ARCHIVED - Engagement Sessions on a New Approach to Fiscal Arrangements with Aboriginal Self-Government
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"...the vast majority of transfers received from the other two orders of government should be devoted as
much as possible to supporting actual services, rather than to the high costs of constantly negotiating and
renegotiating annual financial agreements. Formula funding such as that found in the fiscal arrangements
for the territorial governments is based on a set of indicators and is usually reviewed every five years. This
allows for better planning and greater predictability and autonomy."
Royal Commission on Aboriginal Peoples (1996): For Seven Generations: An
Information Legacy of the Royal Commission on Aboriginal Peoples (1997).
In 2010, Aboriginal Affairs and Northern Development Canada
(AANDC) announced that it intended to develop a new approach to
fiscal relations with self-governing Aboriginal communities in Canada.
The new approach would be more transparent, fair and efficient, while
taking account of the differing circumstances of Aboriginal communities.
AANDC also committed that officials would engage in policy discussions
with representatives of Aboriginal governments and negotiating groups and
representatives of provinces and territories about these issues and proposals
before seeking internal approval to adopt a new approach.
This initiative – termed "fiscal harmonization" – is intended to apply to
fiscal relationships with First Nation and Inuit communities that have
negotiated sectoral or comprehensive self-government agreements either on
a stand-alone basis or as part of a modern treaty (in this paper, these are
referred to as "Aboriginal governments").
As a fundamental starting point for the development of this new approach
Canada has reiterated that it will honour and comply with existing treaties
and self-government agreements. Federal officials will meet with
signatories of existing agreements and explore with them how Canada’s new
fiscal approach might affect or inform future fiscal arrangements as these
evolve over time.
Canada has also emphasized that during the development of the new
approach, treaty and self-government negotiations will continue. Federal
negotiators will seek to ensure that agreements are compatible with the new
Initial engagement sessions were held early in 2011, in seven cities across
Canada. Meetings began in Vancouver and Toronto in March followed by
Quebec City, Halifax, Yellowknife, Saskatoon andWhitehorse in May and June. There was broad participation across the country with over 160
participants from outside AANDC representing seventeen Aboriginal
governments, over fifty negotiating groups, six provinces and two
That first round of engagement focused on a discussion of issues of concern
with existing approaches and the principles that should guide the
development of Aboriginal self-government fiscal arrangements. Many of
the concerns raised by representatives of Aboriginal groups during the
initial engagement sessions have been taken into account throughout the
development of this discussion paper.
This paper sets out a proposal for a new approach to fiscal arrangements
with Aboriginal governments in Canada, as follows:
the balance of the Overview & Context section provides brief
descriptions of self-government and fiscal arrangements in Canada,
as well as principles to guide the design of a new approach;
the Engagement section briefly summarizes feedback heard in the
first round of engagement meetings held in the Spring of 2011; and
the New Approach section sets out key elements of the proposal.
Self-Government in Canada
The Government of Canada recognizes the inherent right of self-government
as an existing right within the scope of section 35 of the Constitution Act,
1982. The inherent right of self-government may also be expressed in
treaties. The federal policy on implementation of the inherent right focuses
on reaching practical arrangements within the Canadian constitutional
framework that recognize the authority of Aboriginal governments in areas
that are internal to their communities and integral to their culture, languages
and institutions, and with respect to their special relationship to their lands
Self-government entails a restructuring of how Aboriginal people and the
federal and provincial or territorial governments relate to one another.
Treaties and self-government agreements are intended to provide the
foundation for ongoing and stable intergovernmental relations.
Canada has been negotiating self-government arrangements with Aboriginal
communities (with the participation of the provinces and territories) since the 1980s. Since then, self-government agreements and treaties have been
implemented with about 20 First Nation and Inuit communities.
Canada is also currently in ongoing negotiations of treaties and selfgovernment
agreements with well over 100 First Nations and Inuit
communities across the country.
