The Higgs government and a Wolastoqey community are hurtling toward a potential showdown at the end of the month when their retail tax agreement is set to expire.
The end of the agreement means "a complete and utter cut-off of revenue sharing with the province" and the possible creation of new reserve-based tax laws that could create turmoil, says Madawaska Maliseet First Nation Chief Patricia Bernard.
She said her band is now drafting its own tax and licensing laws that she says will lead to "way cheaper" tobacco and cannabis — and potentially gasoline — at on-reserve businesses.
Bernard said it's the result of Premier Blaine Higgs's decision to cancel First Nations tax-sharing agreements in April 2021.
"They weren't thinking about the consequences," Bernard said.
"And it's going to be chaotic. It's going to be confusing. Consumers are not going to know what to do, and there's not going to be any stability, and businesses are going to get frustrated.
"The whole revenue-sharing agreement was based on keeping an equal playing field on and off reserve, on consumer stability. This is all going to change."
The agreements, which date back to 1994 and were last renewed in 2017, have fuelled economic growth in some Indigenous communities, particularly those with large gas retailers on reserve land near major highways.
Bands charge the same provincial taxes as other businesses, which were collected by the federal government. Ottawa then transferred the provincial share to the province, as it does with all retail tax revenue.
Under the agreements, the province then remits 95 per cent of the on-reserve retail revenue to the First Nation, up to $8 million. The province remits 70 per cent of amounts beyond that.
Agreements unjust, said premier
Higgs called the agreements "unsustainable and unfair" and said they created "a two-tier tax system" that violated the principle that all Canadians pay the cost of programs that benefit everyone. He said they deprived schools, hospitals and other public services of funding.
He also argued the agreements were unjust because some reserves were earning far more than others.
With the agreements now expiring, Bernard said her band government will force the issue rather than allow the province to dictate how reserve revenue is spent.
"We're going to be assuming jurisdiction," she said.
The chief said it's possible Ottawa or the province will prosecute or take other legal action.
"That would be an issue where Canada Revenue Agency or the province will say 'No, no, you can't do that.' Well, we're prepared to fight that. We're prepared to take up that battle."
It's not clear how the courts would rule on whether First Nations are required to comply with provincial tax laws.
In 2016, the Supreme Court of Canada refused to hear an appeal of a Quebec ruling that said that province can force First Nations gas stations to collect sales tax and remit it to the government.
Higgs said in 2021 the New Brunswick agreements were commercial deals, not protected by Aboriginal and treaty rights outlined in the Charter of Rights and Freedoms.
The province originally said the Wolastoqey tax agreements would expire in April 2022.
The six bands challenged that in court, and the province eventually agreed to the Jan. 31 date.
Asked to respond Monday to Bernard's comments, the province gave CBC News a Dec. 15, 2022, letter from Aboriginal Affairs Minister Arlene Dunn to the six Wolastoqey chiefs.
That letter says the agreement on the Jan. 31 date committed the chiefs to trying to reach a "complete resolution" of the issue with the province by the end of this month, through development agreements with funding for housing, health, social assistance and education.
The agreements would also require bands to force all on-reserve retailers to comply with provincial licensing and tax laws.
But, Dunn says in the letter, the province's efforts to negotiate "have been received differently" by the various bands.
While some had "limited discussions" with the province, Madawaska and Woodstock First Nations "have refused to engage" and were only willing to discuss a new tax deal or an extension of the old one, the letter says.
"The province will not extend the Wolastoqey tax agreements that will terminate on January 31, 2023," the letter says.
Two other chiefs did not respond to interview requests Monday.
Gas, tobacco may cheaper on reserve, chief says
Madawaska's planned tax law would let non-Indigenous businesses leasing space on reserve land choose to continue paying taxes to the federal and provincial governments, Bernard said.
But band-owned retailers will pay a reserve-established tax rate back into the community.
"It may be less than what you're paying off-reserve, so you may want to come and purchase your fuel where it's cheaper, or your tobacco where it's cheaper," she said. "And that tax will be remitted to the First Nation government."
In November, Higgs blamed the tax agreements for a breakdown in trust between his government and Indigenous people.
"The issue really … has been kind of soured because of the tax agreements, and a system of taxation that is not something that could continue as it was."
He argued his government was doing "unprecedented" work to implement recommendations of the Truth and Reconciliation Commission and was looking for "better ways that we can work together and grow together."
Record surplus reported by government
The province said in April 2021 the agreements had diverted $47 million in provincial revenue to reserves in 2019-2020 and estimated that would grow to $75 million a decade later.
Even so, the province reported a record surplus of $777.3 million in 2021-22 and is projecting another surplus of $774.4 million this year, thanks in part to an expected $88 million surge in harmonized sales tax revenue.
Higgs singled out Madawaska Maliseet First Nation at the 2021 announcement, saying it was unfair the band was getting 40 per cent of the total tax agreement revenue in the province, despite having only two per cent of the Indigenous population.
Bernard said it's paternalistic for Higgs to decide how much the band gets, and it contradicts the Progressive Conservative Party's free-market philosophy.
"He wants to determine who can earn and how much you can earn, and if you earn too much, it gets distributed based on need," she said. "Well I'm sorry, but does Irving need all the money they make?
"Should that money be distributed to all the other businesses that don't make as much money as Irving?"
Bernard said the halt to provincial remittances at the end of the month won't bite until later this year because the government is usually late with the sales tax revenue.
The band plans for the lag each year so won't feel the pinch until later this year, she said.
Agreements with six Mi'kmaw bands were to be terminated 90 days after Higgs's 2021 announcement, but after they filed lawsuits, the province made a deal to extend their tax agreements until the end of this year.
Those communities are working on development agreements with the province, according to Dunn's letter.