billion dollar budget

The Yukon is a little like C.S. Lewis' fantasy land of Narnia, where it is always winter but never Christmas.

The Yukon is a little like C.S. Lewis’ fantasy land of Narnia, where it is always winter but never Christmas. The Yukon might seem equally wintry but, thanks to our generous federal transfer payments, it is always Christmas.

Premier Dennis Fentie spun his own fantastic tale in the legislature Thursday as he presented his $1-billion budget, his largest ever.

He spoke of his success in stimulating the private sector economy, investing in the Yukon’s future and building on strategic industries. This budget would build on what he has already achieved, he added.

But Fentie’s fine storytelling couldn’t hide the fact his budget goodies flowed from the largest cheque Ottawa ever cut for the Yukon. More than $763 million of federal transfers and recoveries, a hefty sum considering total budget spending will be $1.003 billion and our entire economy was only $1.7 billion in 2007 according to Statistics Canada’s gross domestic product data.

In his first budget speech in 2003, Fentie said: “This budget represents a concerted effort towards lowering the government of Yukon’s trajectory of spending … we must develop a healthy, robust private-sector economy that will provide employment and generate additional revenues for the territory.”

Fentie’s latest budget highlighted his failure on this front.

Private-sector jobs are now only 57 per cent of the workforce, down from 62 per cent in 2003.

And this definition of “private-sector” jobs includes contractors 100 per cent dependent on government funding.

Since then, approximately 1,500 new public servants have been hired in the Yukon, while there are only 200 new private-sector jobs. Even at the peak of our boom in August 2008, the percentage of private-sector jobs was no better than 2003.

Fentie’s speech included a great deal of topical talk about stimulus spending, emulating the language of finance ministers around the world, who are ramping up spending to counteract the global economic downturn.

But Fentie’s new language hid the fact his policy has not changed. It has always been stimulative. In good years, government spending goes up. In bad years, government spending goes up.

The second key point is that the Yukon is getting even more dependent on Ottawa.

The Yukon government will generate only 11.4 per cent of its own revenue next year, down from 13.4 per cent in his first budget in 2003.

We cannot fault him too heavily on this.

For years, Yukon politicians have promised to diversify the economy, even though one suspects few of them—conservatives, centrists, leftists or populists—actually believed government was capable of achieving such a feat.

Despite these troubles, the increased government spending will still help stabilize the economy during the recession. And Fentie still had the enjoyable task of divvying up the $1-billion pie.

The overall budget was up four per cent, but Fentie did not share the booty equally.

Priority departments receiving higher-than-average increases included Justice, with $22 million for a new jail.

Energy, Mines and Resources saw its budget for assessment and abandoned mines more than double, thanks to new Ottawa money.

The Public Service Commission saw its budget go up 22 per cent, mostly to cover “employee future benefits.” Somehow Fentie forgot to tell us exactly what this was in his speech.

In addition, Yukon Energy got $120 million for the Mayo dam plus $44 million for various transmission line and generation upgrades.

Losing departments included Education, which got a cut in inflation-adjusted terms.

Public Schools Branch also saw its capital budget cut, although $400,000 was allocated to fund a third round of consulting studies to “commence planning” about the future of FH Collins. The high profile Education Reform/New Horizons process had no new money identified to support it.

Fentie also failed to explain why—in a stimulus budget—he was cutting Economic Development’s Strategic Industries Development fund by 34 per cent or the Community Development Fund, which will be 11 per cent smaller next year.

Health and Social Services also saw its budget fall in inflation-adjusted terms, which will have important consequences since the bulk of that department’s spending is on people.

So did the Department of the Environment.

Overall, the budget sustains Fentie’s long-standing strategy: grow government employment, spread some money around to priority interest groups and on (relatively unsuccessful) attempts to grow the private sector, and clamp down on spending in nonpriority departments like Education.

It’s a strategy that has served him well so far politically. But how long can it last?

This is a key question both for us and for the ministers thinking about succeeding him, perhaps after the next election sometime around 2011.

To answer it, we need to look at the “burn rate.”

The Yukon government will run a $29-million cash deficit this year, up from last year’s figure of $14 million.

Under the government’s accrual accounting policies, however, the official books will show a surplus.

At the end of the coming fiscal year, the premier plans to still have $122 million in the bank (less funds frozen or lost in the Asset Backed Commercial Paper imbroglio).

With a cash burn rate of $29 million a year, Fentie can hold out for another four years or so.

That’s well after the next election. Of course, if Ottawa cuts our funding as the global economic crisis drags on, all bets are off.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels. His next book Game On Yukon! appears in May.