New revenue-sharing proposals could transform Canada's relationship with Indigenous peoples and unlock natural resource development. Josiah Haynes explores.
During a press conference, Pierre Poilievre and Indigenous leaders announced a new Conservative proposal. Photo supplied.
Earlier this week, the Conservative Party announced the launch of consultations to develop a new policy regarding a potential optional revenue model that would give First Nations communities more direct fiscal revenues from resource projects on their lands. The proposal announced by Conservative leader Pierre Poilievre seeks to address the long-standing issues of poverty, substandard housing, unsafe drinking water, and unemployment.
It's a big shift for the Conservatives.
"For hundreds of years, First Nations people have suffered under a broken system that gives power over their lives to a faraway government in Ottawa whose decisions have proven disastrous for these communities," said Poilievre. He went on to explain his understanding of the current system, in which control of reserve land and money is given to the federal government under Section 2 of the Indian Act, which results in tax revenues from resource projects on First Nations lands going to Ottawa instead of the First Nations governments.
The proposed new model aims to change this by giving First Nations communities more control over their resources and money.
It's the most recent step by Canada's major political parties and governments to embrace economic reconciliation as a political priority.
Back in 2019, the federal Liberal government split the Department of Indian Affairs and Northern Development (DIAND) into the Department of Indigenous Services (ISC) and the Department of Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC). The change was made to improve services and assist the transition to greater Indigenous self-government.
The creation of ISC and CIRNAC signalled a shift from historical patterns to a new conception of the federal government's relationship with Indigenous peoples and governments, a transition perhaps most clearly enshrined in the passage of the United Nations Declaration on the Rights of Indigenous Peoples Act (UNDRIP) in 2021.
In BC, similar legislation was introduced even earlier. In 2019, it was the first province to align itself with UNDRIP principles as its reconciliation framework with the passing of the Declaration on the Rights of Indigenous Peoples Act (DRIPA). Ultimately, the government's adoption of DRIPA, then led by BC NDP Premier John Horgan, has shaped the province's subsequent interactions with Indigenous peoples.
Yet the latest proposal from the federal Conservative Party is something new.
Poilievre outlined several basic principles that the Conservative's new revenue model should include based on an outline provided by the First Nations Tax Commission. First, it should be optional, with willing First Nations able to choose to collect more resource revenues from projects on their lands directly. They could also keep the current arrangements if they prefer the status quo. Second, payments by resource companies to First Nations should be offset by the federal government ceding tax room, which would redirect revenues from the federal government to First Nations governments. Third, the proposed model would not affect provincial taxes or royalties, though provinces could choose to match the federal policies. Fourth, nothing about this model would prevent First Nations from continuing to demand other economic and social benefits from resource projects: job opportunities, training and other conditions for projects could continue to go ahead.
Melissa Mbarki, a policy analyst for the Macdonald-Laurier Institue's Indigenous Policy Program, told Resource Works that the new Conservative proposal is the first step in the right direction, with the potential to ripple into the broader economy.
"Acknowledging that Indigenous communities and people play an important role in the resource sector is the first step in reconciliation," she said. "The partnerships that have been built in this sector should be used as models in other industries. There is a need for oil, gas and pipelines today and into the future, so listening to all sides of this discussion is vital. Hopefully, Poilievre sets a standard for Indigenous consultation that ripples into the economy and political decisions. We have to start somewhere, and this is a step in the right direction."
Poilievre acknowledged that many questions about the proposed model still need to be answered and developed as consultations with First Nations and industry proceed.
Not just a national plan
Dr. Don Wright, former head of the BC Civil Service at IPSS 2022.
As the founding organization of the Indigenous Partnerships Success Showcase (IPSS), an annual event on successful Indigenous-industry partnerships advancing economic reconciliation, Resource Works had the pleasure of supporting IPSS 2022. I'm reminded of the session featuring Dr. Don Wright, former head of the BC Civil Service, where he unveiled his proposal for natural resource revenue sharing between the province and First Nations.
What might economic reconciliation between a provincial government and First Nations look like? It's the core question for Wright, who suggested a path involving a fifty-fifty split of resource revenue.
