Mr. Speaker, I want to take this opportunity to update Members on our fiscal situation and the challenges that Members of the next Assembly will be facing.
As the 2014-2015 interim Public Accounts that I will table later this Session will show, we have achieved our fourth consecutive surplus last year, totalling $120 million. Our departments were diligent in keeping expenditures within budgeted levels. However, this is not enough. The Public Accounts will also show that our net debt has increased $37 million. This means we continue to rely on short-term debt to pay for our capital expenditures and we remain in a cash deficit position.
In June of this year we received the last of the 2014 resource revenues and after adding in the estimate for the revenues we expect to receive for the first three months of 2015, we have recorded $63.7 million in resource revenues in the 2014-2015 Public Accounts. We have shared $6.3 million of the net fiscal benefit of the revenues already received with our Aboriginal partners under the Devolution Agreement. After sharing with the federal government and our Aboriginal partners, our remaining net fiscal benefit for 2014-2015 is $23.9 million. This allowed us to make our first contribution of resource revenues to the Heritage Fund. In August, we transferred $4.7 million to ensure that future generations share in the resource development happening now. The remaining resource revenue will be dedicated to investment in infrastructure and debt repayment, consistent with our previous commitment to the Assembly and public.
In 2015-2016, we will continue to meet our fiscal challenges in spite of extraordinary expenditure pressures resulting from fire suppression activity and low water levels at our Snare hydro system. This year’s revenue forecast has not materially changed from the February budget. Due to extraordinary expenditures, related to forest fires and low water, we are expecting a reduced operating surplus at $105 million, down from $147 million projected in the 2015/2016 Budget.
We need these operating surpluses to fund at least half of our annual capital investments and our dedication to managing our expenditure growth in line with revenue growth has kept us in a surplus position. Going forward, even more fiscal restraint will be necessary to maintain surpluses because our revenue growth is forecasted to be flat over the next five years.
The flat revenue outlook means less fiscal resources to sustain programs and services and capital investments at current levels. Under current fiscal planning assumptions, our operating surplus will continue to decline to what would barely be a balanced budget by 2019-2020. That year could see us with a small surplus of $10 million and still in a short-term cash deficit position, living beyond our means as we continue to borrow money to finance operations and capital investment throughout the life of the 18th Legislative Assembly – something we said we must not do.
The key components of our revenue are beyond our control, so we cannot simply choose to grow them. The reality is that almost 70 per cent of our revenues come from the Territorial Formula Financing Grant, which increases at the rate of provincial and local government expenditure growth adjusted by the NWT population growth. As provinces struggle to balance their budgets and manage their debt loads and we deal with flat population growth, our main source of revenue will also begin to decline.
While making up only 19 per cent of total revenue, our own source revenues are volatile and difficult to estimate and are linked to the NWT economy.
The NWT economy has experienced three years of growth, primarily because of activity related to the construction of the NWT’s fourth diamond mine. However, this fact masks the reality that the economy is only 85 per cent of what it was before the global recession in 2008. Furthermore, economic activity is uneven, with southern NWT, especially the North Slave region, benefitting from mineral exploration and diamond mine activity, but other regions, especially the Sahtu and Beaufort Delta regions, experiencing serious declines in economic activity. This economic slowdown has caused business opportunities to dry up and the population to stagnate, as families leave to seek opportunities elsewhere.
Yesterday’s Statistics Canada release of the July 1, 2015 population estimates show 0.2 per cent population growth in both 2014 and 2015, caused mainly by less people leaving the territory. While these new estimates suggest that the retention efforts in our Population Growth Strategy are working, other important initiatives of this Strategy, including increasing immigration to the NWT through the Nominee and Express Entry programs, may also be bearing fruit. However, It does not change the Northwest Territories fiscal outlook and we cannot relax efforts to address our economic challenges.
