The federal government overestimated the cost of complying with a Canadian Human Rights Tribunal order that it compensate First Nations children apprehended from their homes through the on-reserve child welfare system, according to the Parliamentary Budget Officer.

The Parliamentary Budget Officer (PBO) issued a report on the price of the tribunal order Thursday. It found it would cost the federal government between $900 million and $2.9 billion if the payouts happened this year.

Indigenous Services Canada's (ISC) estimate pegged the cost at $5.4 billion, according to the PBO.

"We believe abiding by the [human rights tribunal] ruling would not be as expensive as what government has come up with in terms of estimates," Parliamentary Budget Officer Yves Giroux told CBC News.

The tribunal ruled on Sept. 6 that the federal government should pay $40,000 in compensation to each First Nations child living on-reserve and in Yukon who were apprehended from their homes, families and communities and put into foster care since Jan. 1 2006.

The ruling included an additional order of $20,000 in compensation to each parent or grandparent (depending on who was the primary caregiver) plus $20,000 for each child taken unnecessarily through the on-reserve child welfare system. Parents of children apprehended over abuse are not eligible.

The federal government is trying to quash the ruling through a judicial review filed with the Federal Court.

Differing interpretations of eligibility

Giroux said the divergence in estimates hinges on the federal government's broad interpretation of the human rights tribunal ruling, leading it to project a higher number of potential beneficiaries.

ISC estimated that it would have to pay compensation to about 126,000 people, while the PBO said it estimated the number to range between 19,000 and 65,100 people.

Giroux said the difference is based on ISC's broad interpretation of the tribunal's order that it's required to pay compensation to children who were taken from their homes, families and communities. ISC interpreted that to mean children who were taken from their homes or their families or their communities.

Giroux said the PBO's reading of the ruling is that eligible children would have to have been taken from their homes and families and communities.

"The literal reading says it has to meet all three conditions," said Giroux.

"So that is the main cause of the difference in costs."

The PBO report said 32,700 children were taken from their homes, families and communities since 2006. The report said a total of 53,700 First Nations children have been taken into care from reserves and Yukon since 2006.

Cindy Blackstock, executive director of the First Nations Child and Family Caring Society, says paying out the Canadian Human Rights Tribunal order on compensation is 'doable.' (CBC)

ISC Minister Marc Miller's office said in a statement the PBO report is under review by the department.

"The report highlights the complexities of the task at hand and the number of variables we need to get it right in order to be able to advance fair compensation," said the statement.

"That is why we remain committed to working with partners to ensure that those who have been wronged are rightly compensated."

'Raises questions' over Canada's argument

Cindy Blackstock, who heads the First Nations Child and Family Caring Society, said the PBO report reveals the compensation ordered by the tribunal is not as prohibitive as Ottawa claimed.

"I think it really shows how doable it is for Canada to pay the compensation," said Blackstock.

Blackstock, along with the Assembly of First Nations, filed the human rights complaint in 2007 that led to the 2016 ruling that found Ottawa discriminated against First Nations children by underfunding child welfare services. That ruling led to the compensation order.

Blackstock said the PBO report also shows that the department has clear information on who could be affected by the ruling, despite the position of officials at the negotiating table.

"It's clear they have done some calculations, they've assembled some information," she said.

"It raises questions about Canada's argument that this is so overwhelming they won't be able to address it."

NDP MP Charlie Angus, who asked for the Parliamentary Budget Office to do the cost estimate, says Ottawa needs to drop its court challenge and negotiate the Canadian Human Rights Tribunal order. (Adrian Wyld/Canadian Press)

NDP MP Charlie Angus, who requested the PBO study the financial impact of the tribunal order, said the results show that Ottawa could have sat down and settled the issue instead of turning to the courts to stop it.

"My message to the government is 'Sit down and negotiate a solution,'" said Angus.

"It is doable to find a process of compensation that is fair and respects the findings of the tribunal."

Giroux said the amount of money the federal government is spending to deal with the COVID-19 pandemic could affect Ottawa's decision on how it will handle the compensation issue.

However, he said the sooner it's settled, the cheaper it will be.

"If the government were to settle this… soon it would be a bit cheaper, just in terms of the interest that continues to accrue," he said.

Ottawa has said the cost of paying the tribunal's ordered compensation would grow to $7.9 billion if the process to pay it out stretched to 2026, according to Federal Court documents.