Wright’s proposal involves distributing fifty percent of the province’s net forestry, mining, oil and gas revenues to the First Nations on whose traditional territories the resources are located and then allocating these to a sovereign wealth fund that would be reinvested; annual earnings would then be distributed among the Nations.
One condition Wright had regarding his revenue-sharing proposal was that there should be no additional taxes on natural resource companies operating under the proposal.
“In terms of my motivation for this, I came across a quote a little while ago, and I think it’s a really relevant one to this context,” says Wright. “When negotiating, don’t aim for a bigger piece of the pie. Aim to create a bigger pie.”
Regardless of the specifics of Wright's proposal, the conceptual similarities with Poilievre's proposal are striking.
It's a good plan and one we've encouraged the BC government to explore. New developments, including BC's reformed natural gas royalty policy and the landmark new agreements with Blueberry River First Nations and other First Nations in the Montney region, make policies such as Wrights and Polievre's especially relevant.
BC's new natural gas royalty system introduced a price-sensitive royalty rate for wells that have met initial capital costs. Depending on the price of natural gas at a given time, producers could be expected to pay the province up to forty percent of revenues — not far from Wright's fifty percent target — but First Nations will not be the recipients of the funds under the new royalty system.
Why give the provincial government up to nearly fifty percent of natural gas revenue when it could be shared with the First Nations on whose land the wealth is created and upon whose consent projects now depend? The genius of Wright's proposal, fifty-fifty revenue sharing between the province and First Nations, complements the new royalty system. A revenue-minus-cost model followed by a price-sensitive rate upon meeting initial capital costs, with revenue shared by the province and First Nations, could result in a more equitable future likely to benefit all parties.
Not only would this sharing provide First Nations with much-needed funds, but it would also be directly tied to private sector wealth generation on their lands. It'a a future in stark contrast to one defined by provincial grants and transfers.
This system would incentivize Indigenous peoples and governments to welcome natural resource development within their territories, subject to non-economic considerations like environmental protection and culturally appropriate stewardship while developing their economies and the province as a whole.
If Polievre's proposal is ever adopted on the federal level, I see tremendous reasons for provinces to follow suit, with qualifications unique to local realities. Indeed, the Conservative leader invited provinces to match the federal policy if implemented.
Karen Ogen, the former Chief of Wet’suwet’en First Nation and current CEO of First Nations LNG Alliance, told Resource Works: "Some mechanism to ensure that Indigenous peoples and communities share in resource revenues sounds attractive, at least in principle. We need to know first how this one would work. And the system would definitely need to be built with First Nations as full partners in its design."
Karen Ogen, CEO of the First Nations LNG Alliance. Photo supplied.
The First Nations LNG Alliance is a collective of First Nations participating in and supporting sustainable and responsible LNG development in BC. On Canada's west coast, the Haisla Nation is currently awaiting the approval of the BC government to proceed with its proposed Cedar LNG export terminal. Meanwhile, to the north, the Nisga'a Lisim's government has partnered with Rockies LNG and Western LNG to propose its own floating LNG export facility.
Ogen continued: "We'd like to hear, too, about ways to help First Nations become true and equity partners in resource development, not just be recipients of benefits."
A Copernican shift
When it comes to both Poilievre's policy and Wright's proposal, the changes implied are nothing short of revolutionary: they represent a new relationship with First Nations based on a nation-to-nation partnership within a unified confederation.
Over the last 15 years or so, the duty of the federal and provincial governments to meaningfully consult First Nations on major projects in their territories has become apparent. Despite its flaws, the passage of bill C-69 in 2019, including the Impact Assessment Act and the Canadian Energy Regulator Act, introduced changes in how Indigenous peoples are to be consulted. These changes have transformed the approach taken by industry and government; meaningful consultation is now practiced.
In the last few years, we have seen the relationship progress to include Indigenous equity ownership of major projects — quickly becoming a best practice in natural resource development — and, with the introduction of legislation in recent years, the shift to Indigenous governments becoming regulatory authorities in their own right.
