Yukon premier Darrell Pasloski says the federal government is cutting financial transfers to the territorial governments by half a billion dollars over the next five years.

Officials from Finance Canada told the Yukon government earlier this month that the cuts stem from changes to the way Statistics Canada calculates what each territory gets under Territorial Formula Financing. That agreement provides the majority of operating funds for all three territories.

"We didn't see it coming," Pasloski said. "The principle of this funding is that it's predictable and stable."

For Yukon, the news means $23 million less to spend on operations next year, though the territory will still receive $930 million in federal transfer payments, or $24,333 per capita.

For the N.W.T. it means $34 million less, though it's still set to receive $1.256 billion in federal transfers, or $28,352 per capita.

Nunavut is facing a cut of $33.8 million, a spokesperson for the government confirmed, though it's still set to receive $1.154 billion in federal transfers next year, or $40,364 per capita.

The reduction virtually wipes out the $23.2 million surplus Yukon posted in fiscal 2015-16. "At this point we have to look at the fact that we have a significant funding reduction and build our budget accordingly," Pasloski said.

In an earlier statement, Pasloski called the changes "unacceptable."

"We're talking about core revenue funding," he told the CBC's A New Day Wednesday. "This is money that we use to pay for health care, to pay for education, to create jobs by investing in infrastructure. We are in the midst of planning our next budget."

'Unintended consequence'

N.W.T. premier Bob McLeod was more measured. In a news release, he said the cuts were "due to methodological changes to the way Statistics Canada prepares provincial/local government expenditure data, which has produced the unintended consequence of permanently lowering each territory's gross expenditure base over two per cent."

"The fiscal impact of the technical changes was not anticipated by the territories or the Government of Canada," McLeod said.

But both he and Pasloski called on the federal government to restore the funding. In letters to each territory, federal Finance Minister Bill Morneau said he has asked his staff to meet with the territorial governments to try to address the situation.

"He committed he would look at this," Pasloski said, "but he made no assurances that there would be any change in the funding."

The Territorial Formula Financing agreement is generally renewed every five years. The last agreement went into effect in 2014.