During last week’s budget announcement, the Yukon government boasted that the Yukon had “the strongest economy in Canada.”
How the eyes must have rolled among our paymasters in Ottawa. The 2023-24 budget forecasts a record delivery by the federal money plane. Claiming to have the “strongest economy” after this is kind of like being a skijorer who passes skiers puffing along the trails at Mount Mac and shouts “get in shape!” while being pulled by 1.6 billion federal huskies.
Excluding Yukon Energy and other government corporations, the Yukon government forecasts that its own taxes and fees will provide just 13.3 per cent of its revenue next year. That is an improvement of 0.1 per cent over the current year. But let’s keep this in perspective. Generating $1 out of $7 of your income is not a sign of strength. If the Yukon government keeps up its progress to financial sustainability at this rate, it will be 367 years before it generates even half of its own revenue.
It was Premier Pillai’s first budget since succeeding fellow Liberal Sandy Silver, and he decided to continue in the same vein as recent budgets. Indeed, Silver continues to be finance minister in Pillai’s cabinet.
On the surface, the 2023-24 budget has many of the same features as previous budgets: record federal transfers ($1.59 billion), record expenses ($1.82 billion), and more borrowing piled on top to further stimulate an already stimulated economy. The territorial debt will hit a new record in March 2024 at $375 million, more than doubling in just two years from $156 million in March 2022.
Digging deeper reveals some nuances, however. And some of these may be harbingers of some unwelcome future fiscal trends for the Yukon government.
For example, operations and maintenance (O&M) spending is forecast to rise per usual. But the amount is only 1.4 per cent. That is significantly lower than 2022’s Canadian inflation rate of 6.8 per cent, meaning that in “real” inflation-adjusted terms the Yukon government could be tightening its belt this year. I say “could” since there remains the possibility of additional spending in the fall supplemental budget.
The general view among economists is that inflation will slow to three to four per cent later in 2023 as the country goes through a mild recession. Even if this so-called soft landing scenario materializes, inflation will still outpace planned spending increases in the coming year.
Inflation will flow through union agreements, pension obligations and supplier prices. This will put pressure on discretionary spending.
That O&M increase of 1.4 per cent also looks tight if you add the impact of population growth, which the Yukon government forecasts at around two per cent. Those new Yukoners will also need health, education and other services.
The number budget nerds will be watching going forward is the growth in our core transfer payment, excluding capital payments, compared to the total of inflation plus population growth. If inflation and population growth exceeds the increase in funding, it means fewer inflation-adjusted dollars per citizen. For the next fiscal year the core transfer payments are growing at 5.2 per cent, barely enough to keep up with population growth of two per cent plus expected inflation of three to four per cent.
Another item worth noting is the decline in the capital budget. For the current fiscal year, $546 million is planned. Next year the figure is $484 million. There has been some debate about whether the $546 million budget was so large it was actually a challenge for Yukon contractors to find enough people and equipment to do all the projects. Some of the extra money probably went into higher contractor prices rather than more schools and culverts.
In that sense, a modest pullback may make sense. A bit more worrying is the planned steady reduction of the capital budget. The Pillai government’s five-year capital plan sees capital spending declining steadily to $359 million in 2027-28.
The impact of this decline will be exacerbated by our aging infrastructure. The Yukon has grown so rapidly that a generation ago we did not have that much old infrastructure to age out. Now, big chunks of the capital budget must be allocated to massive projects such as replacing the Teslin bridge (a whopping $160 million) or the plan to replace Whitehorse Elementary School (around $50 million).
While such projects may be needed, they don’t expand our infrastructure. When the Teslin bridge was first constructed, it opened the Yukon to road connections with the rest of North America; a logistical revolution at the time compared to the White Pass railway. The new Teslin bridge will not reduce truck transportation costs or improve delivery times at all.
One way to look at these trends is to observe that the Yukon government is now so large and has built so many public buildings over the last decade that just keeping up with wage increases and facility maintenance will consume the annual increase we get in the transfer payment. And to keep growing the health budget in response to a growing and aging population, other departments will have to shrink.
If we are seeing the beginnings of such trends, it is not yet reflected in the legislature. Debate there is, instead, focused on adding expensive new programs such as dental coverage. When we reach our debt limit and future politicians grapple with interest payments on that debt, they will look back with envy on budget’s like this year’s.
Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.