The Tulo Centre presents this working paper that explains the “creative destruction” concept and process.
Fiscal power provides decision making power, financial security and autonomy as a government and community. When a community has fiscal power, they can contribute towards service jurisdictions such as education, health, land management and other local services. It’s the foundation of the jurisdiction based fiscal relationship.
The idea of having fiscal power may be unknown or completely new for some communities. Some may not even believe it can be accomplished. Yet many communities that have opted into the First Nations Fiscal Management Act (FMA) have experienced fiscal power through the creation of the local revenue account and the linking of associated service jurisdictions. This experience has allowed participatory First Nations to gain independence, knowledge and expanded economies. We’ve learned the best way to improve lives in our communities, isn’t necessarily another program. It’s providing the tools we need to succeed.
Since the FMA was enacted in 2005, over 230 First Nations have opted into the framework. Over 1,400 laws have now been published in the First Nations gazette and over 100 communities have received financial management certification. First Nation communities have generated over $1 billion in cumulative tax revenues and established new jurisdictions over revenues such as development cost charges, taxation for the provisions of services, and business activity taxes since the FMA was enacted. This has attracted over $2 billion in cumulative investment and First Nations have utilized that investment to issue $400 million in debentures on the capital markets. It has saved First Nation governments millions of dollars in administrative costs by building capacity through template laws, standards, a law registry, and other practical administrative tools through support from the FMA fiscal institutions: First Nations Tax Commission (FNTC), First Nations Financial Management Board (FMB) and the First Nations Finance Authority (FNFA).
In my community, Tk’emlúps te Secwepemc, we have been collecting property tax in the FMA for over ten years now. Throughout that time, we have collected about $100 million dollars in tax revenue and generated over $300 million in investment. Just last year alone, we collected over $7 million in tax revenue.
In Tk’emlúps, we have experienced the direct impact that taxation has brought to our community. Through the creation of the Powwow Arbor, the ability to build infrastructure, paved roads, street lights, fire protection, good drinking water, and most importantly, the ability to create meaningful jobs. We look at economic development as a method to build our nation through long-term planning and the delivery of the best possible services to all Tk’emlúps te Secwepemc members and residents.
These are some of benefits that we’ve seen come to fruition through taxation and our participation in the FMA, that wouldn’t be enjoyed without own source revenue. We are not tied solely to funding agreements and we can implement the communities’ vision and fund projects and services that unite the people culturally, spiritually, and socially.
Our story is one of many amongst FMA First Nations. We are creating our own fiscal relationship.
First Nations are in the process of negotiating a new fiscal relationship which will better define the financial responsibilities of all governments, the revenue authorities of First Nations and the transfer system that will supplement this.
There are two ways to finance government in Canada: (1) Collect taxes directly and (2) Receive taxes indirectly from another government through a grant, transfer or resource revenue sharing. A new fiscal relationship for First Nations must determine the most sustainable way to finance First Nation government. Stated differently, what is the right combination and relationship of First Nation taxes and transfers to support an improved fiscal relationship?
On the surface, taxes and transfers may appear to be equivalent. For example, projected revenues in Treaty offers often show projected transfer revenues as dollar for dollar equivalent to projected tax revenues. The theory is “money is money”.
However, recent history has shown these two things should not be considered as interchangeable, particularly to First Nations seeking a new fiscal relationship. Tax room has proved to be a much more reliable revenue source than cash transfers. This is incredibly important if the goal is to create a fiscal relationship that will serve, not just this generation, but the next ten generations. History suggests the focus should be tax room, and not only tax room, but unencumbered tax room. Unencumbered means tax revenues that cannot be unilaterally capped, offset or be made subject to new conditions.
Many examples in Canada’s recent fiscal history illustrate this point.
For example, 50 years ago, the federal government encouraged provincial governments to establish universal health care, by providing new revenues to any province that would provide such health care. The new revenues were a combination of tax room transferred from the federal government to provincial governments; and, an annual cash transfer that was of roughly equivalent value (50/50). The intent was the grant would grow at the same rate as the value of the tax room into the future.
However, this did not happen. Instead, the federal government got into Budget troubles and looked for ways to reduce spending. One of the best ways, from a political perspective, was to reduce transfers to provinces, because they would then bear the political consequences of service reductions. Consequently, tweaks were made to the transfer formulas over several years.
The end result is illustrated in the chart below. The transfer grew by 7 per cent over this time frame. The value of the tax room grew by 50 per cent, or more than seven times as much.