Self-Government in Canada
Sechelt Indian Band
Champagne & Aishihik First Nations
SGA (with Comprehensive Claim)
First Nation of Nacho Nyak Dun
SGA (with Comprehensive Claim)
Teslin Tlingit Council
SGA (with Comprehensive Claim)
Vuntut Gwitchin First Nation
SGA (with Comprehensive Claim)
Little Salmon/Carmacks First Nation
SGA (with Comprehensive Claim)
Selkirk First Nation
SGA (with Comprehensive Claim)
Sectoral SGA (Education)
Tr'ondëk Hwëch'in First Nation
SGA (with Comprehensive Claim)
Ta'an Kwäch'än Council
SGA (with Comprehensive Claim)
Westbank First Nation
Kluane First Nation
SGA (with Comprehensive Claim)
Kwanlin Dün First Nation
SGA (with Comprehensive Claim)
Carcross/Tagish First Nation
SGA (with Comprehensive Claim)
Nunatsiavut (Labrador Inuit)
Tsawwassen First Nation
Maa-nulth First Nations
SGA = Self-Government Agreement
The Challenges Facing Aboriginal Communities
Aboriginal communities can face significant challenges, which may include,
Geographic circumstance – Many Aboriginal communities are situated in
remote locations, where access to employment and economic opportunities
and government services can be difficult, and the costs of providing certain
services can be much higher.
Small populations – The population of Aboriginal communities is relatively
small, many with only a few hundred residents, some far fewer; serving
small populations often poses higher costs due to reduced economies of
Socio-economic conditions – A disproportionate number of Aboriginal
communities suffer from high unemployment, lower educational attainment
and poor health outcomes; these socio-economic challenges increase the
workload and costs for governments and make it difficult for Aboriginal
communities to mobilize the human resource skills required to ensure the
provision of many public services.
Overlapping government responsibilities – Different levels of government,
including the local, provincial or territorial, and federal governments often
have overlapping roles in providing services for Aboriginal community
members, resulting in some diffusion of responsibility.
Limited fiscal capacity and high fiscal need – Aboriginal communities
typically have a limited ability to raise revenues (fiscal capacity) and yet face
higher demand for social services and higher costs of delivering those
services given their smaller scale and remoteness (fiscal need).
The design of a new approach to fiscal relations with Aboriginal
governments can be informed by considering how Canada has structured
similar fiscal relationships with provincial and territorial governments.
Fiscal arrangements between Canada and the provinces and between
Canada and the territories involve a set of programs which are each
established through transparent formulas of general application to all
provinces and/or territories. Fiscal transfers provided to provinces include
Equalization, Canada Health Transfer (CHT), and the Canada Social
Transfer (CST), and fiscal transfers to territories are provided through the
Territorial Formula Financing (TFF) program as well as the CHT and CST.
These fiscal arrangements share some common features:
the amounts payable to any given jurisdiction are calculated
annually by explicit rules (formulas) that are set out in legislation
the formulas apply in general to all provinces or all territories under
the fiscal arrangements are reviewed and renewed periodically (i.e.,
normally every five years); and
the fiscal arrangements (Equalization and TFF) take into account the
capacity of each provincial and territorial government to finance its
program expenditures from its own revenue sources.
Current Approach to Self-Government Fiscal Arrangements
The approach to fiscal arrangements with self-governing communities has
evolved over time. Essentially, the current approach is bilateral (or
trilateral [Note 1]) with the Parties to each self-government agreement or treaty
periodically negotiating fiscal side-agreements that are unique to each
Aboriginal government. These fiscal side-agreements set out:
the programs and services (which may include treaty
implementation) for which the Aboriginal government assumes
reporting and accountability provisions;
the gross funding amount associated with those programs and
A formal consideration of the own source revenue capacity of the
Aboriginal government to contribute towards the gross funding
The net federal fiscal transfer is the result of the gross funding amount
minus the own source revenue contribution of the Aboriginal government as
calculated pursuant to the fiscal agreements.
A key difference then between federal-provincial/federal-territorial and
status quo federal-Aboriginal fiscal arrangements is that the latter rely on
separate, bilateral (or trilateral) renewal negotiations – each agreement
negotiated separately – rather than a common framework addressing fiscal
arrangements for all.
Issues with the Current Approach to Fiscal Arrangements
After two decades of self-government and growing experience with the
current approach, federal officials have recognized a number of pressing
issues related to negotiating the first and subsequent fiscal agreements:
Negotiation time and cost – Fiscal negotiations can be time-consuming and
expensive, often requiring protracted and contentious discussions. At times,
the resources devoted to negotiating a deal are disproportionately high
compared to the dollar amounts at stake.
Varying terms – Current arrangements may be driven by specific
negotiating contexts, with key terms, conditions and funding amounts
varying by agreements across Canada and over time as mandates and
policies evolve. The end result can be inconsistent treatment of Aboriginal
communities or a lack of clarity, which can inhibit direct comparison.
Risk & inflexibility - Aboriginal communities – especially those with small
populations – can face heightened fiscal risk if local service needs change
substantially between renewals. The current approach sets a fixed "block"
amount which is not directly responsive to changes in program workload.
