September 25, 2002

Let me start with a classic economic adage – “there is no free lunch” – to indicate my skepticism towards the First Nations Fiscal and Statistical Institutions Initiative (the “Initiative”) and to warn against any acceptance of this Initiative, as it stands, by the First Nations.

According to the INAC Backgrounder on the First Nations Fiscal and Statistical Institutions Initiative:

“To provide needed tools for economic development and improving the quality of life on reserve, First Nations are leading an initiative to establish, through legislation, a suite of four institutions which will be operated by and for First Nations. The proposed institutions include a Finance Authority, a Tax Commission, a Financial Management Board and a Statistical Institute. These institutions will provide First Nations with the access to capital markets available to other governments. They will further strengthen the First Nations real property tax system and provide greater representation for taxpayers. They will develop appropriate financial standards and increase financial management capacity. Finally, they will serve to fill the current gap in First Nations statistics.”

Sounds like a good idea – so what are the problems?

To appreciate the problems, it is best to consider this Initiative as TD&C – Taxation, Devolution and Control. The federal government wants the First Nations to impose property taxes and eventually income taxes on the reserves in order to put an end to the right to tax exemption and to enable the government to back out of its financial obligations to the First Nations. Own source revenues provide the escape route for the feds from their financial commitments.

As the First Nations increase their dependence on own source revenues, the federal government, under the guise of self-government, will devolve more spending responsibilities to the First Nations, but with less federal funding. Further, the federal government does not intend to give up its ability to control how money will be spent on reserves even as it contributes less to the First Nations.

To appreciate how this Initiative falls into the TD&C strategy of the federal government, it is useful to review this Initiative within the context of the Government of Canada’s approach to the implementation of the inherent right for and the negotiation of Aboriginal self-government as outlined in 1995 by then Minister of INAC (Ronald Irwin) and Federal Interlocutor for Métis and Non-Status Indians (Anne McLellan).

The following comments made in the document published by INAC under the auspices of these two cabinet ministers are worth noting as we critically examine the objectives of the Initiative:

“Aboriginal governments and institutions exercising the inherent right of self-government will operate within the framework of the Canadian Constitution. Aboriginal jurisdictions and authorities should, therefore, work in harmony with jurisdictions that are exercised by other governments. The inherent right of self-government does not include a right of sovereignty in the international law sense, and will not result in sovereign independent Aboriginal nation states…..

Broadly stated, the Government views the scope of Aboriginal jurisdiction or authority as likely extending to matters that are internal to the group, integral to its distinct Aboriginal culture, and essential to its operation as a government or institution. Under this approach, the range of matters that the federal government would see as subjects for negotiation could include all, some, or parts of the following: establishment of governing structures; education; health; social services; property rights, including succession and estates; land management, including: zoning, service fees, land tenure and access, and expropriation of Aboriginal land by Aboriginal governments for their own public purposes; agriculture; hunting, fishing and trapping on Aboriginal lands; taxation in respect of direct taxes and property taxes of members; transfer and management of monies and group assets; management of public works and infrastructure; housing; local transportation…..

The Crown has a unique, historic, fiduciary relationship with Aboriginal peoples in Canada. While the Government’s recognition of an inherent right of self-government does not imply the end of this historic relationship, Aboriginal self-government may change the nature of this relationship….

As Aboriginal governments and institutions exercise jurisdiction or authority and assume control over decision-making that affects their communities, they will also assume greater responsibilities for the exercise of those powers. As a result, Crown responsibilities will lessen. In this sense, the historic relationship between Aboriginal peoples and the Crown will not disappear, but rather, will evolve as a natural consequence both of Aboriginal peoples' changing role in shaping their own lives and communities, and of the Crown's diminished control and authority in relation to them.

Aboriginal governments and institutions must also be accountable to Parliament for funding provided by the federal government as a result of self-government agreements. Specifically, financing agreements must provide for a mechanism enabling Parliament to assess the extent to which public funds have contributed to the objectives for which they were voted.

