You're correct about the taxes, but Natives do not receive free tuition. Native students who attend school are charged tuition, which is paid through the money held in trust by the government. These monies were the result of treaty and monetary settlements that were made. The government then allocates this money to Native bands. Thus, it is Native money. Besides, the government doesn't allocate enough money for the Native bands, so some students may not even receive any of this money.
Flaherty was running for party leadership at this time. He only apologized after Opposition parties called for his resignation. I don't want to get too political, but it seems that he apologized because he didn't want bad publicity.