The mystery of the missing tax money

At first glance, it was a Yukon budget like any other: the feds gave us a billion dollars, and our government bragged about what a great job it was doing managing the firehose it sprays the money around with.

At first glance, it was a Yukon budget like any other: the feds gave us a billion dollars, and our government bragged about what a great job it was doing managing the firehose it sprays the money around with.

However, a closer inspection reveals a strange mystery. While Yukon government spending will hit record levels next fiscal year, income tax revenues will be lower than 2012-13, the last year where we have hard actual figures reported.

The numbers involved are big. Total appropriations will hit $1.3 billion in 2014-15, an increase of 20 percent or $220 million from 2012-13. Over the same period, personal and corporate income tax revenues are both expected to fall. The total income tax take is expected to be 3 percent lower at just $96 million.

Think about what this means. The Yukon government is spending $220 million more, mostly on people and contractors. Yet the income taxes paid by people and companies in the Yukon is going down.

Theoretically, there are a few possible explanations for this.

One is that the big increase in government spending went to Outside consultants and companies. It is unlikely, however, that all $220 million could have leaked away like that unless we bought some big ticket items manufactured Outside. And I didn’t see the press release announcing the Yukon Air Force was buying a half dozen F-35 fighter jets.

Another possibility is that the hundreds of new Yukon government employees hired over the last couple of years all decided they didn’t like their jobs and moved away on December 31, just in time to pay their taxes in another province after collecting their salaries here all year. Or, alternatively, they could all be engaged in a massive tax evasion conspiracy.

Again, not very likely.

Could it have been tax cuts? The possible culprit is the proposed reduction in the Yukon small business tax from 4 per cent to 3 per cent, but this affects only a portion of the tax base. And, anyway, the fall in corporate tax revenues started in 2013-14, before the recently announced small business tax cut will take effect.

So where did the tax revenue go?

Sherlock Holmes wasn’t an economist, but I think his powers of deduction would have taken him to the answer: the increase in government payrolls and contracts did actually increase tax revenues, but it was more than counteracted by the Yukon’s private sector economy driving its sled off a cliff.

And it must have been a pretty big cliff, given that it had to be bigger than the huge increase in government payrolls and spending over the last couple of years.

With an election coming up in two years, this is a serious situation for the government. The budget speech outlined its proposed response: “At a time when the private sector is facing economic challenges, this is the time for the Yukon government to step up to the plate and invest in infrastructure that will facilitate and stimulate the private sector.”

This is classic Keynesian economics, attempting to stimulate the demand side of a slumping economy with government spending. President Obama did it during the financial crisis in the U.S., as did the Canadian government.

However, the Yukon government goes further than this. They don’t just believe in stimulating the economy with government spending during slumps, they also believe in doing it during boom years. The Yukon government is in fact a rare example of super-Keynesian fiscal policy. If you look at Yukon government spending since 2005, it rose every year whether the private sector was doing well or poorly.

Economists on Fox News would be appalled. The Yukon government fiscal policy is even to the left of the Obama administration.

Even if the Yukon government policy leads to an ever bigger role for the state in the Yukon economy, at least they are not doing it with borrowed money. The U.S. and Canadian governments both had to borrow to finance their Keynesian spending splurges. The Yukon government gets so much cash from Ottawa that even after the planned spending binge for next fiscal year, there will still be around $140 million in the government’s bank account.

This means they can continue the pre-election spending in the 2015-16 fiscal year.

It is difficult to analyze the Yukon budget in normal financial terms, since it gets so much money from Ottawa. It isn’t really meaningful to talk about Keynesian or non-Keynesian fiscal policy, since the Yukon government’s policy is to get money from Ottawa and spend it. The only real fiscal question a Yukon finance minister has is how much of Ottawa’s money to save up in the first few years of a government’s mandate to spend in the run-up to the next election.

The recent budget answered half that question, and next year we’ll see how much of the remaining $140 million in the bank will get spent.

