The good news is that the feds have given the Yukon another revenue stream of up to $40 million a year.
The bad news is that, unlike our transfer payments, we actually have to earn this one.
During Prime Minister Harper’s visit to Haines Junction last week, he announced that the resource royalty scheme in the NWT’s more generous devolution deal will be given to the Yukon too. Under the Yukon’s original devolution deal, we could keep resource revenues from mining up to $3 million and then any revenue above that went to Ottawa. A similar scheme applied to oil and gas.
Now it looks like we can keep up to around $40 million. The Yukon government press release didn’t go into detail, so that estimate is based on the NWT’s deal. It sees 50 per cent of resource revenues staying with the territorial government up to a cap of five per cent of the “gross expenditure base” used in the transfer payment formula. That’s around $800 million for us now. This base rises every year, so the $40 million cap will too.
The NWT deal also guaranteed a quarter of the resource money to First Nations, so that would leave the Yukon government with around $30 million.
It’s important to remember that we’re talking about what non-bureaucrats call “royalties” here. It’s basically the tax that mining and energy companies pay when they take copper or gas out of the ground. The new deal doesn’t affect the corporate income tax arrangements between the feds and the Yukon. The personal income tax paid by miners and energy workers continues to go to the territory where they live (or province in the case of fly-in or seasonal workers). The feds continue to get 100 per cent of the GST revenue since the Yukon doesn’t have a sales tax.
But the new deal is important for the Yukon, especially since so many mines are coming into production and our gas production might go up significantly in the coming years.
Since devolution, mining revenues in the Yukon haven’t bumped into the previous $3 million cap.
There was a lot of exploration, but until recently not much production. Minto began producing copper and gold in 2007, but it’s on Selkirk First Nation land and didn’t generate royalties for the Yukon government.
But with mines like Wolverine and Bellekeno ramping up production, and other big projects like Casino and Selwyn Chihong on the drawing board, there could be a major spike in resource royalties.
And, depending on this fall’s election, some future government might also raise royalty rates.
Previous governments have avoided raising these to support the development of the industry. Governments from Australia to Alberta have thought recently about boosting royalty rates as resource prices skyrocket.
Getting to keep a share of the upside of resource development will change the political dynamic in the Yukon. We’ll become a bit more like Alaska, where politicians know that resource money funds much of the state’s programming. One politician even prints out the price of oil every morning and pins it up in the corridor of the State House.
Even though it represents less than five per cent of the recent Yukon budget, $30 million is still a significant sum. Whitehorse’s Northern City Supportive Housing Coalition recently withdrew its proposal for an innovative 20-room “supported housing” project because it hasn’t received the $900,000 it asked for from the Yukon government. Parents who end up paying for their own learning disability assessments because they don’t want to wait months in a Department of Education queue wouldn’t mind if the government hired a few more specialists. A “Pathways” style program to attack the youth drop-out problem would cost a few million. And so on.
If the current mining boom continues, we should come up with a strategy for how to spend the resource money. If we think ahead, we can avoid some of the infrastructure pitfalls that Fort McMurray has fallen into. This means housing, schooling, health care and electricity generation in particular.
We should do this thoughtfully and identify some major legacy initiatives we want to undertake. If we don’t, the risk is that the money will just get eaten up by inflation or frittered away across 19 departments. Remember that the majority of the Yukon’s billion-dollar budget is composed of personnel costs, and these rise relentlessly. If we make a rough assumption that 60 per cent of the budget is personnel, and between promotions, health benefit inflation, pension costs and annual wage increases the cost per employee rises three per cent per year, then it takes an additional $15 to $20 million a year just to maintain the current Yukon government work force.
Those costs should be covered by our existing transfer payments, and we should carve the resource money into a separate fund. Then we can use it strategically to build the assets that the future Yukon will need.
With an election coming up, try asking the people who want to be your MLA what they plan to do with the money.
Of course, before we count our resource revenue riches, we should remember that we actually need operating mines to generate it. You should ask your prospective MLAs where they stand on that too.
Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.