Led by partnerships between First Nations and industry, the explosion of dozens of Indigenous partnerships through joint ownership of major projects signals a fundamental shift in economic reality for Indigenous peoples in Canada.
Meanwhile, the Squamish Nation made history in 2015 and 2016 by becoming the first Indigenous government responsible for legally binding Indigenous-led environmental assessments of pipeline projects in Canada. Those pipeline projects, Woodfibre LNG and FortisBC's Eagle Mountain-Woodfibre gas pipeline, voluntarily recognized and respected the outcome of Squamish Nation's assessment.
In northern BC, the Tahltan Central Government similarly made history in 2022. The Nation became the first Indigenous government to sign a consent-based agreement with the province of BC and a project proponent under section seven of BC's new Declaration on the Rights of Indigenous Peoples Act (DRIPA) legislation. The agreement, discussed by signatories at IPSS 2022, included recognition of the authority of the Tahltan Heritage Resources Environmental Assessment Team, outlining consent-based decision-making related to the environmental assessment of the Eskay Creek Revitalization Project, the proposed re-opening of the Eskay Creek mine, located in traditional Tahltan territory in northwestern British Columbia, by Skeena Resources.
Now, we see the next stage of evolution: taxation. This raises critical questions with profound implications dependent on the details of any proposed policy.
"Now we need to go from simple economic benefits to fiscal benefits," said Poilievre. "And the difference is this: economic benefits are for everyday individuals; fiscal benefits are revenues that go to First Nations governments that then can be directed to the benefit of the people on the ground. This is direct accountability and connecting the responsibility and the authority with the people who are most affected by decisions."
Confederation is evolving before our eyes, slowly and organically, as best practices, precedents and political reforms emerge that are together redefining Canada. Canada is no longer the union of two nations but of many.
Profound implications
Pierre Poilievre announced the Conservative Party's proposed policy alongside Indigenous stakeholders. Photo supplied.
As the relationship between federal, provincial and First Nations governments evolve, innovative tax policies partnering with Indigenous governments will have profound effects and implications for further legislative and policy shifts.
The Conservative Party's statement on the proposal says: "Payments by resource companies to First Nations should be offset by the federal government ceding tax room [italics added]. The effect of this would be to redirect revenues from the federal government to First Nations governments."
What does it mean to cede tax room to First Nations, and what might the policy look like? That is the critical question that both the Conservative and Dr. Wright's proposals must answer. I have sketched out three potential interpretations:
- The federal government reduces the tax burden on a given natural resource company in proportion to the payments it provides First Nations governments through revenue-sharing agreements, for example. Such a policy appears designed to encourage natural resource development in conjunction with more generous benefits for First Nations.
- The federal government would split taxation revenue from natural resource projects with First Nations in a manner akin to Dr. Wright's proposal, regardless of the percentage of revenue shared. This would likely come in the form of generous financial transfers that have little impact on incentivizing development other than by dramatically increasing the funds transferred to First Nations, thereby incentivizing higher levels of local support for projects.
- The federal government cedes an as-of-yet unspecific percentage of tax authority to First Nations. Instead of simply transferring a percentage of revenues (option two), such a policy would imply granting the Nation the right to set the tax rate of natural resource companies up to a specified ceiling demarcated by the federal government. For example, if the federal government initially taxed 15 percent of a company's revenues but ceded 5 percent to First Nations, the First Nation would have a corporate income tax ceiling of 5 percent. The implication is that it could set the rate as low as it wanted, beneath 5 percent. This would allow First Nations governments to compete with one another for investment by creating competitive tax rates lower than the rates currently taxed by the federal government. It would also signify a significant acceleration toward greater Indigenous political sovereignty.
To me, the language "ceded" suggests more than a new rate of financial transfers. But whatever the interpretation of "ceding tax room," all models have a significant impact on government revenues and the ability of the federal government to maintain its current level of spending. It seems likely that any significant change in government revenue must be accompanied by an equally significant change in either the scope of federal government services or the division of governmental responsibilities between federal, provincial and Indigenous governments.