All participants in self-government negotiations must recognize that self-government arrangements will have to be affordable and consistent with the overall social and economic policies and priorities of governments, while at the same time taking into account the specific needs of Aboriginal peoples. In this regard, the fiscal and budgetary capacity of the federal, provincial, territorial and Aboriginal governments or institutions will be a primary determinant of the financing of self-government.

In this climate of scarce resources it will be particularly important for governments to work together to harmonize funding and program and service delivery arrangements, thereby ensuring the most efficient and effective use of those resources. The Government believes that, wherever feasible, Aboriginal governments and institutions should develop their own sources of revenue in order to reduce reliance, over time, on transfers from other governments.” [emphasis added]

In other words:

• The federal government views the exercise of “negotiating” self-government agreements as one whereby the federal government will relegate First Nations to a status somewhere between municipalities and provinces.
• Harmonization entails the extension of existing federal and provincial laws to the First Nations.
• The devolution of spending responsibilities will be accompanied by no increase in federal spending; however, as the First Nations become more self reliant on own source revenues, the federal government will reduce its contributions – all in the name of fiscal responsibility.
• The First Nations will be held accountable to the Canadian Parliament for their expenditures as long as there transfers from the federal government.

Taxation, Devolution and Control – all wrapped up in the federal government’s limited, and historically and legally incorrect, view of Aboriginal self-government.

The INAC Backgrounder, in describing the First Nations Tax Commission (“FNTC”), stated:

“In 1988 the Indian Act was amended to allow interested First Nations to enter the field of real property taxation. Since 1989, the Indian Taxation Advisory Board (ITAB) has successfully nurtured and sustained the First Nation real property tax system…It is building awareness of the real property tax system and providing the tools for its implementation. The First Nation real property tax system is being built within the context of provincial regimes”. [emphasis added]

The FNTC, in addition to its role in controlling the development of tax regimes on reserves, is intended to “educate” the First Nations on the benefits of taxation. What are the benefits of taxation – increased fiscal self-reliance by First Nations governments. By the way, the structure of these same governments will be controlled by the federal government through the Governance Initiative, and the functions of these governments will be controlled by the Indian Act and this Initiative.

What are the advantages of fiscal independence? There are two, although only the first one is highlighted by the federal government.

• First Nations governments will have more flexibility in spending money in their respective priority areas.
• First Nations will be less susceptible to pressure from the federal government as a result of the feds controlling the purse strings.

These two advantages currently exist because the federal government continues its paternalistic policy approach towards the First Nations and is entirely unwilling to give up its control over their future social and economic development. If the federal government recognized the legitimate sovereignty of First Nations and fully compensated the First Nations for its breach of fiduciary responsibilities and its violation of the sovereign rights of First Nations through the unilateral enactment of the Indian Act, the federal government would commit itself through legislation to transferring billions of dollars annually to the First Nations, the annual amounts would be indexed, with no strings attached.

What should be the starting point for the annual transfers?

A review of the various historical treaties can lead only to the following conclusion: the First Nations never gave up the land to the original white settlers or later to Canada. Their view of the verbal commitments made by both sides was that the lands were to be shared so that both groups could live and prosper together.

This implies, at a minimum, that the First Nations should have received at least half of the revenues and wealth generated by the land and the resources on or below the land.

In fiscal 2002, the total resource tax revenues of both the federal and provincial governments, excluding the income taxes paid by resource companies, were approximately $25 billion. Assuming 25% to 50% is owed to the First Nations, then the minimum annual transfers should range between $6.25 and $12.5 billion. But this is only part of the necessary transfers.

The fiscal theft over the decades is even worse than the resource revenue numbers suggest. If one were to aggregate the rightful share for the First Nations of all tax revenues generated from the land and its resources since Confederation and accumulate at appropriate interest rates, the total value would easily exceed $150 billion. This total does not take into account the possibility that tax rates have been set too low or returns from possible equity stakes in resource projects. At an annual rate of interest of five percent, reparations for this theft would add another $7.5 billion to the required transfers.

