It is a wonder of modern government accounting that the latest Yukon budget can show both an annual “surplus” of $23 million for the current fiscal year and at the same time show the government will spend $58 million more than it brings in.
I love accrual accounting as much as the next person. In theory it is a far superior way to show an organization’s financial activities, since the cost of long-term assets is spread out over their useful lives. But, as Jack Mintz recently pointed out, the ease with which accrual accounting can be turned into misleading sound bites for voters is worrying.
When you read the Yukon budget you should first look at the annual revenue, expenses and surplus in accrual terms: $1.250 billion in revenue and $1.227 billion in expenses. This is the $23 million annual surplus.
And then, just to make sure you really understand what is going on, have a look at the cash flows. This is the “calculation of net financial assets” in the Yukon budget. This shows that, despite an accrual surplus, cash goes down $58 million.
In the old days of cash budgets, the Yukon government would be reporting a deficit of $58 million.
This is a pre-election budget. The government is spending down our rainy day fund by $58 million to buy voters’ love. That works out to about $6,000 for a family of four. And that’s on top of the $140,000 they spend on that family of four before going into (cash) deficit.
If a politician can’t win an election with a billion in cash to spray over a population of 35,000, they’re really better suited to the Senate.
Some people are wondering if the Yukon Party will call a snap election in June. I don’t think so. I think you can predict the timing of the budget by taking the cash pile on April 1, which was $195 million, and dividing it by the spending-spree burn rate. This budget shows the government will still have $137 million in the rainy day fund as of April 1st, 2016. So expect an election in late 2016 after they’ve had a chance to have a spring 2016 budget and spend a whack of that cash.
Another fact that probably won’t make it into government talking points is that the Yukon’s tax base appears to be shrinking, and therefore our dependence on Ottawa increasing. In 2013-14, for example, Yukon tax and other “own revenues” were $180 million. The forecast for the fiscal year just ended last week is almost 10 per cent lower at $166 million.
So if you’ve got the impression that the Yukon private sector is smaller and making less money than a couple of years ago, you’re probably right.
It’s hard to fault the Yukon government for high spending. If the money plane from Ottawa keeps landing, what is there to do but get rid of the money before it builds up into an embarrassing pile?
It is important, however, how the government spends the money. I think a good chunk should be invested in long-term productive assets that reduce the cost of living and doing business here or significantly improve our productivity in some way. Things like electrical power generation and backup fibre-optic cables to Outside come to mind.
The huge transfers from Ottawa also give the Yukon government the chance to support the development of community organizations and First Nations governments. These provide important services to citizens, often very efficiently, and also help balance the ever-growing size of the Yukon government apparatus.
And I also think tax cuts make sense. The Yukon’s income taxes are already a bit lower than many provinces, but not all. Lower tax rates help counteract the higher cost of living and doing business in the Yukon thanks to our distance, cold weather and lack of scale.
Taxes aren’t everything there is to know about economic development, but low and competitive taxes help. All you have to do is look at the ridiculous antics of various Nova Scotian governments, as they commission one study after another about economic development while discouraging economic activity with one of North America’s most onerous tax regimes.
So how does this budget stack up?
There is $5.5 million in broad-based personal tax cuts, which is good news.
Community organizations and First Nations will receive a variety of cash boosts from the budget, including money for a new community centre in Old Crow and a new learning centre in Carcross. It is hard to tell, however, how significant these are in aggregate or if total funding to non-government organizations is up, down or flat overall.
In terms of territory-building economic infrastructure, there is lots of talk about building new hydro generating capacity and connecting our electrical grid with Alaska’s and B.C.‘s. But one would have hoped to see this kind of announcement in year one rather than year four of a government’s term. It will be years before these provide benefits, and that’s assuming they make the leap from budget speech to reality.
In terms of other infrastructure with economy-building potential, there is also some money to improve the airports at Dawson and at Watson Lake as well as nearly $1 million to continue studying the idea of a second fibre-optic link. The budget also includes more spending on tourism marketing.
There is also $5.5 million for rural land development, with the aim of making more land available to Yukoners. This is the kind of thing people hoped for when devolution happened, and if done right could lead to more economic activity across the territory.
Overall, it is not a budget that future Yukoners will look back on and use words like “vision” or “leadership.” But as a humdrum budget that gets the money out the door and makes some modest investments in economic infrastructure and lower taxes, it gets a passing grade.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Channel 9’s Yukonomist show or Twitter @hallidaykeith