GNWT may borrow money to pay for unionized wage increases: budget

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If the territorial government plans to offer wage increases to unionized workers and head off a potential strike Monday, it will come out of $10 million allocated in short-term borrowing, according to budget documents tabled in the legislative assembly Wednesday.

The $1.93-billion 2019-20 budget, which forecasts modest growth in economic activity this year, does not include any adjustments for unionized positions for any compensation changes through collective bargaining, set for mediation Friday and Saturday.

It allows for wages increases only if the government decides to borrow the money.

The GNWT is approaching its federally legislated debt ceiling of $1.3-billion and saw an $81-million in revenue shortfall over the last two years. In a meeting with reporters Wednesday, Finance Minister Robert C. McLeod said Canada’s Minister of Finance Bill Morneau was “receptive” to raising the debt ceiling.

Wednesday’s budget announcement calls for an increase to its short-term borrowing to $325-million by the end of 2019. About $10-million of that could be allocated for possible changes to compensation once an agreement is reached.

The legislative assembly must approve any supplementary spending, including for increases in the government’s current offer to unionized employees.

The Union of Northern Workers, which represents nearly 4,000 GNWT workers, has threatened to strike, starting at Monday at 12:01 a.m., if a new collective agreement cannot be reached.

The union has been without a collective agreement for three years. The territorial government has offered workers a four-year deal with no wage increases the first two years followed by a one per cent hike in year three and 1.1 per cent in the fourth year. The UNW has steadfastly refused the offer.

Asked how a possible strike would affect the ability of departments to use their budgets to complete their work, Finance Minister Robert C. McLeod said those impacts were “hypothetical.”

“I would like to see an agreement. I want to see the outcomes of mediation and hopefully we can come to an agreement that’s acceptable to both sides. We’ve taken that into consideration as we’ve done our fiscal framework,” he said.

“We’re going into mediation on Friday and I’m not prepared to discuss any type of details until we go into mediation with our union,” said McLeod.

Total revenues have increased by 2.7 per cent over the four years of the 18th assembly, said McLeod in his budget address.

“Every year sees new fiscal pressures … such as rising health care costs,” said McLeod.

“The balance between these various demands can’t be ignored. No one wants to see job action, however, our fiscal reality can’t be ignored,” he said.

The GNWT would have to increase its debt for future generations or slim spending elsewhere, he said.

$1.1-billion in social spending

The GNWT is investing $1.1-billion in spending for education, health care, social services, housing, policing and corrections.

The Department of Health and Social Services Child and Family Services will receive $3.3 million to hire 21 positions for social workers and support positions at the territorial health authority and child and family services division to ensure consistency and oversight. The department was severely criticized last fall after the Auditor General of Canada issued a damning report — its second in four years — that gave the department’s child and family services division a failing grade.

Officials could only confirm the number of positions that were funded, but not how many positions the health department advocated for.

The budget allocates $1-million for mental health initiatives including the implementation of the Mental Health Act ($602,000) and land based mobile addictions treatment and aftercare ($400,000).

Territory’s resource sector vulnerable

The territorial economy continues to be highly sensitive to the resource sector, which is predicted to expand by 2.1 per cent in 2019 with the resumption of Norman Wells oil extraction and the construction of the Tlicho All-Season Road.

While economic growth is projected for 2019 to maintain its 2018 levels, the growth “masks” a standstill on possible oil and gas activity in the Beaufort Delta, the budget states.

A drop in mineral exploration is anticipated for 2018, creating uncertainty for the next generation of mines to replace maturing diamond mines, said McLeod.

The GNWT anticipates $747,000 in revenue from cannabis excise taxes and revenue from cannabis sales. Private retailers are beginning to express interest in selling cannabis in Norman Wells and Inuvik, said officials with the Department of Finance.

Supply shortages, however, are expected to continue to affect cannabis sales and revenue, the budget states.

Running a lean budget, the government was forced to reallocate its resources to find savings.

The loss of those revenues is largely a result of a drop in corporate income tax and resource revenues.

In 2019, revenues through royalties are anticipated to ring in at $43-million dollars, 50 per cent of which must be remitted to the federal government. Royalties are expected to rise because of anticipated production values at the diamond mines.

Asked whether the GNWT is earning “fair” return on investment, McLeod said the government is “getting a return.”

The government decided not to adjust its resource royalty regime for the incoming Mineral Resources Act, which will be introduced into the legislative assembly tomorrow.

Territorial royalty collection is capped at $87 million or five percent of the gross expenditure base. To trigger that cap, mines would have to produce $174-million in royalties.

Diamond mines, on average, pay 44 per cent of all revenues from corporate income, fuel, payroll and property taxes. Corporate income tax fluctuates wildly from year to year.

In 2019, those estimates are $23-million for corporate income tax, $21-million for fuel tax, $44-million for payroll tax and $29-million for property taxes.

The GNWT is investing $1.7-million in resource development, with $1.2-million for the Slave Geological Province Exploration Development Initiative, $375,000 for implementation of the NWT petroleum resources strategy and $137,00 for the Mining Recorder’s office to support prospectors and developers.

Research in the region will determine what type of mineral potential lies there. The funding is offset by a contribution from CanNor which agreed to fund the initiative.

Carbon Tax rebates on horizon

NWT Carbon Tax rebates and benefits are consuming $12.5-million out of the territory’s 2019 budget. The budget proposes to return $7-million to residents and businesses through a 100 per cent rebate on tax paid on heating fuel and fuel used to generate electricity.

NWT residents would see increase costs if the territory were to use a federal carbon tax. The made-in-the-NWT carbon regime will “meet our needs while not impacting our cost of living,” said McLeod.

The territory is working with the Canada Revenue Agency to administer the carbon tax return as a benefit.

Mining forecast calls for exploration

No mines anticipate production past 2034 and Diavik mine is scheduled to close in 2025.

The forecast for sustained growth is susceptible to the price of oil and gas and mineral and metal prices. It is also exposed to market conditions and commodity prices of diamonds.

Demand for diamonds and a decreasing supply of rough diamonds is anticipated to create a supply gap within two years. The industry is also facing pressures from the acceptance of synthetic diamonds in the commercial small diamond market.

Low commodity prices for minerals and metals also have repercussions for the NWT economy because exploration and development is driven by anticipated values of a mineral.

Low oil prices have staved off oil exploration activity in the Sahtu and Beaufort Delta regions of the NWT. Crude oil prices rose throughout 2018 but dropped from $70 USD per barrel to $50 USD by the end of 2018. Low oil prices will continue to negatively impact oil exploration in the Sahtu and Beaufort Delta, with no rebound forecast as increased global supply puts a downward pressure on oil prices.

The GNWT’s forecast economic outlook shows the territory will see relatively good performance of the resource sector over the next five to 10 years.

“We need mineral exploration now if we want to have replacements for maturing diamond mines,” said McLeod.

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