In other words, the supposed advantages of taxation and fiscal independence would quickly melt away if the federal government honoured its commitments to the First Nations and paid rightful reparations for its breach of what were fraudulently misrepresented treaties. And of course, all these transfers, since they represent money rightfully owed to the First Nations, would not come with any controls by the federal government.

The real goal of the federal government in promoting taxation on reserves and supposed “fiscal independence” is to set the stage for canceling all tax immunity and for shifting more of the financial burden for social and economic programs onto the First Nations and their people. Own source revenues will lay the groundwork for the full taxation of Indians and the gradual reduction in federal spending on First Nations’ health, education, social assistance, economic development and infrastructure initiatives.

The Nisga'a Treaty has been hailed by the federal government as the first modern treaty of the 21st century. The “modernness” of this treaty lies largely in the acceptance by the Nisga’a of an end to tax immunity and of future reductions in transfers from both the federal and provincial governments as they rely more on their own-source revenues.

A study commissioned by the federal government was even clearer on the government’s objective to reduce its financial obligations to the First Nations. According to this study, even though low levels of economic activity on First Nations lands reduce the revenue potential of taxes:

“First Nation governments will soon need more tax revenues because: (1) rapidly growing populations will drive up the expenditures needed to maintain current levels of service. (2) they will have to compete for additional federal funds against political pressure for tax cuts, increased spending on social programs and the cost increases associated with an aging society. (3) Self government and economic aspirations require funds over and above those needed to maintain existing service levels.”

As a result, the study concluded that taxation could lead First Nations out of poverty, allow the federal government to accommodate self-government, without creating substantial costs, and even reduce costs for provincial governments.

THERE IS NO FREE LUNCH!

Let’s now turn to the claim that this Initiative will “provide First Nations with the access to capital markets available to other governments”. What about the benefits from being able to borrow in the capital markets at competitive rates of interest? Would not each of the First Nations and the First Nations collectively gain from being able to tap into the capital markets, both in Canada and abroad, to fund economic development initiatives? Economic development has to become the priority of all First Nations governments. This is an important step because, without an independent source of wealth, First Nations’ futures and self-government dreams are just that, dreams.

However, is securitization of tax revenues and possibly certain federal government transfers a necessary component of an economic development strategy?

The INAC Backgrounder highlighted:

“The FNFA would allow First Nations, like local governments, to raise long-term private capital at preferred rates for roads, water, sewer, etc. They would do so by securitising a portion of their potential real property tax revenues or similar stable long-term revenues.”

Fiscal Realities, “First Nation Taxation and new Fiscal Relationships”, 2000.
Ibid, p. iv.

In other words, the federal government sees securitization of tax and other “long-term revenues” as a means for the First Nations to build up the infrastructure on reserves. Once more, securitization is seen as a means to devolve certain responsibilities to the First Nations but without commensurate compensation from the feds. Inadequate infrastructure, a legacy of inadequate funding by the feds, will be rectified by the First Nations funding these investments using largely their own money, generated through taxation of property and eventually incomes on reserves, or current transfers from the feds.

Undoubtedly, there is a need for significant investments to upgrade the infrastructure on reserves. But the onus is on the federal government to fully underwrite the costs. Rather, the feds, in the guise of fiscal responsibility, want to reduce their ongoing financial transfers to the First Nations. Remember again the 1995 INAC document:

“The Crown has a unique, historic, fiduciary relationship with Aboriginal peoples in Canada.”

However, it has no intention of fulfilling its fiduciary responsibilities by providing the required funding. Furthermore:

“As Aboriginal governments and institutions exercise jurisdiction or authority and assume control over decision-making that affects their communities, they will also assume greater responsibilities for the exercise of those powers. As a result, Crown responsibilities will lessen. In this sense, the historic relationship between Aboriginal peoples and the Crown will not disappear, but rather, will evolve as a natural consequence both of Aboriginal peoples' changing role in shaping their own lives and communities, and of the Crown's diminished control and authority in relation to them”.