Lack of clarity / loss of information – The current approach to how block
funds are established and adjusted can obscure the underlying basis on
which funding was provided, leading to future disputes over which
program elements have been funded (and to what levels) and which have
Timing of fiscal negotiations – Under the current approach, the details of
fiscal arrangements, including funding levels and terms and conditions, are
not clearly set out until later stages of treaty and self-government
negotiations. Aboriginal negotiating groups (and community members)
contemplating a treaty or a self-government agreement would benefit from
having greater clarity on such an essential element early in the negotiation
Principles for Fiscal Arrangements
In the earlier stages of developing this new policy approach, federal officials
focused on the question of what underlying principles should guide the
design of fiscal arrangements. The following sets a list of principles
identified and discussed in the first round of engagement meetings.
Each of these principles speaks to key concepts most relevant in fiscal
matters. The specific meaning of each principle in practice may be a matter
of perspective. Different principles may be in conflict from time to time, and
tradeoffs will be required. For example, where circumstances create fiscal
pressures for the federal government, affordability considerations may
assume a high priority.
The fiscal relationship between the governments should reflect the following
principles and, where required, strike a reasonable balance among them:
Fairness and consistency – Fiscal arrangements should treat Aboriginal
governments in reasonably comparable fiscal circumstances in a reasonably
Comparability – Citizens of self-governing Aboriginal communities should
have access to reasonably comparable programs and services as other
Canadians in comparable circumstances.
Transparency – Fiscal arrangements should be managed openly and
transparently, with funding policies and methods set out clearly.
Accountability – Fiscal arrangements should provide clarity of roles and
responsibilities, promote sound public administration, and ensure
appropriate public reporting standards are met by all governments.
Shared responsibility – Aboriginal, federal and provincial/territorial
governments share an interest in, and responsibility for, supporting
Aboriginal governments and citizens.
Manageability – The fiscal arrangement must be manageable and designed
to support efficient and effective administration by both the Aboriginal
government and the federal government.
Flexibility and responsiveness – The arrangements should provide
flexibility to accommodate changes over time and be reasonably responsive
to changing circumstances and fiscal needs of each Aboriginal community.
Predictability and stability – Adjustments to fiscal transfer payments over
time should be relatively stable and avoid generating large year-over-year
swings in funding, and the policy and related institutional arrangements
upon which they are based should also promote stability.
Policy neutrality – Fiscal arrangements should not create incentives that
distort policy choices for governments.
Affordability – The costs of managing the implementation of fiscal
arrangements must be affordable.
Legislative authority – Arrangements must respect the authority of
legislatures in the appropriation of funds.
The first round of meetings in the engagement process was held in the
Spring of 2011. [Note 2] Representatives of the federal government,
Aboriginal governments and negotiating groups, and of the provinces
and territories, met to discuss the existing approach to fiscal arrangements
under self-government, and the key principles that need to be balanced in
any new approach to fiscal arrangements.
The meetings provided an opportunity for a productive exchange of views.
Aboriginal participants expressed a variety of concerns and criticisms, all of
which reflect the importance of fiscal arrangements to the success of their
communities under self-government.
There was general support for most of the principles set out in the federal
document, along with suggestions for additional principles that better reflect
the interests of Aboriginal groups. While a wide variety of issues and
perspectives were raised at the meetings, some key themes emerged:
Participants made clear the importance of fiscal matters.
Overall, there was little dispute concerning the challenges facing
Aboriginal communities as laid out in the Issues & Principles[Note 3]
discussion paper, but there was a desire to see more direct linkages
between the issues outlined and Canada’s principles.
Although there was general agreement with many of the principles,
there were differing views on how to define them (e.g., comparability
There was strong criticism of federal funding and own source
revenue (OSR) policies and federal officials were urged to increase
funding and decrease OSR offsets.
Additional principles were proposed to better reflect Aboriginal
community interests (e.g., adequacy of funding).
There were concerns that some principles would conflict with others
and worries some would dominate (e.g., affordability and legislative
authority would trump other principles).
There were concerns regarding a national approach and that one
formula wouldn't adequately address the unique circumstances of
different Aboriginal communities.