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

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Team Yukon skip Laura Eby, left, directs her team as Team Northern Ontario skip Krysta Burns looks on at the Scotties Tournament of Hearts in Calgary on Feb. 22. (Jeff McIntosh/CP)
Team Yukon reports positive experience at Scotties

Team Yukon played their final game at the national championship in Calgary on Thursday afternoon

A sign indicating a drop-off area behind Selkirk Elementary school in Whitehorse on Feb. 25. (Haley Ritchie/Yukon News)
Parking lot proposal for Selkirk Elementary criticized

Parents and school council are raising concerns about green space and traffic woes


Wyatt’s World for Feb. 26, 2021

Ken Anderson’s Sun and Moon model sculpture sits in the snow as he carves away at the real life sculpture behind Kwanlin Dün Cultural Centre for the Yukon Sourdough Rendezvous festival in Whitehorse on Feb. 21, 2018. Yukon Rendezvous weekend kicks off today with a series of outdoor, virtual and staged events. (Crystal Schick/Yukon News file)
Rendezvous snowpad, live music and fireworks this weekend

A round-up of events taking place for the 2021 Rendezvous weekend

Yukon Energy in Whitehorse on Aug. 4, 2020. The proposed Atlin Hydro Expansion project is moving closer to development with a number of milestones reached by the Tlingit Homeland Energy Limited Partnership and Yukon Energy over the last several months. (Crystal Schick/Yukon News file)
Atlin hydro project progresses

Officials reflect on milestones reached

Tom Ullyett, pictured, is the first Yukoner to receive the Louis St-Laurent Award of Excellence from the Canadian Bar Association for his work as a community builder and mentor in the territory. (Gabrielle Plonka/Yukon News)
Tom Ullyett wins lifetime achievement award from the Canadian Bar Association

Ullyett has worked in the Yukon’s justice ecosystem for 36 years as a public sector lawyer and mentor

The Blood Ties outreach van will now run seven nights a week, thanks to a boost in government funding. Logan Godin, coordinator, and Jesse Whelen, harm reduction counsellor, are seen here on May 12, 2020. (Crystal Schick/Yukon News file)
Blood Ties outreach van running seven nights a week with funding boost

The Yukon government is ramping up overdose response, considering safe supply plan

Ranj Pillai speaks to media about business relief programs in Whitehorse on April 1, 2020. The Yukon government announced Feb.25 that it will extend business support programs until September. (Crystal Schick/Yukon News)
Government extends business relief programs to September, launches new loan

“It really gives folks some help with supporting their business with cash flow.”

Whitehorse City Hall. (Joel Krahn/Yukon News file)
A look at decisions made by Whitehorse City Council this week

Bylaw amendment Whitehorse city council is moving closer with changes to a… Continue reading

Susie Rogan is a veteran musher with 14 years of racing experience and Yukon Journey organizer. (Yukon Journey Facebook)
Yukon Journey mushers begin 255-mile race

Eleven mushers are participating in the race from Pelly Crossing to Whitehorse

Legislative assembly on the last day of the fall sitting in Whitehorse on Nov. 22, 2018. As the legislature prepares to return on March 4, the three parties are continuing to finalize candidates in the territory’s 19 ridings. (Crystal Schick/Yukon News file)
Nine new candidates confirmed in Yukon ridings

It has been a busy two weeks as the parties try to firm up candidates

David Malcolm, 40, has been charged with assaulting and attempting to disarm a police officer after an incident in Whitehorse on Feb. 18. (Phil McLachlan/Capital News)
Man resists arrest, assaults officer

A Whitehorse man has been charged with assaulting and attempting to disarm… Continue reading

Yukon Energy in Whitehorse on Aug. 4, 2020. A site on Robert Service Way near the Alaska Highway has been selected as the future home of Yukon Energy’s energy storage project. (Crystal Schick/Yukon News file)
Site selected for Yukon Energy battery project

Planned to be in service by the end of 2022

Most Read