The prospect of a recession and federal Finance Minister Jim Flaherty's warning to provinces that their equalization payments could suffer will not affect the Yukon, according to Premier and Finance Minister Dennis Fentie.

"Although Minister Flaherty has signaled equalization (payments to provinces) is on an unsustainable path, there is a very solid commitment from Canada that the territory's formula financing will be unaffected and will remain on a sustained growth path, which is great news for the North," Fentie told local reporters by phone this afternoon from Toronto.

"I think what we wanted to do today was get clarity on this issue, which we did."

Today, Fentie, along with his territorial and provincial Finance counterparts, met with Flaherty in Toronto to discuss how the nation's jurisdictions can, in Flaherty's words, "preserve our economic and fiscal advantage."

Last year, the Yukon's revenue was $824 million, but 81 per cent came from Ottawa, either in the direct formula financing grant or via housing, social and health care transfers.

Following the meeting, Flaherty said in a news release equalization payments to the provinces would continue to grow "in line with the economy," but that legislated formula financing to the territories would not be affected.

Each year, provinces, whose own-source revenue cannot cover operating costs, receive equalization payments from the federal government.

For the three territories (the Yukon, N.W.T. and Nunavut), such payments are based on formula financing and both transfers work on the principle of offering reasonable levels of services for reasonable levels of taxation.

But as Canadians brace themselves for a recession, consumer spending has slowed, causing Ottawa's revenue base to shrink, forcing Flaherty to tie equalization to economic growth.

"Overall, Canada is at a distinct advantage in dealing with the ongoing crisis, with our economic fundamentals among the best in the world," Flaherty added.

However, addressing interprovincial (trade) barriers and agreeing on a common securities regulator was necessary, said Flaherty.

"A more efficient economic union is critical to securing Canada's full economic potential ... I find it unacceptable that the countries of the European Union are more efficiently integrated in many significant respects than the provinces and territories in our federation," he said.

The meeting was a prelude to the Nov. 10 first ministers' meeting with Prime Minister Stephen Harper and another gathering of the nation's finance ministers scheduled for mid-December.