very small?” said Bauer.
Mining represents nearly 25 per cent of the NWT’s GDP and 50 per cent of its international and inter-provincial exports, yet it employs less than seven per cent of the NWT workforce and generates seven per cent of fiscal revenue for the territory.
100 per cent royalties no simple answer, says MP Michael McLeod
At the summer Dene Nation election, delegates stated they wanted to see more funding directly injected into communities and Indigenous governments, said Liberal MP Michael McLeod.
McLeod is quick to point out that the regime was handed down by a previous Conservative government, which tried to give the NWT the superboard and “erase Indigenous input into resource development by trying to fast track projects.”
It resulted in “bunch of lawsuits,” he said.
“People have a good memory of how we were treated by the Conservative government for 10 years,” he said.
“Resource royalties are not a magic solution to every economic issue,” said McLeod, adding that it could be time for a “comprehensive” review of funding as more self-governments come online to deliver programs and services, he said.
Such a review could consider the amount of resource royalties the GNWT can keep without affecting the transfer payment, he said.
When Territorial Formula Financing (TFF) was first introduced in 1985,”many things were not part of the discussion. There were no Indigenous governments in the room when that was put together,” said McLeod.
Further self-government agreements are on the horizon and any revisions to a funding formula should be done with the input of Indigenous governments, said McLeod.