The budget unveiled by Finance Minister Caroline Wawzonek last week is a big, red blinking sign illuminating a territory in retreat with few options for prosperity.
Investments and sales of NWT diamonds are declining, powering an expected steep dive in gross domestic product this year of 4.7 per cent. Meanwhile, a plague of events, starting with the Covid-19 pandemic in 2020, followed by two years of wildfire emergencies and evacuations have left the GNWT’s cupboard bare. GNWT expenditures are expected to exceed revenue growth by 0.4 per cent over the next five years.
The finance minister acknowledges the dire state of the territory’s finances in her budget address, noting how cabinet has asked for GNWT-wide cuts of $9.1 million, while avoiding tax increases so “businesses can thrive and contribute to tax revenues through higher profits, rather than higher tax rates.”
This eye to improving the business climate of the territory is commendable, but it’s difficult to ignore a major millstone inhibiting Wawzonek's efforts. That is, an inadequately diversified economy and a growing gulf between its public and private sectors.
The Department of Finance’s 2023-24 Public Service Annual Report, released in October, shows the GNWT workforce grew by nearly 1,200 jobs over a five-year period from 2018-19 to 2023-24 to 6,479 positions. This represents an incredible 18 per cent increase in staffing to a workforce representing roughly 14 per cent of the territory’s entire population. Many of these jobs were added during Covid but as of last year remain on the books.
Meanwhile, the public sector continues to outpace the private sector by 3,000 jobs — 12,000 to 9,000 — leaving the territory more vulnerable to economic uncertainty and less able to sustain wealth and provide a growing tax base to fund government programs and services. With our diamond mining sector inexorably drawing to close, this is a recipe for a territory that does nothing else but government.
It has become normalized in the territory for small businesses, especially, to be unable to compete with government wages and pensions while trying to recruit or retain staff. This problem will only grow more acute as mining and its supporting industries vacate the territory. The NWT Chamber of Commerce would love nothing more than to see higher private sector wages and benefits, but this is only possible in a healthy and growing economy.
It has been argued before that a large government workforce serves as a bulwark against recession, as it undoubtedly did in 2008 during the global economic downturn when diamond mines were furloughing workers and “for sale” signs began popping up like mushrooms. GNWT workers were insulated from the downturn and helped small businesses stay afloat.
But as we’ve seen in recent weeks, we’re living in different times. The federal government, which provides more than two-thirds of the GNWT’s budget, is deeply in debt and will be in even greater financial trouble should U.S. President Donald Trump make good on his threats to impose 25 per cent tariffs on Canada.
A federal government forced to bail out hundreds of thousands of laid-off auto workers in Ontario will likely be less sympathetic to the GNWT’s budget woes, especially if it finds it too big and costly for the territory’s needs.
The Chamber is not suggesting the GNWT begin issuing pink slips to its workers but unless we’re talking about doctors, nurses and teachers, the GNWT should be looking to absorb vacancies internally wherever possible and certainly not adding positions. To a federal government fearful of ruin and annexation by the U.S., it should be pointing hard toward the Slave Geologic Province and Mackenzie Valley as locations for immediate road-building investment to encourage resource development.
The GNWT should look at its current 11.5 per cent corporate tax rate on income over $500,000 and its diminishing returns — $31.7 million expected this year from $76.7 million in 2023 — and cut it closer to Alberta’s rate of eight per cent. It should take the small business rate of two per cent on income under $500,000 and put it to zero, as Yukon has done.
Right now, the GNWT is a government telegraphing its apprehension about the future, which is appropriate but insufficient for the task ahead. The GNWT budget must be more than trying to save the furniture in a bloated government. It should be planting seeds for businesses to build and grow.