What happens in the resource sector has a dramatic ripple effect on the rest of the economy in relatively short order and we are keenly aware that our resource sector is strongly linked to the global economy as the prices for NWT resources are set in the global market. Both workers and capital can easily leave the NWT when the economy slows down or another province experiences strong growth. Simply having the resources is not a guarantee that they can or will be developed.
The scope and timing of new resource projects are uncertain. Currently, potential new mines are having difficulty obtaining financing and low prices have caused oil and gas activity in the territory to decline significantly. New drilling and exploration projects in the Beaufort Sea and Sahtu regions have been put on hold. At present, there are no potential projects large enough to replace the existing diamond mines and the resource revenues they provide our government when they stop production. None of the existing diamond mines are projecting production past 2031. The first mine projected to close is Diavik by 2023, just eight years away.
Resource development depends on exploration investments made by private companies with plenty of worldwide options for future growth. A new mineral discovery may take more than a decade to become a productive mine and the rate of exploration investment has decelerated. Total mineral exploration is at levels similar to 2009, when the global economy was in recession and very little oil and gas exploration has been undertaken over the past few years. Without exploration, new resource development does not happen.
This is our dilemma. We need to make investments in our economic future now by ensuring our territory is attractive and welcoming to potential investors. Infrastructure investment can help encourage resource exploration and development and we need to position ourselves to capture the benefits of a global economic recovery. However, our projected revenues are flat and our existing expenditure pressures continue to intensify. Taxation and other measures to increase our revenues are not the answer; these would only raise the cost of living and doing business here and discourage the investment we need.
The solution is growing our economy and growing our population, which means investments in infrastructure are required to not only support resource development but to diversify our economy, lower our energy costs and in turn lower the cost of living and operating businesses in the NWT. In short, we need to spend money to create future prosperity but that means managing current expenditures so that we have the fiscal resources to invest for the future.
As we look to our future post-devolution and the need to grow our economy, there are key things to be done. Specifically, we need to commit ourselves to settling outstanding land claims. This will bring political certainty to both the GNWT and Aboriginal Governments. It will bring economic certainty and opportunity to industry, opening up 144,000 square kilometres of mineral rich land that has been under interim withdrawals for decades allowing for potential development. Settled claims also mean no more tens of millions of dollars spent on protracted negotiations, saving three levels of government critical fiscal resources.
Going forward, the GNWT will need to do more to free up fiscal resources to continue to meet the difficult challenge of maintaining existing assets, improving housing stock, and meeting legislative requirements. We have to create fiscal capacity by ensuring expenditure growth is still controlled, implementing reductions in areas where reasonable, and looking at ways government could be structured more efficiently.
If current planning assumptions remain unchanged, our operating surplus will continue to decline over the life of the 18th Assembly to as low as $10 million by 2019-2020. This will require us to lower our investment in our capital program after 2016-2017 to ensure we are able to manage debt and adhere to the Fiscal Responsibility Policy. This means our infrastructure deficit will continue to grow.
We cannot borrow our way out of this quandary despite the increase in the federally-imposed borrowing limit to $1.3 billion. Increased debt today leads to higher future debt repayments. Using the increased borrowing room entirely would add almost $30 million annually in expenses for interest and debt repayment. The operating budget would be required to cover these extra costs and we would be in deficit by 2019-2020.
We need to ensure we are living within our means, watching what we spend on operations so we can continue to invest in infrastructure to grow the economy. The current outlook projects both flat revenues and increasing expenditures. This leaves us with a narrowing surplus and a capital investment profile that is cut in half by 2019-2020. Economic growth and diversification will require capital investment so that mine closures in the medium-term do not push the economic base past a tipping point. Make no mistake, I am confident that as we transition to the 18th Legislative Assembly, the resilient people of our fine territory are up to the task. Aligning our expenditures to our flat revenue growth will be challenging but necessary as we continue on our path to creating a sustainable economic environment that will allow the future Legislative Assemblies to provide our residents with programs and services they require.
Thank you, Mr. Speaker.