That is, devolution in the name of self-government goes hand-in-hand with diminished fiscal transfers from the federal government.

The reality is that there has been interest in the past on the part of financial institutions to securitize various types of federal government transfers. The Indian Act has prevented this. However, securitization will work for the benefit of the underwriters of these securities and for the federal government by enabling it to extricate itself from more of its financial obligations.

Investment in infrastructure can be financed more cheaply by the federal government (by issuing bonds) since it will always have a lower credit risk. The federal government must continue to bear this responsibility.

Indeed, the past interest by financial institutions in securitization stemmed from the fact that on-going transfers would come from the federal government. So the credit risk was quite low and totally unrelated to the First Nations issuing debt instruments.

The pooling of property tax revenues, as proposed in the Initiative, would provide little comfort to the debt rating agencies and the amounts involved would be unattractive to most financial institutions. Guarantees, either by the federal government (and in this case, the feds might as well borrow the money directly) or by the wealthier First Nations (using other revenues as the guarantee), would be required. And the financial markets would be much more interested in securtizing federal government transfers both because they are more predicatble and thus more secure, and there are much larger amounts involved.

The other dangers from being lured by the “seductiveness” of low-cost capital via securitization (remember “there is no free lunch”) are that this would reinforce the trap being set to control financial affairs on reserves and accelerate the demise of tax immunity for First Nations citizens.

If the First Nations are to raise capital to finance economic development initiatives, and there are good reasons for doing so, they should engage in cash flow borrowing. The credit worthiness and the availability of the debt would depend upon the projected cash flows from the investments for which the money would be used and the expected stability of the cash flows. Most companies raise capital based on projected cash flows and the ability to service the debt. There is no reason, other than Indian Act restrictions, why First Nations cannot create their own institutions and companies to raise capital for economic development projects other than infrastructure, education and health.

Of course, many individual First Nations, as a result of land claims, have a pool of capital that could be leveraged to finance economic development initiatives. And pooling them among First Nations would enhance the potential for leveraging. But these decisions do not require the approval of the federal government or legislation drawn up in Ottawa. All that would be required would be resolve on the part of the First Nations to act collectively as an independent entity and to map out an appropriate development strategy, and the creation of appropriate institutions to manage economic development related financial matters.

If there is any merit in any part of Ottawa’s proposed Initiative, the First Nations can act unilaterally and independently to create what is useful and needed. They do not need to be lead and controlled by the federal government.

The First Nations have their agenda and Ottawa has its own and the two are unlikely to be mutually compatible.

The fine print in Ottawa’s initiative screams out CONTROL.

For example, the INAC Backgrounder emphasized:

“The FNTC would provide the additional services required for the securitisation of real property tax revenues, assume and streamline the bylaw approval process (pursuant to Section 83 of the Indian Act), serve as an authoritative body to help balance community and ratepayer interests in rate setting, and have enhanced capacity for timely and professional dispute resolution.

The FMB's larger role would be to assist all First Nations in strengthening their local management regimes and work with other governments to build shared accountability frameworks.

The FMB would fulfill the need for a shared, sustained effort in standard-setting and capacity building. Financial institutions see such standards as critical to economic business relations with First Nations.” [emphasis added]

But the proposed Bill highlights the potential for control over almost all financial affairs on reserves. The Initiative appears to be the Trojan Horse to enable the eventual takeover by the “independent” institutions, created by federal government legislation, of all spending decisions on reserves. Self-government with paternalistic controls – the 1995 vision set out by INAC and not yet repudiated by the feds.