Existing signatories emphasized that Canada must honour existing
agreements but were also interested in fixing problems with the
Negotiating groups expressed interest in hearing the views of
existing signatories and their actual experiences with fiscal matters
Concerns were expressed about whether the views of Aboriginal
groups would be truly reflected in the policy development. That said,
there was an interest expressed by most groups to engage in second
round discussions and to provide feedback in the development of the
Aboriginal Group Perspectives
PROs – Positive & Supportive Views
CONs – Criticisms and Concerns
Fiscal negotiations with Canada may lead
to agreements which suit an Aboriginal
group’s unique circumstances well
Current fiscal renewal process is expensive
Separate fiscal renewal
Fiscal negotiations give Aboriginal
government opportunity to directly discuss
fiscal issues with Canada
Highly critical of Canada’s policies – funding
inadequate and OSR offset excessive
Uncertainty about the level of funding in
subsequent fiscal agreements
Block funding adjustments not responsive
to changes in circumstances
Bargaining power varies considerably
between Aboriginal governments
Funding arrangements should be fair and
consistent, transparent, comparable and
A national approach may not be able to
completely address the different
circumstances between Aboriginal groups
Single national policy
framework for all
with fiscal formula and
advisory process/ forum
Reduced time and resources required to
renew fiscal agreements
New approach does not promise funding
enhancements or changes to OSR policy
Formula design that enables easy
addition of programfunding when a
government assumes additional
New funding approach would remain tied
to Indian Act funding
Advisory process/ forumthat allows
periodic review and discussion of fiscal
policies and arrangements
Special terms negotiated in existing fiscal
chapters might come under pressure
From the perspective of AANDC, fiscal relations with Aboriginal
governments should be managed under a national framework in a
manner more consistent with the approaches employed in fiscal
arrangements between Canada and the provinces, and Canada and the
To adopt such a framework, and address the issues and principles set out
above, AANDC proposes a new approach that includes:
a formula-based funding model to calculate the level of federal
transfers provided to support Aboriginal government programs,
taking into account each Aboriginal government’s ability to
contribute to funding of these programs from its own revenues;
an advisory process or forum for representatives from Aboriginal
governments, provinces, territories and Canada to meet collectively
and discuss the fiscal arrangements;
a public document outlining the federal policy framework and
clearly articulating the parameters for Canada’s financial support of
self-governing Aboriginal groups,
measures to ensure that the differing circumstances of Aboriginal
groups are taken into account in implementing these arrangements;
provisions to ensure that Aboriginal governments meet the
appropriate accountability and public reporting standards.
This initiative is meant to provide an improved framework to address fiscal
arrangements and related funding policy issues; it does not envisage any
change to overall funding levels.
The central concept of the new approach is the use of a transparent formula
to calculate the fiscal transfer provided by Canada to the Aboriginal
government. Under the current negotiated approach, federal negotiators
undertake internal analysis to determine an appropriate financial mandate
to bring to the negotiation table. Those calculations are kept confidential by federal officials because in negotiation processes, the parties commonly keep
their mandate confidential and reveal their positions through offers and
What is new about the transparent, formula-based approach that Canada
contemplates here is not that funding levels are calculated according to
federal policies (given that this is already the case), but that these
calculations are made transparent, and the policy rationale and calculation
methods are set out clearly.
The transparency of the proposed formula-based approach is thus a
fundamental difference and defining feature of the new approach.
Aboriginal government officials will be able to determine what their fiscal
transfer will be, and understand how funding levels for other Aboriginal
governments were established. Indeed, groups contemplating whether to
begin self-government negotiations would be able to relatively easily
calculate what their fiscal transfer might be under these arrangements.
Filling the gap – The underlying rationale of the formula is that it should fill
the gap between an Aboriginal government’s revenue capacity (ability to
fund from its own financial resources) and its expenditure requirements
(funds required to meet spending responsibilities):
The formula to calculate the federal fiscal transfer thus has two main parts:
(1) expenditure side – the calculation of an expenditure base or expenditure
reference level, and (2) revenue side – the calculation of funding to be
contributed by the Aboriginal government from own source revenues and
the federal fiscal transfer. The federal fiscal transfer is calculated as the
government expenditure base [Note 4] net of the Aboriginal government’s own
source revenue contribution and paid as a grant from Canada to the
It is anticipated that the formula would include all funding elements in
support of all regular, ongoing government activities associated with the
responsibilities assumed by the Aboriginal government. These include
programs and services, governance activities and treaty implementation
activities, and take into account the Aboriginal government’s own source
revenue capacity. These are essentially the same as the ongoing elements of
funding provided in fiscal agreements today.
The elements of the formula are set out in the table below.