Consider government tax revenues from the energy sector alone. Canada received contributions from the petroleum sector averaging $13 billion between 2015-2019. During that time, the energy sector’s share of taxes paid by all industries was 6.9%.
Energy industry contributions to government revenue. From the Department of Natural Resources Canada.
In 2018, energy industries paid about $9 billion in combined corporate income tax and indirect taxes. Compare that to the $8.4 billion total cost of the Public Health Agency of Canada in the federal 2022-2023 estimates. In other words, taxes from the energy industry alone contribute more than the entire cost of many of the federal government's major programs.
Let's look at this another way, including personal income tax paid by workers in the industry in addition to other contributions to provincial and municipal governments. According to the Canadian Energy Centre, "The energy sector’s cumulative fiscal contribution to federal, provincial, and municipal government revenue was $701.2 billion between 2000 and 2019, an average of nearly $35.1 billion per year."
And that's not counting other industries like forestry, mining and aquaculture, which comprise a significant portion of economic activity in provinces like BC, Ontario and Quebec. Neither does it include other commercial projects beyond natural resource industries, which the Conservative leader suggested will be on the table for discussion.
What would be the impact on government budgets if a significant percentage of that tax revenue was directly shared or ceded to Indigenous governments? Depending on the percentage point of tax revenue that would be transferred or ceded to First Nations, a strong argument can be made that governments should accordingly share or cede the jurisdiction and responsibility of certain government services to those Nations.
Indeed, considering the 2022-2023 $39.5 billion federal expenditure line next to the Department of Indigenous Services, there may be a path forward that reconciles budgetary balances. One way might include shifting the delivery of some Indigenous services to newly empowered Nations themselves or supplementing the cost of local programs with local revenues, a point raised by Poilievre. If designed prudently, the policy could lend itself to enhanced Indigenous prosperity and independence from federal programs and to greater economic development throughout Canada.
Speaking of the proposed policy, Lisa Mueller told Resource Works: "As the founder of the Nation2Nation Forum, an organization dedicated to facilitating dialogue between First Nations, industry and government, I believe that many Indigenous communities are eager to work with willing partners to facilitate economic development within their own territories and Canada more broadly. Providing First Nations with the means of sharing natural resource revenues can only lead to greater prosperity for everyone."
Lisa Mueller, founder of Nation2Nation Events. Photo supplied.
Yet, another critical question is how Indigenous governments would receive the revenues shared or ceded by federal or provincial governments under either proposal.
While Wright proposed that the share of the tax revenue shared with First Nations be delivered in sovereign wealth funds, the Conservative policy is silent on the specifics. There are advantages and disadvantages to any model. On the one hand, the sovereign wealth fund model is highly sustainable, promising value over time while encouraging enhanced financial accountability from local leadership. On the other hand, it constrains the spending abilities of Indigenous governments in the short term.
Regardless of how Indigenous governments would collect or receive natural resource revenues, those Nations that opt into the proposed policy will need to develop and expand fiscal decision-making capacity and accountability mechanisms to truly benefit from a notable increase in revenue.
Conclusion
Perhaps the most fundamental impact of the new policy, should it be implemented or adopted by other parties and levels of government, will be to transform the relationship between Indigenous peoples and the government.
According to the Conservative leader, the current structure creates a relationship that puts the power in the hands of bureaucrats and lobbyists rather than Indigenous peoples themselves. It's a dynamic understood by many across the partisan spectrum as a result of the historic, paternalistic system.
Now, we have a proposal to transform that relationship from one of dependency to one of agency. It's hard to imagine the extent of societal implications for personal and collective empowerment. If the policy is implemented, one can only dream of the potential for Indigenous capital formation and the profound satisfaction suddenly realized, after centuries of economic exile, by the millions of current and future generations of First Peoples.
The policy proposal is a positive step forward in addressing the long-standing issues facing Indigenous communities, giving them more control over their resources and futures. It demonstrates continuity with the fundamental shift adopted by much of the political establishment toward the development of Indigenous sovereignty and economic renewal within the Canadian federal system.
Josiah Haynes is Resource Works' director of content. Find him on LinkedIn and Twitter.