Control is explicit in a number of sections of the proposed Bill. For example, the following speak for themselves:

“S. 3. (1) The council of a first nation may, with the approval of the First Nations Tax Commission, make laws respecting
(a) taxation for local purposes of first nation lands, interests in first nation lands or rights to occupy, possess or use first nation lands, including
(i) the assessment of the value of those lands,
interests and rights, and
ii) the mechanism to establish tax rates and apply
them to the assessed value of those lands, interests
and rights;

(b) the expenditure of local revenues;….
(d) the raising of money for local purposes through he licensing of businesses and the regulation of business activities;
(e) the imposition of fees for services to first nation ands provided by the first nation, including development cost charges;
(f) the borrowing of money for projects specified in he law, including capital infrastructure projects to provide local services on first nation lands;
(g) authorization of the first nation to enter into a borrowing agreement with the First Nations Finance Authority;….
(i) the enforcement of first nation laws made under paragraphs (a) and (e) in respect of outstanding taxes or fees, including
(i) the creation of liens on first nation lands and interests in nation lands,
(ii) the imposition and recovery of interest and
penalties on an amount payable pursuant to a first
nation law made under this section, where the
amount is not paid when it is due, and the rate of
interest or amount of penalty, as the case may be,
(iii) in accordance with the conditions and
procedures prescribed by regulation, the seizure,
forfeiture and assignment of interests or rights in
first nation lands,
(iv) the seizure and sale of personal property located
on first nation lands, other than property located in
a dwelling, and
(v) the discontinuance of services;
(j) the enforcement of first nation laws made under paragraph (d), including
(i) the imposition and recovery of interest and
penalties on an amount payable pursuant to a first
nation law made under this section, where the
amount is not paid when it is due, and the rate of
interest or amount of penalty, as the case may be,
(ii) the seizure and sale of personal property located
on first nation lands, other than property located in
a dwelling, and
(iii) the discontinuance of services;”

“S. 6. (1) A council of a first nation that makes a property taxation law shall, at least once each year, make and submit to the First Nations Tax Commission for approval, at a time prescribed by regulation, a first nation law
(a) setting the rate of tax to be applied to the assessed value of each class of lands, interests or rights; and
(b) establishing a budget for the expenditure of local revenues.”

“S. 8. (3) A borrowing member shall not obtain long-term financing of capital infrastructure for the provision of local services on first nation lands, or for any other purpose prescribed by regulation, from any person other than the First Nations Finance Authority.”

“S. 26. The purposes of the (First Nations Tax) Commission are to
(a) ensure the integrity of the system of first nations real property taxation and promote a common approach to first nations real property taxation nationwide, having regard to variations in provincial real property taxation systems;
(b) ensure that the real property taxation systems of first nations balance the interests of taxpayers and the responsibilities of chiefs and councils to govern the affairs of first nations;…
(d) assist first nations in the exercise of their jurisdiction over real property taxation on first nation lands and build capacity in first nations to administer their taxation systems;…
(f) assist first nations to achieve sustainable economic development through the generation of stable local revenues;
(g) promote a transparent first nations real property taxation regime that provides certainty to taxpayers;”

“S. 28. (1) The Commission shall review every first nation law made under subsection 3(1) or 6(1)….
(3) Subject to subsection (4), the Commission shall approve a first nation law that complies with this Act and with any standards and regulations made under this Act.
(4) The Commission shall not approve a first nation law made under paragraph 3(1)(f) unless the first nation has obtained and forwarded to the Commission a certificate of the First Nations Financial Management Board under subsection 53(3).

“S. 35. (1) The Commission may establish standards respecting the
(a) form and content of first nation laws made under subsections 3(1) and 6(1);…
(d) criteria for the approval of first nation laws made under paragraph 3(1)(f) or (g); and
(2) The Commission may establish procedures respecting the
(a) making and submission for approval of first nation laws made under subsections 3(1) and 6(1);
(b) approval of those laws;
(c) representation of taxpayers' interests in the decisions of the Commission; and
(d) resolution of disputes with first nations concerning the taxation of rights and interests on first nation lands.”

