A lump of coal in the Yukon’s transfer payment stocking

Federal grinches put a lump of coal in the Yukon's transfer payment stocking over the holidays. 

Federal grinches put a lump of coal in the Yukon’s transfer payment stocking over the holidays.

On Dec. 20, on the eve of the recent meeting of federal, provincial and territorial ministers of finance, the federal government released the transfer payment figures for next year. The figure for the Yukon was $23 million less than expected.

That is a major hole. A rough rule of thumb is that each territorial worker costs about $100,000 after you consider salary, government pension, health and drug benefits, and so on. A $23 million cut would equate to funding for around 230 nurses, teachers or other government workers and contractors.

While just a rounding error for Ottawa, that’s a lot of jobs in a small place like the Yukon. The cut will reduce the Yukon budget by roughly that amount for future years too, meaning the funding for those jobs won’t come back. And the timing is especially awful, since it coincides with a sputtering mining economy here.

The territorial transfer payment formula is notoriously complicated. To borrow Bismarck’s quip about Schleswig-Holstein, only three people have ever understood it. One is dead. The other is insane. And the third works in the Yukon Finance Department and doesn’t give a lot of interviews.

It turns out to be a classic bureaucratic scenario, where a complicated process has done something that none of the officials involved intended. Federal ministers did not change the five-year funding agreement with the Yukon. The federal Department of Finance says it didn’t make the cut, since it simply plugs figures from Statistics Canada into the agreed formula. Statistics Canada said, in a statement to the Yukon News, that “Statistics Canada has no role in determining the formula used in these fiscal transfers and does not carry out the calculations of amounts transferred.”

So whodunit?

It turns out that Statistics Canada changed the methodology it uses for Canada’s System of Macroeconomic Accounts. If you took Economics 101 in college, you may remember the national accounts, perhaps shortly before you fell asleep in class. Figures from the national accounts, particularly around how much provincial and local governments spend on services for their citizens, are used to calculate our transfer payment.

It is normal, even good, that Statistics Canada updates its methodology from time to time. The national accounts are used for many purposes, so it is just an annoying accident that they changed the methodology in the middle of a five-year territorial formula financing agreement. The latest changes, you’ll be pleased to hear, bring Canada closer to international standards used by the International Monetary Fund and United Nations.

However, the revised estimates are lower than the old ones, and our transfer payment formula spits out a number $23 million smaller.

So the federal Department of Finance is technically correct that it didn’t change anything.

However, the whole situation defies common sense.

It’s as if, back when we adopted the metric system and changed from miles per hour to kilometres per hour, the highways department simply left the signs up and said, “the speed limit is still 60.”

So, how bad is a $23 million cut? It’s bad, but not huge in the context of our total transfer payment. Under the proposed changes, the Yukon will receive $930 million next year instead of an expected $953 million. That’s a bit more than a two per cent cut. And even $930 million is $7 million higher than we got this year. That’s better than the N.W.T., who will see their transfer actually drop.

As an aside, the formula really is a wonderful safety net. I wrote a column in December about the unexpected $15 million shortfall in Yukon personal and corporate income tax due to the shuddering private sector economy. The transfer payment formula has an “automatic stabilizer” that increases federal funding if the territory suffers such problems. Without this, our transfer payment for next year would be even lower.

Nonetheless, the formula change is bad news. The Yukon is forecast to have $146 million cash in the bank at the end of the current fiscal year in March 2016. This can tide us over short-term shocks, but can’t replace $23 million a year forever. The government probably won’t lay anyone off with an election coming, but getting new hires or projects approved will be tougher than usual.

In the European Union, where this kind of funding formula is commonly used, they have much more rigorous governance around who can make changes to methodology in the middle of a funding agreement. The common-sense solution is to simply adjust the formulas so that the new Statistics Canada figures produce the same transfer payment we were expecting for next year. Any major changes to the payment that anyone wants to make can be negotiated when the five-year agreement expires in a few years.

The good news is that our MP, Larry Bagnell, is already on the case in Ottawa talking to ministers and senior staffers. Premier Pasloski has also already raised the issue with the federal Minister of Finance, Bill Morneau. The latter has already asked his officials to look into the Statistics Canada changes.

Hopefully they can get this unintended but serious problem fixed. Otherwise, 230 Yukon families may have a very different Christmas next year.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won this year’s Ma Murray award for best columnist. You can follow him on Channel 9’s Yukonomist show.

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