Fiscal Relations Questions and Answers

A1: Fiscal relations are the financial arrangements under which governments finance their activities. They can be summed up with four basic questions:

1. Which government provides what services?

2. Which government pays for these services?

3. Who is eligible for what services?

4. Which government collects what revenues?

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A2: The fiscal relationship is the single most important factor in determining the quality of future government services and infrastructure for members.

A fiscal relationship is one of three critical components for self-government in a Treaty. Together with self-government arrangements and the land and cash settlement, it determines how much a First Nation can share the income earned off the land, and to what extent it can independently exercise its authority. The fiscal relationship is also the single most important factor in determining the quality of future government services and infrastructure for members.

Success in negotiating land and cash settlement through Treaty requires a supportive fiscal relationship.

• The value of the cash settlement can be reduced if the fiscal relationship results in those monies being needed to meet service obligations, or it allows income earned by the settlement to be used as a justification for reducing transfers from other governments.
• The value of land received by a First Nation will depend upon how much tax jurisdiction it holds over that land and its control over the revenues generated by its businesses and leases. All these issues are specified in a fiscal relationship.

Success in negotiating autonomy and expanded jurisdiction requires a supportive fiscal relationship.

• If the revenues that pay for the exercising of a jurisdiction or the delivery of a service are controlled by other governments, then that jurisdiction can be subjected to conditions and reporting requirements of other governments. This simply waters down the jurisdiction and leaves the funding government in control.

Success in bringing services and infrastructure up to the standards enjoyed elsewhere depends upon the fiscal relationship.

• The fiscal relationship will determine how much money a First Nation has to meet its expenditure obligations and provide infrastructure.
• The fiscal relationship also determines the extent to which other governments are obliged to provide services and infrastructure.

A3: The First Nations Summit participated with Canada and British Columbia in a non-negotiating, without prejudice working group called the Fiscal Relations Working Group or the FRWG. The objective of the FRWG was to explore options for an improved fiscal relationship in a treaty context. To accomplish this task an interest-based approach was used, options were explored and then tested both qualitatively and quantitatively.

The FRWG made a Report to the Principals (the Summit Task Group, the Minister of Indian Affairs, and the Attorney General) in June 2003. The BC Treaty Commission has recommended that further work take place in the context of table negotiations.

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A4: The Fiscal Arrangements User Model is a Microsoft Excel based spreadsheet model that enables a First Nation to input its own demographic, government, financial, economic, and treaty settlement data, to examine the financial implications of proposed fiscal arrangements over a 20-year timeframe.

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A5: Any First Nation that needs to understand the financial implications of proposed fiscal arrangements offered during Treaty Negotiations will likely be interested in obtaining the Fiscal Arrangements User Model. The model requires technical expertise (with Microsoft Excel) and an investment of time and effort to be used effectively.

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A6: The Fiscal Arrangements User Model can be used in preparation for and during Agreement-in-Principle negotiations to assist negotiators in examining different fiscal relations options and economic development scenarios. The model can also be used as a tool to discuss some of the questions that membership may be asking during Agreement-in-Principle community consultations.

The model will likely become even more useful during Final Agreement Negotiations once some parameters of treaty settlement have been negotiated. It will help negotiators in analyzing different scenarios and options. It will also help treaty negotiators, chiefs and councillors to respond to questions from membership during community consultation.

The model can also be used once a Final Agreement has been negotiated and implementation begins. At this point even more parameters will be known and can be input into the model.

First Nations can also use the model without any consideration for treaty settlement – they can simply use it as a strategic financial planning tool.

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A7: The model is not an economic forecasting tool but rather a comparative policy analysis tool. It will be able to illustrate the difference between different fiscal options but should not be relied upon to provide accurate results over 20 years. The results provide an indication of magnitude and direction only (trend) and will not provide precise point forecasts. However, a user can develop alternative scenarios in order to identify a range of possible outcomes or vary specific variables in order to undertake risk and sensitivity analysis.

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