Planning ahead: the 2016 Yukon budget

With the federal election thankfully in the rear-view mirror, let's look at what's coming up here in the Yukon. The next big thing is the Yukon budget. 

With the federal election thankfully in the rear-view mirror, let’s look at what’s coming up here in the Yukon.

The next big thing is the Yukon budget. Deep inside the territorial apparat, our apparatchiks are already working on it.

This budget will be even more important than usual. I don’t mean because there will be an election. Let’s take it for granted that there will be an orgy of government spending on any thing with even a whiff of popular appeal. Economists have long pointed out that it is easy to stimulate the economy if you spend enough money.

Legendary economist John Maynard Keynes talked about the government filling bottles with cash, hiding them in old mines, and then filling the mines with municipal trash. The subsequent boom in mining employment would boost the economy.

Keynes mentioned that building houses and that kind of thing would be more sensible, but burying bottles of cash would be better policy than doing nothing.

The reason the 2016 budget is going to be very important is that the Yukon looks like it might be entering a long period of tough economic sledding. Mining investment around the world is in a major downturn. The energy sector won’t be riding to the rescue. Some tourists are visiting, but many others continue to show an annoying preference for Las Vegas, cruise ships and Whistler over the Yukon.

Hopefully I’ll be proven wrong, but I also worry about how long our transfer payment will continue to grow at two or three times the rate of inflation. The federal government is about to discover what happens to its tax revenues when the oil industry drives its snowmobile off a cliff.

So, to get back to Keynes’ point about smart spending, what would that look like?

We are looking for policy that boosts productivity or attracts people and investment to the Yukon. You can boost productivity by getting into activities with higher profits or wages, or by lowering costs.

This gives some strong hints about what kind of government policies do not make sense. Take the City of Whitehorse’s planned megaplex. At $55 million, plus millions in debt repayments and other costs, it is definitely a big-ticket item. But it doesn’t do anything to make Yukon businesses and workers more productive. The extra taxes needed to pay for it likely have a marginal negative effect on attracting investment.

It does create jobs in the short term. There would be lots of construction jobs, plus the planned $550,000 art collection would boost the cultural sector (if the art was newly commissioned from Yukon artists). Keynes would probably point out that you could double its job-creating impact by building it, putting the art inside, burning it all down, and building another.

The other old-school idea is government subsidies or an investment fund. The Yukon government’s forays over the last few decades into sawmills, low-interest loans to hotels, gas stations and other local businesses generally did not turn out very well. The idea has resurfaced recently in two new forms: a mining investment fund to take equity stakes in promising mines to enable them to open even when global capital markets are in a funk, and high-tech funds to provide government venture capital to start-ups.

It is not impossible that such funds could support winning businesses, and make money for the government.

While I am confident that the Yukon government could successfully hire an expensive staff to run such a fund and spend a lot of money, I am sceptical that they could pick winning investments. Another problem with a mining fund is that it introduces a conflict of interest, since the government would then regulate a mine in which it has large investments. There is also the question of whether a technology fund is even needed, given how much capital is sloshing around the start-up scene in Vancouver.

So what would a productivity-enhancing Yukon government policy look like?

It would probably focus on some broad-based initiatives that left it up to Yukoners to choose where to put their capital and energy, but enabled them as they did so.

This brings up tax cuts for individuals and businesses. While not a panacea, a low tax rate helps attract investment and people. This is particularly true for relatively well-paid and mobile knowledge workers at a time when many provinces are raising taxes. Personal and corporate income taxes represent only around seven per cent of the Yukon budget, so significant cuts here would have minimal effect on the government machine. But we could be a low-tax destination for new economy workers who like to ski and canoe.

Another idea is infrastructure that really does attract investment and boost productivity.

First on that list would be a backup Internet connection, as multiple recent outages show. It is bad enough that a backhoe in Fort Nelson can cut Yukon tech workers off from their clients for extended periods. It’s even worse that they can’t even buy a latte because all the point-of-sale terminals are down on Main Street.

Stock market analysts often talk about things like how the number of winter storm days affects retail sales in the first quarter. Yukon economic forecasters now have to account for how often our retail economy shuts down due to “Northwestel days.”

Energy is another priority. Cheap and plentiful energy helps businesses cut costs and lowers the cost of living for workers. As with lower taxes, it is not a panacea but it helps. The government project portfolio should contain a steady stream of small and maybe large energy projects. If the economics for renewables works, all the better.

That’s three big ideas for the next budget. Two of them include new opportunities for First Nations and other Yukon investors to get involved in. You probably have more. If so, send them in to your favourite budget apparatchik.

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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