“S. 52. The purposes of the (Firs Nations Financial Management) Board are to
(a) assist first nations in developing the capacity to meet their financial management requirements;
(b) assist first nations in their dealings with other governments respecting financial management, including matters of accountability and shared fiscal responsibility;
(c) assist first nations in the development, implementation and improvement of financial relationships with financial institutions, business partners and other governments, to enable the economic and social development of first nations;…
(e) provide special review, audit and dispute resolution services respecting first nation financial management;
(f) provide assessment and certification services respecting first nation financial management and financial performance;
(g) provide financial monitoring services respecting first nation financial management and financial performance; and
(h) provide co-management and third-party management services respecting first nations.

S. 53. (1) On the request of a first nation, the Board may review the first nation's financial management system or financial performance for compliance with the standards established under subsection 59(1)….
(4) The Board may, on giving notice to a council, revoke a certificate issued under subsection (3) if, on the basis of financial or other information available to the Board, it is of the opinion that the basis upon which the certificate was issued has materially changed.
(5) If a borrowing member's certificate is revoked, the borrowing member shall, without delay, take such measures as are required to re-establish its certification.
(6) An opinion of the Board referred to in this section is final and conclusive and is not subject to appeal.

S. 54. (1) The Board may require a first nation to enter into a co-management arrangement in respect of the first nation's local revenues and local revenue account, if
(a) in the opinion of the Board, there is a serious risk that the first nation will default on an obligation to the First Nations Finance Authority;
(b) the first nation has defaulted on an obligation to the First Nations Finance Authority; or
(c) the First Nations Taxation Commission has requested the Board to do so under paragraph 30(2)(b).
(2) Under a co-management arrangement, the Board may
(a) recommend amendments to a law of the first nation made under this Act;
(b) recommend changes to the first nation's expenditures or budgets;
(c) recommend improvements to the first nation's financial management system;
(d) recommend changes to the delivery of programs and services;
(e) order that expenditures of local revenues of the first nation be approved by, or paid with cheques co-signed by, a manager appointed by the Board; or
(f) exercise any powers delegated to the Board under a law of the first nation or an agreement between the first nation and the Board or between the first nation and the First Nations Finance Authority….

S. 59. (1) The Board may establish standards respecting the
(a) form and content of first nation laws made under section 12;
(b) making and submission for approval of those laws;
(c) financial management systems and financial performance of first nations; and
(d) implementation or termination of a co-management arrangement or third-party management.”

“S. 82. The (First Nations Finance) Authority shall not make a long-term loan to a borrowing member for the purpose of local capital infrastructure development on first nation lands unless
(a) the First Nations Tax Commission has approved a first nation law made under paragraph 3(1)(g);
(b) the loan is to be paid out of the property tax revenues of the borrowing member in priority to other creditors of the borrowing member; and
(c) where the loan is to be paid out of transfer payments from the Crown, the borrowing member has entered into a written agreement with the Crown for the use of the transfer payments for that purpose.” [emphasis added]

Of course, as part of the federal government’s devlolution strategy to extricate itself from its fiduciary and financial obligations, S. 124 (1) of the Bill shifts the financial liability to the First Nations Tax Commission, First Nations Financial Management Board, First Nations Finance Authority and exempts Ottawa from any liability that might arise from the legislation and its enforcement by these new agencies. In effect, the First Nations would be on the hook either to third party investors or to individual First Nations or bands.

The federal government has made it clear in the past that it sees self-government for the First Nations as a limited exercise in which the harmonization of laws, standards and regulations would be based on the primacy of the existing federal and provincial rules. This Initiative is consistent with this view. By accepting this Initiative, the First Nations would be implicitly accepting the feds limited view of self-government and a position part way between a municipality and a province – at the end of day, closer to that of a municipality.

INAC has admitted that there might be a legal basis for the inherent right of self-government for the First Nations, and these rights might be enforceable through the courts. However, INAC, and hence the federal government, would prefer negotiations to define the scope for self-government. They would prefer negotiations because of the uncertainties for the federal government of court battles and because the federal government has staked out its agenda for the negotiations and the scope for self-government. In effect, the federal government wants self-government to be constrained by the existing legal structures in Canada and also wants to dictate the rules for self-government. Canada does not envision or desire self-government to result in true sovereignty. Rather, Ottawa wants self-government to be arranged as a paternalistic structure, as evidenced by this Initiative and the Governance Initiative.

