Territorial Formula Financing

What is Territorial Formula Financing?

• Territorial Formula Financing (TFF) is an annual unconditional transfer from the Government of Canada to the three territorial governments to support the provision of public services.

• Although territorial governments have the authority to raise revenues by taxation, rentals, and the sale of goods and services, a significant portion of their financial resources comes from the federal government through the TFF grant – in 2005-06, TFF was approximately 61 per cent of Yukon’s, 66 per cent of the Northwest Territories’ and 81 per cent of Nunavut’s total financial resources.

TFF Framework

• In October 2004, the Government of Canada announced a new framework for TFF following two meetings of First Ministers. As a result of this announcement, a number of important changes occurred:

• Normal formula-based calculations of territorial entitlements were suspended, and a new financial "framework" for TFF was legislated with overall TFF payments predetermined at a minimum of $1.9 billion for 2004-05 and $2.0 billion for 2005-06.
• This funding was distributed among the territories based on the entitlements they would have received under the old agreements with incremental funding being allocated based on entitlement shares in 2004-05 and in the two previous years.
• For 2006-07 and subsequent years, overall TFF funding was legislated to grow by 3.5 per cent annually.
• A review of the TFF program by an independent Expert Panel was announced. The Panel will submit its report in Spring 2006.

• Following consideration of the report of the Expert Panel and consultations with the territories, a new TFF allocation formula will be introduced for 2007-08 and beyond.

TFF Payments for 2006-07

• TFF allocations to territories for 2006-07 were announced by the previous government in November 2005 but were not legislated.

• Budget 2006 proposes that more current economic and fiscal data be used to determine 2006-07 TFF payments.

• For those territories where there is a decline from the amount they had been advised of in November 2005, a one-time payment to offset this decline will be provided.

Calculation of TFF Payments before the Framework

• Prior to the New Framework, TFF was determined through a formula based on a "gap-filling" principle, which took into account the difference between the expenditure needs and the revenue means of territorial governments. The difference was provided through the TFF grant which was governed by agreements between the federal and territorial Finance Ministers.

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