Fiscal Formula Elements
THE SUM OF:
Governance funding (A)
To support governance activities
Programs & services funding (B)
To support delivery of programs & services, which may
include some or all of:
Treaty implementation funding
To support activities related to implementing treaty
obligations, such as land & resource management
Own source revenue
To take account of Aboriginal government’s capacity to
contribute to funding
TOTAL ANNUAL GRANT
( A + B + C – D )
Fiscal transfer from federal government to Aboriginal
The formula would necessarily be modular, so that it can be applied
differentially where the self-government context varies for each Aboriginal
government. That is, depending on whether it is a comprehensive treaty
(including land claim elements), stand-alone self-government, or a sectoral
arrangement, the elements of the formula that apply will differ. In
particular, in the case of sectoral self-government, only the formula elements that apply to the particular jurisdiction (e.g., education) and an own source
revenue element would be included in the formula calculation.
Governance - A governance funding formula should attempt to ensure that
Aboriginal governments have access to stable and predictable funding levels
that will enable them to maintain a level of core governance capacity (e.g.,
legislative and executive decision making and general government
administrative services) comparable to other similarly sized communities in
Canada, as well as a reasonable amount of funding for fulfilling the
incremental responsibilities and activities that are somewhat unique to the
Aboriginal self-government context (i.e., not typical for non-Aboriginal
governments of similar size in similar circumstances).
For example, Aboriginal governments may be responsible for managing
policy issues in areas such as education and social development, addressing
regulatory enforcement matters (e.g. Environmental Health Officer
inspections of solid waste and sewage facilities, Fire and Occupational
Health and Safety inspections of public buildings etc.) and for providing
access to an independent appeal mechanism in accordance with their selfgovernment
Various factors may have an influence on these costs and should be
considered in the approach to designing a new governance formula. These
factors may include, among others:
Fixed versus variable costs – the formula should ensure a minimum
capacity to address the fixed costs of governance but also respond to
variable costs that may be influenced by community size (i.e.,
number of Status Indians/members living within the jurisdictional
boundary of the Aboriginal government).
Scope and degree of program and service responsibilities – the
formula will need to reflect and respond to the complexity and scope
of the self-government arrangement’s responsibilities. The formula
would need to address differing capacity and needs among
Aboriginal governments, some of which may only be taking on
responsibilities within a single sector while others may be
responsible for programs and services within multiple jurisdictions.
Complexity of government structure – The formula will need to be
scalable to reflect size and complexity of governments and their
structures. The formula should take account of whether the
Aboriginal government is comprised of a single community or a
larger aggregation, and whether it is a public model of government.
Programs and services - Formulas that define the funding provided for the
range of programs and services may include the broad range of programs
that may be transferred to the Aboriginal government, including, for
example, education, social development, health, etc. It is anticipated that an
initial version of the formula would reflect existing funding authorities for
these programs; however, any evolution in these areas (such as the First
Nation LandManagement Initiative and education funding under the BC
First Nation Education initiative) would likely be incorporated directly into
The new formula-based approach is expected to be a national framework
with some regional variations. For a number of programs, the most relevant
point of reference will be the provincial/territorial program, such as
education. To the degree that the federal funding formula is designed to
match or emulate the provincial or territorial funding, there may be
variations across the country for specific aspects of those funding elements.
Implementation – Some key elements of funding provided to support the
ongoing implementation activities, arising fromobligations of the treaty or
land claim, may be included as elements of the formula funding.
Own source revenue capacity – As noted above, fiscal arrangements should
take into account the capacity of the recipient government to finance its
program expenditures from its own revenue sources. Consistent with this,
Canada employs a gap filling approach to self-government fiscal
arrangements, whereby federal fiscal transfers supplement own source
revenues raised by Aboriginal governments. The inclusion of an own source
revenue offset in the funding formula is key to ensuring that a number of
principles are addressed, in particular, shared responsibility, comparability,
Canada believes that the funding and provision of programs for Aboriginal
people is a shared responsibility of the federal, provincial/territorial and
Aboriginal governments and that reliance upon federal transfers is expected
to decrease over time as the capacity to raise own source revenues grows,
leading to greater self-sufficiency on the part of the Aboriginal community.
Consideration of own source revenue capacity promotes fairness and
consistency by providing relatively greater financial support to communities
that have a lower capacity to raise revenues. This ensures that funding is
allocated to where the need is greatest. Furthermore, accountability is
enhanced as Aboriginal governments report directly to their citizens on the
sources and uses of funds in the delivery of their programs.
It is anticipated that the current approach to measuring own source revenue
would be incorporated into the first generation of the formula, with any
future changes made in the course of the periodic review of the formula.