The lesson should be unmistakable. Revenues that are generated by transferred tax room are more reliable than revenues provided through a grant especially when fiscal times are hard.
This is likely why it was so important to the fathers of Confederation that the new provinces not only be given unassailable powers in the new federation, but also substantial tax room with which to finance the exercising of those powers.
Tax room has proved to be more resilient than transfers because the federal government can easily and legally make unilateral changes to transfer agreements. This was confirmed in 1991 by the Supreme Court of Canada.
The issue arose in 1990 when the federal government decided to unilaterally alter the terms of a cost sharing agreement with the governments of British Columbia, Ontario and Alberta. The cost sharing agreement was the now defunct Canada Assistance Plan (CAP). Under CAP, the federal government had agreed to 50/50 cost share a select set of social service costs. However, in 1990, the federal government decided to cap the amount it would cost share to what were then the three “have” provinces of Ontario, Alberta and British Columbia.
British Columbia chose to refer the matter to the Courts arguing the federal government had created an “expectation” they would continue to compensate BC as before.
The Supreme Court eventually ruled the federal government was free to unilaterally alter funding arrangements. The major point was that Parliaments could not constrain the ability of future Parliaments to alter policies or laws, and that this was particularly important with “money bills”.
The practical meaning for First Nations seeking a new fiscal relationship should be clear. The focus needs to be on creating tax room for generating revenues because this is going to be much more secure than cash transfers.
In the video featuring Councillor Dalyn Bear, he speaks about not agreeing to the proposal from the federal and BC governments to remove the First Nations Fiscal Management Act (FMA) from modern treaties and self-government agreements. This brief note provides a deeper explanation into why this is not acceptable to many First Nations.
The Success of the FMA
Both Canada and First Nations are committed to a nation-to-nation framework. However, “nation-to-nation” is more than just a phrase. It means both parties have powers which they can implement without needing the consent, or being subject to the oversight, of the other.
Two conditions must be met for this to happen. First, you need to have paramountcy over some legislative powers. Second, you need to have the revenue raising capacity to operate these powers so that you are not subject to transfer conditions.
The FMA has met both conditions. (1) It has provided First Nations with powers they can implement without federal or provincial consent. They are not subject to federal or provincial conditions or oversight. (2) It has provided revenues to implement these powers. These revenue powers are not controlled by other governments through conditions, caps or other claw backs.
The FMA has proved that nation-to-nation works. It has been one of the most successful First Nation legislative initiatives of all time. Independent evaluations have confirmed that it has supported the development of First Nation economies, infrastructure and administrations. It has created opportunity for people and turned First Nations into major contributors to regional economies. It has provided real reconciliation by supporting the integration of First Nation governments into the Canadian system of government. It has facilitated regional cooperation. Most importantly, by bringing decision making power home, it has unlocked the potential of people’s imaginations.
The FMA worked because it created, on a small scale, a jurisdiction based fiscal relationship. And that is the only type of fiscal relationship that is consistent with nation-to-nation relations. This relationship has three attributes:
- Tax powers. The FMA provided tax powers to First Nations that are not subject to caps, transfer offsets or other claw backs. As a result, First Nations in the FMA can devote more time to creating revenues, rather than asking for them.
- Unencumbered service responsibilities. FMA First Nations use FMA revenues to fund associated service responsibilities. They are therefore free to set their own priorities, rather than negotiate them. They can deliver their responsibilities without the conditions or oversight of other governments. As a result, they are more responsive to changing circumstances and opportunities. They can move at the speed of business.
- Institutional support. It is expensive and time consuming to build tax systems and economies from scratch. For interested First Nations, the FMA institutions have helped to reduce costs and time. Collectively, the FMA institutions helped First Nations create laws, implement systems, access capital and train their administrations. They continue to help with access to capital, the delineation of jurisdictional boundaries with other governments, and, advancing new initiatives. The FMA institutions provide the advantages of scale and provide access to expensive expertise and services for free to interested First Nations.
For the fourth year in a row Maclean’s presents its year-end Chartapalooza, your guide to making sense of the economy in the year ahead: The 91 most important economic charts to watch in 2018. Tulo Centre's Dr. Andre Le Dressay's chart (seen below) was included.