As noted in the 1995 INAC document:

“Aboriginal governments and institutions exercising the inherent right of self-government will operate within the framework of the Canadian Constitution….The inherent right of self-government does not include a right of sovereignty in the international law sense, and will not result in sovereign independent Aboriginal nation states.”

But sovereignty, in the fullest sense of the term, is essential for the long-term economic and social development of the First Nations. RCAP argued:

“Compared with outside decision makers, Aboriginal leadership is more likely to have the commitment required to make development initiatives succeed and to mobilize the support of its communities.”

In other words, First Nations must assume complete responsibility and control for their economic development. This requires sovereignty.

Stephen Cornell and Joseph Kalt have stressed that sovereignty, nation-building, and economic development go hand in hand. Without sovereignty and nation-building, economic development is likely to remain a frustratingly elusive dream.

Furthermore, the dismal track records of the federal government in regional economic development and First Nations economic development do not provide any comfort in believing that the federal government is capable of dealing with these problems. Money alone is not sufficient. In the case of the First Nations, self-government and the financial capacity to govern are the pre-requisites for development.

In order to start exercising sovereignty rights, the First Nations collectively should begin to develop the governing capacity needed and this capacity might include some of the institutions proposed in the Initiative, in particular, the First Nations Finance Authority – or a First Nations Department of Finance – and a First Nations Statistical Institute. But creating these organizations and others that will be needed by a First Nations government does not require the approval of the federal government. Their creation can and should be handled independent of and in lieu of any federal legislation, which only will serve to ensure ongoing control by the feds and maintain the First Nations as a subservient level of government within Canada.

In addition, the First Nations must gain complete control over taxation of their citizens since the tax powers are an essential aspect of sovereignty. The First Nations tax system should be developed to serve the needs of the First Nations. The system should not be determined by the federal government. In turn, this means that harmonization of the tax system of the First Nations with those of the federal and provincial governments in Canada (i.e. imitating their tax systems) might not be in the best interests of the First Nations. The Initiative does not envision a complete transfer of tax powers to the First Nations, but it does provide the framework for the extension of the existing tax regimes to the First Nations.

There is nothing in the Initiative that requires federal legislation. The First Nations can select the few aspects that have any merit and develop the institutions and the rules, including the tax system, themselves and so ensure the autonomy of these institutions and of First Nations governments. Of course, money will be critical for governing and for economic development.

As I argued in “Tax Exemption: A Tool For Economic Development For First Nations”,

“[I]t is of utmost importance for the First Nations to recognize that they are entitled to multiple income streams from the federal government and they should not compromise on this in their negotiations.
First Nations and their peoples receive some or all of the following sources of money from the federal government:

• Grants/transfers for education, health, social services, housing, cultural activities, infrastructure, “economic development”;
• Cash payments (one-time or spread out over period of years) for land settlement claims or extinguishment of treaty rights;
• Resource revenues (royalties, etc.); and
• Tax exemption.
  The First Nations are entitled to all four sources. There should not be any trade-offs made in negotiations. That is, First Nations should not be willing to take a little bit more of one type of payment in return for reducing the amount of another type. This type of trade-off will never work to the advantage of the First Nations.”

The money required to create First Nations governments should come from the ongoing transfers and the fair share of resource revenues. And there should not be any conditions attached.

There is no disputing that the First Nations must be in control of their destiny, regain the rights to resources, expand their land bases and continue to receive reparations from the federal government to support economic development initiatives, including education, health care, infrastructure and social programs. There is also no disputing that economic development is necessary if the First Nations are to take advantage of their sovereignty and their peoples are to flourish.

The bottom line: The proposed Initiative will do nothing to enable the First Nations to exercise their inherent self-government rights and their sovereignty. Nor will it do anything to spur the development of First Nations communities and economies.