There are different options for how regularly the formula would be
Annual calculation - The formula could be calculated annually based
on the most current data that reflect the actual fiscal circumstances of
each Aboriginal community, and thus would be more responsive to
service demand or workload changes that may occur year to year; or
Periodic calculation – The formula could be calculated for an initial
year and then adjusted over the 5+ year period according to general
adjusters for price and population change. Periodic calculations
would maintain year-over-year predictability in funding during an
agreement period at the cost of potentially large and destabilizing
"rebasing" adjustments upon renewal.
Under the annual calculation option, there is no general adjuster or escalator
applied to a block. Instead, the formula would change more dynamically,
directly measuring actual changes in key drivers (e.g., nominal roll which
measures numbers of children enrolled in school), and have price
adjustment built directly into monetary elements of the formula.
This is another important feature of a formula approach – it may be
designed to be flexible enough to match variations in the fiscal
circumstances (workload, demand for services) and so transfers would
better respond to the expenditure requirements of the government over
time. There is a trade-off, however, between responsiveness and stability,
thus it may be preferable to design the formula to ensure year-to-year
changes are smoothed to avoid sudden funding changes.
The adoption of a formula approach will place special attention on the need
for good data on Aboriginal governments and communities. A formula will
require reliable data so that all parties can be assured as to the validity of
results. In particular, reliable population and other volume data (e.g., school
aged children) will be critical. Cooperation between the federal and
Aboriginal governments will also be key – the responsiveness of the formula
to actual conditions will rest on the sharing of good quality data.
There are three types of data that would be included in the formula:
Federal policy parameters are those numbers set by the federal
government and applied consistently in all calculations in the
formula – these are essentially the same at any one time for all.
Aboriginal community data are the key input variables that describe
the circumstances of each separate Aboriginal community, such as
population, remoteness, etc.
External reference data are those numbers employed in the formula
but calculated or otherwise defined by another source, in particular,
a province or territory (e.g., provincial education block rates), or
Statistics Canada (e.g., a price index).
It is anticipated that the formula should be reviewed and renewed
periodically. The formulas employed for the Equalization and Territorial
Formula Financing programs are set to expire periodically (normally every 5
years, as set out in legislation and regulations governing both
arrangements). This forces a resetting of the formula, which provides the
opportunity to review elements and consider changes to better reflect
evolving circumstances. The formula could thus have a set term after which
it would need to be reviewed and renewed, with elements refreshed or
revised (a likely term would be five years).
The construction of a first generation formula will largely be based on
existing underlying federal funding policies that are used in the
determination of the various elements of current fiscal agreements. Over
time, elements of the initial formula would be updated or modified to reflect
changes in federal funding policy. Modification of formula elements should
take into account characteristics of sound formula design:
Logic – there should be a clear link between the underlying policy
rationale and the math of the formula;
Simplicity – calculations should be simple and straightforward
enough to aid transparency and comprehension, while incorporating
enough detail to reflect the different circumstances of each recipient
Reliability – the formula should be based on the sound data that is
available in a suitable timeframe to support responsiveness.
In Canada and elsewhere, intergovernmental forums facilitate dialogue
between different levels of government and encourage information
exchange. In the case of federal-provincial and federal-territorial fiscal
arrangements, intergovernmental forums review Canada’s Equalization and
Territorial Formula Financing programs on a regular basis, with a more
focused review every five years to discuss the renewal and potential
revisions to the formula. Technical committees may meet periodically, and
exchange information and comments on a continuing basis on all technical
aspects of fiscal arrangements.
Aboriginal governments – and those negotiating toward self-government –
have a stake in how fiscal arrangements are designed. Currently there is no
established aggregate process or forum for Aboriginal governments or
negotiating groups to engage Canada in discussions about fiscal
arrangements, policies or issues. Through fiscal renewals and
implementation committees, each Aboriginal government may raise issues
and press for changes to federal funding policies. Resolution of these issues
on a case-by-case basis, however, is time-consuming and inequitable.
To enable effective dialogue between participants in these new fiscal
arrangements, AANDC envisages the establishment of an advisory process
or forum. The forum would be comprised of representatives of Aboriginal
governments and Canada. Aboriginal groups in the process of negotiating a
treaty or self-government agreement, as well as provincial and territorial
governments [Note 5] could be invited to send observers.
Membership would grow as more self-government agreements are
implemented. For future signatories, participation in the forum would be an
automatic part of self-government. For existing Aboriginal governments
(those whose treaty or self-government agreement pre-dates this new
approach), it might be necessary to confirm that group’s participation
through some form of agreement. A forum would not replace the need for
separate implementation committees nor duplicate their functions, but
would provide the opportunity to discuss fiscal matters collectively.