"This chart is intended to show how two indigenous demographic facts are colliding with a looming Canadian fiscal reality. First, the indigenous population has grown 4.5 times faster than the rest of Canada in the last 10 years. Second, the indigenous labor force has grown 6.9 times faster over the same period. This contrast with the parliamentary budget office’s projection of an unstainable (for most provinces) 124 percentage increase in total provincial deficits over the next 20 years. This means first that the fiscal sustainability of Canada’s future social programs is rather dependent on the future productivity of the indigenous labor force. Second it means that the any increase in federal transfers to indigenous governments to catch up to national service standards is probably not fiscally sustainable given the future fiscal requirements of the provinces. As my colleague Greg Richard said, Canada can soon no longer afford to run the lives of indigenous people. Perhaps 2018 could be the indigenous policy fiscal tipping point for Canada. If this is correct than Canada should support a more jurisdiction based fiscal relationship with indigenous governments characterized by a connection between more independent indigenous fiscal powers and responsibilities. And Canada should shift more responsibilities to indigenous led institutions and governments over education, health, infrastructure, children and other services."
Social Media contest in effect from 11/16/2017 to 11/30/2017. First Nations had economies prior to contact. Tell us about your community's traditional economies for a chance to win a $100 Best Buy gift card!
Follow the Tulo Centre and tag us in your post on Facebook, Twitter or Instagram for a chance to win! Increase your chances of winning by posting on each platform or by posting multiple times! Each post counts as an entry. Each tag (tag your family and friends) also counts as an extra entry. Bonus entries as well for posting photos (2 entries) and videos (5 entries).
Webinar – Changes are coming to FMB’s Financial Performance Standards
Date: November 22, 2017
Time: 10AM-11AM PST
The First Nations Financial Management Board (“FMB”) is updating their Financial Performance Standards and has released an Exposure Draft outlining the proposed changes. This webinar is your chance to hear about the key features of the Exposure Draft and find out how you can have your say.
The Financial Performance Standards are the framework used by the FMB to assess First Nations’ financial performance and ultimately, their eligibility for Financial Performance Certification. The FMB recently completed a comprehensive review of its Financial Performance Standards with a particular focus on the ratios used in the assessment of financial performance. The Exposure Draft and the changes being proposed are the result of this review. The webinar will provide participants with an overview of the Financial Performance Standards, the changes being proposed in the Exposure Draft and the reasons for those changes.
The FMB is seeking your feedback on this Exposure Draft prior to amending its Financial Performance Standards. This input is critical in developing standards that are relevant to First Nations and responsive to their needs. Learn how you can provide your comments to the FMB during the webinar.
Please visit the Standard Setting page of FMB’s website to download a copy of the Exposure Draft and proposed changes to the C2 – Financial Performance Standards. An online questionnaire can be used to submit feedback.
Who should attend? This webinar is open to everyone and will be of particular interest to First Nations seeking a Financial Performance Certificate from the FMB, as well as those First Nations who have already received Financial Performance Certification from the FMB and are considering re-certification in the future. The webinar will also be of interest to First Nations’ advisors, auditors and financial institutions.
In the past year, the Tulo Centre has been working with the Ngāi Tahu Research Centre at the University of Canterbury. Recently a delegation came from New Zealand to meet with the Tulo Centre to discuss the formalization of a working relationship between the two research centres. The Tulo Centre is pleased to bring you this conversation where Manny Jules, Te Maire Tau, Darren Russell and Rinito Davis discuss the creation of the Alliance for Renewing Indigenous Economies and the concept of Indigenous jurisdiction.
For more information on the Alliance: https://indigenouseconomies.org/
Expanding FMA Tax Systems to Support a Jurisdiction Based Fiscal Relationship
Feb 15th, 2018 - Vancouver, BC
The workshop presented by the Tulo Centre and the First Nations Tax Commission focuses on expanding FMA tax systems to support a jurisdiction based fiscal relationship. It will discuss how the fiscal relationship impacts the independence of First Nation jurisdictions. Key topics covered include:
- History of First Nation fiscal relationship
- Problems with the current First Nation fiscal relationship
- Proposals to improve the fiscal relationship
- Opportunities to expand First Nation tax jurisdiction
- FMA tax options
- Resource taxes
- Cannabis and Tobacco taxes
- A Jurisdiction Based Fiscal Relationship Proposal
- Requirement and opportunities for a new fiscal relationship
This workshop is designed for First Nations and others interested in expanding their tax jurisdictions and working towards a jurisdiction based fiscal relationship. It may also be of interested to those participating in the AFN and INAC discussions about a new fiscal relationship.
Limited travel assistance available.
For more information or to register, please contact:
250-828-9857 or toll-free 1-855-682-3682