Silver’s upcoming budget mid term test

Expectations are high for Premier Sandy Silver’s upcoming budget. By the end of April, it will be almost six months since he was elected premier.

Expectations are high for Premier Sandy Silver’s upcoming budget. By the end of April, it will be almost six months since he was elected premier. He has been cagey with specifics so far, and Yukon voters, businesses, First Nations and municipalities are keen to find out how his campaign promises will translate into concrete action.

Silver used to be a teacher and is familiar with mid-term tests, which is essentially what this budget is. He’s been in class long enough to be expected to show progress, but if he bombs he still has enough time to recover before the final exam at the next election.

Students always want to know how they will be graded, so let’s create a school-style rubric out of 10 points.

First of all, no points for political rhetoric about the accounting deficit being bigger than expected. All new premiers express astonishment at the profligacy of their predecessors, a ritual similar to the French police chief in Casablanca saying he is “shocked” to discover gambling in Rick’s nightclub (after pocketing his winnings of course).

On a substantive note, I am more interested in the cash budget than the one based on accrual accounting. While the latter is theoretically a superior technique, due among other things to how it spreads the cost of large assets over their full lives, it is often of little use for voters trying to figure out what is happening financially right now.

The Yukon can go from deficit to surplus, or the reverse, based on decisions like whether the Dawson sewage plant is owned by the Yukon government or by the municipality. No matter who gets to book this alleged “asset” on their balance sheet, the Yukon government has still spent the money.

Neither will points be taken away for delaying the budget until April and using special warrants in the meantime, despite saying this represented a “lack of respect” for the legislature when he was in opposition. Quotes from pre-premier Silver such as “That’s not democracy, in my opinion,” may be good fun for the opposition, but aren’t on the syllabus for our fiscal policy test.

The test’s first section will be about the cash deficit. As is well known, the Yukon Party ran cash deficits for the last years of its mandate. Our cash in the bank was $223 million in March 2015 and, as of last year’s budget, was expected to be down to $57 million this year.

One point will be awarded for keeping the Yukon’s cash reserves above zero in this coming fiscal year and another point for showing a plan to keep it that way for the next three years.

This will keep us out of debt, which is important. In theory a government can borrow to invest in infrastructure like a port or railway that will grow the economy and pay the debt back. But if we borrow just to cover basic spending of the Yukon government, we are simply stealing transfer payment dollars from our children to spend on ourselves.

Note that I am talking about the finances of the Yukon government itself here, not the government-owned corporations like Yukon Energy or Yukon Housing. It makes sense for these entities to borrow, since that debt is paid back by electrical bills or mortgage payments.

Since the pre-election spending levels of the last government will probably need to be cut, Silver will have to decide which departments get the knife. Slashing the capital budget is the easy way out, but means we aren’t building for the future. So one point for taking at least half the cuts out of operations. And another point for cutting central agencies like finance and the Executive Council Office rather than front-line departments or partners that serve citizens directly such as health or the Salvation Army.

Two points will be awarded for broad-based tax cuts. This will not be easy given the overall financial situation, but in the long run we need to have noticeably lower taxes than B.C. and Alberta to attract more businesses and people to live here. Even small cuts would send the right signal. The feds cutting income taxes doesn’t help much on this front, since they also cut taxes for B.C. and Alberta residents, although they also increased the Northern residents deduction last year.

Silver promised a small business tax cut in the election. This is good, but only affects profitable companies defined as “small businesses” under the tax code. It is worth half a point out of the two above. Tax cuts for sole proprietors and residents are also important.

There is also a red flag in this test. Any increases in tax or substantial hikes in user fees results in an automatic fail. This is kind of like how you fail your driving test if you run the red light at Second and Main, even if you parallel park well.

Given our massive transfer payments, the Yukon government does not have a revenue problem. It has plenty of money. A tax or fee hike would undermine our ability to attract investment and people as mentioned above. We don’t want to end up like Nova Scotia, whose efforts to diversify its economy are persistently hobbled by the fact it has some of the highest taxes in North America.

Two more points will be awarded for funding sizeable capital projects that help grow our economy. These would need to be more than $5 million to make a difference. Examples such as renewable power plants or the long-awaited backup fibre optic cable would count.

Yukon Energy warned the government in its recent resource plan that, given the growth in electricity demand, it can no longer guarantee to keep all the lights on during a cold snap if its biggest hydroelectric plant at Aishihik goes down. The government should be moving briskly to fund a project here.

Finally, two points are up for grabs for sharing a well-thought out plan for the carbon tax, one of Silver’s signature policy promises. He will need to clarify how he intends to deliver on his promise to return the revenue to Yukoners. This includes whether strategic and energy-intensive Yukon industries like air travel and mining will get rebates, or whether their tax payments will fund bigger rebates for everyone else.

He’s had six months since the election to think this through, so it will really be unforgivable if he forces his mining and economic development ministers to meet with mining companies for the rest of 2017 and say, “Please invest in the Yukon. We’ll tell you later whether we think you’re strategic enough to get an exemption from our new carbon tax.”

Those are the things to look for in the budget. Now all we have to do is wait for the big day at the end of April.

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 is a Ma Murray award-winner for best columnist.