The advisory process or forum contemplated here would provide a
mechanism for Aboriginal governments to meet with Canada to discuss fiscal relations matters, including the application of formula financing.
Policy discussions would thus be held together at the aggregated forum
rather than separately with individual Aboriginal governments.
The advisory process or forum would likely have two key functions:
Provide advice on operation of fiscal arrangements – during the
course of regular meetings, discussion could focus on operation of
Discuss periodic reviews of arrangements and in particular
formula elements – prior to expiry (every 5+ years) of the formula,
the forum could focus on discussions of the review.
There would most likely be one national forum or process, with the ability to
set up subsidiary processes to discuss issues of a technical or regional
nature. The national forum could meet annually and provide an opportunity
for a high level dialogue, to test ideas and to discuss potential changes to
As an initial step in implementing a new approach, Canada would set out a
public policy statement on fiscal arrangements with Aboriginal
the policy objectives of fiscal arrangements and the principles that
guide the policy;
the scope and application of the policy to different types of
agreements (e.g., comprehensive versus sectoral self-government
the structure and content of fiscal arrangements (i.e., provisions in
fiscal chapters, fiscal side agreements, etc.);
the operation of the formula – both the expenditure and revenue
sides (e.g., methods and timing of calculation, data requirements,
validation and review of formula calculation, etc.);
the authority and nature of associated technical documentation of the
the roles and responsibilities of governments, including
accountabilities and public reporting requirements;
the process of reviewing and updating the policy and the formula;
the terms of reference, structure and membership of the advisory
process or forum.
A key issue in designing a framework is whether the resulting arrangements
provide the necessary measure of stability and predictability.
Arrangements ought to be established in such a way that gives Aboriginal
governments and their citizens’ confidence that they will continue over the
Accountability & reporting
Effective accountability provisions are central to any system of fiscal
arrangements between governments. These must ensure that:
the assignment of roles and responsibilities between governments is
there are no significant gaps or overlaps in program responsibilities
that undermine the provision of services; and
the appropriate government reports on its respective areas of
For accountability to be effective, governments involved in fiscal
arrangements, as well as their citizens, should have ready access to the
necessary information for their assessment and review. It is anticipated that
under the new approach, governments will provide a higher level of
transparency, including the following accountability provisions which
Canada and Aboriginal governments adhere to:
Aboriginal governments will need to publicly disclose how they plan
to spend their financial resources (i.e. budget), how these resources
were spent (i.e. audited financial statements) and what outcomes
they achieved as a result (i.e., results-based performance report).
Being consistent with the public reporting practice of other level of
governments in a similar size, these reports should be readily
accessible to their own citizens as well as other Canadians (e.g.,
through the Internet, hard copy material, etc.).
Canada will annually publish a national report on the fiscal funding
formula, the amount of government funding provided to each Aboriginal government and the results based on pre-determined
The pursuit of transparency and full disclosure must be reconciled with the
need to limit and reduce excessive reports and reporting requirements.
Public reporting should be understood as fundamentally a matter of
accountability, transparency and disclosure that is expected of all
governments in Canada, and less a matter of reporting to the federal
It is a distinguishing characteristic of Aboriginal governments (to a
significantly greater degree than provinces or territories) that circumstances
may vary substantially from one government context to another. The range
of functions they exercise, their population size, their remoteness and their
socio-economic conditions can be profoundly different. It is thus critical to
ensure that the particular design of formula arrangements can address the
unique position of each Aboriginal community and its government. There
can clearly be no "one-size-fits-all" such as a simple per-capita formula.
The formula itself should directly account for key factors such as remoteness
that can impact the cost of delivering certain services. At the same time,
where the size and circumstance of the Aboriginal community make it
unworkable to assume a particular set of program delivery responsibilities,
it will be important to ensure that there can be alternative program delivery
options involving the federal government, province or territory, or other
Aboriginal governments or agencies.
Therefore, Canada will seek to ensure that the new formula approach
supports the ability for tailoring the set of government responsibilities and
fiscal transfers to the differing circumstances of each Aboriginal
Treaty with Self-
Own Source Revenue Offset
The letters A, B and C in the above table represent:
A Included in calculation
B Included in calculation, modified to reflect partial program responsibilities
C Not included in calculation, program delivery responsibility rests with other entity
Approaches in treaty and self-government negotiations
Under the current approach, the fiscal relationship between the Aboriginal
government, Canada and the respective provincial or territorial government
(as applicable) is set out in each separate treaty or self-government
agreement fiscal chapter, which acts as an ongoing framework to guide the
relationship. Under fiscal harmonization, the intent is to establish a national
framework upon which the fiscal arrangements for each Aboriginal
government would be based.
Therefore, the approach federal negotiators would seek in treaty and selfgovernment
negotiation will be substantially altered. The requirement of
the parties to periodically renegotiate fiscal arrangements will be largely
rendered moot, at least in terms of the levels of funding, as future fiscal
arrangements will be implemented and renewed through the new national
approach as set out above. The language describing the fiscal relationship
between the parties sought by federal negotiators in treaties and selfgovernment
agreements will also be changed to reflect this new approach.
The treaty/self-government agreement language required to reflect the
parties’ concurrence on ongoing fiscal arrangements is yet to be developed,
and will depend on the final design of the system proposed here.
Caution should be taken when enshrining any elements of the fiscal
'architecture’ in a final agreement, as this may impede the evolution
necessary in such matters. Fiscal relationships need to evolve and adapt to
While the formula will be used to determine the amount of funding, some
form of agreement will still be required to confirm the Aboriginal
government’s acceptance of that funding and the associated responsibilities
related to the delivery of programs and services. Such agreements might not
be time limited, but instead 'evergreen’, with the ability to make
amendments and add or delete programs over time.
The effective implementation of a formula-based approach will require some
changes to administration of fiscal arrangements, in particular, to address
issues such as who is responsible for (a) data gathering, (b) formula
calculation, and (c) making payments.
The availability of standardized, accurate, timely and verifiable data from all
Aboriginal communities is necessary for a successful formula system.
Various options can be considered. Data could be collected directly by
AANDC, or another organization could be utilized for the purpose of
acquiring and verifying valid statistics. The co-operation of Aboriginal
governments in providing the required information would also be required.
This paper outlines a proposal developed by AANDC for a new approach to
Aboriginal self-government fiscal arrangements. Its aim is to facilitate a
productive discussion of the proposal at a second round of engagement
meetings with Aboriginal governments and negotiation groups planned for
March 2012. While the proposal has been initially developed by AANDC, it
is important that all those who have a stake in its design can voice their
views through participation in the engagement process.
In addition to the opportunity to provide comments directly in the second
round meetings, representatives of Aboriginal governments and negotiating
groups, and of provinces and territories, are welcome to provide further
comments or input in the form of a written submission sent to firstname.lastname@example.org by April 30, 2012.
Before further steps can be taken to implement changes such as those
contemplated here, there will need to be a reviewwithin the federal
government and approval of the key decisions required. Once that process
is completed, AANDC officials will communicate the outcome to those who
have participated in the process and outline next steps in further
development and implementation.
Following the approval of a new approach, it is anticipated that federal
officials would seek to continue the dialogue with Aboriginal governments
and the most advanced negotiating groups on further design issues.
Canada has reiterated that it intends to honour existing agreements. Federal
officials recognize the need to meet with existing signatories whose selfgovernment
agreement or treaty is based on negotiating renewals to discuss
any new approach in the context of the terms of existing commitments
between the parties.
The Government of Canada provides significant financial support to
provincial and territorial governments on an ongoing basis to assist them in
the provision of programs and services. There are four main transfer
programs: the Canada Health Transfer (CHT), the Canada Social Transfer
(CST), Equalization and Territorial Formula Financing (TFF). [Note 6]
The CHT and CST are federal transfers which support specific policy areas
such as health care, post-secondary education, social assistance and social
services, early childhood development and child care.
The Equalization and TFF programs provide unconditional transfers to the
provinces and territories. Equalization enables less prosperous provincial
governments to provide their residents with public services that are
reasonably comparable to those in other provinces, at reasonably
comparable levels of taxation. TFF provides territorial governments with
funding to support public services, in recognition of the higher cost of
providing programs and services in the north.
The issue of how the expenditure base is determined is a central policy issue in intergovernmental fiscal arrangements, and undoubtedly the subject of ongoing debate and discussion between the supporting and receiving governments. Having a formula does not end the debate, but it does provide a clearer basis on which to assess and compare funding terms and a better platform to discuss potential changes. (return to source paragraph)
The role of each province or territory in the forum could depend on whether that government is a party to the self-government agreement or treaty or has committed to participate in fiscal arrangements for Aboriginal governments (possibly confirmed through a cost-sharing understanding). (return to source paragraph)