Yukonomist: The fiscal bats in the Yukon government’s attic


Like strange flutterings outside your cabin at dusk, recent headlines suggest some fiscal bats have moved into the Yukon government’s attic.

As reported in last Friday’s News, due to nurse shortages nearly half of the territory’s rural health centres have been temporarily closed in recent months; sometimes, for a whole month.

The Whitehorse hospital has warned patients about long wait times. The Dawson City hospital has warned about blood work and x-ray delays. And Yukon surgeons “recently rang the alarm about extended waiting periods for joint replacement surgeries.”

Melting permafrost — not so perma, thanks to climate change — is forcing the government to spend $2 million rerouting the Alaska Highway near the Takhini bridge.

Battling three-and-a-half times more fires than the 25-year average has officials making contingency plans to spend more than the $22 million wildfire budget this year.

As this column was written on a sunny Sunday afternoon, Yukon Energy was burning fossil fuels for 2.49 megawatts of electricity. That’s despite July water levels and solar-panel-friendly weather.

Financial headlines have been all about higher interest rates. The average yield on long-term Canadian government bonds is 3.42 per cent, up from under one per cent in 2020.

These are not isolated factoids. Each is part of a long-term trend that is not going away. And which will place long-term demands on the Yukon government’s budget.

The current government has been rapidly increasing the territorial debt, which is expected to hit $375 million at the end of this fiscal year. As recently as 2018, the Yukon had a surplus not a debt. The interest on this debt will have to be paid, and many market analysts expect interest rates to remain higher in the long run than they were before the pandemic.

One reason for this is how demographics affect the supply of savings in global money markets compared to demand for money for investment. As the rich world’s population ages, fewer working people will be saving for retirement. Leading economists believe less supply will mean higher interest rates.

These interest payments will steadily siphon money out of the budget. Suppose the Yukon government and its agencies pay five per cent on a $375 million debt. That’s $19 million per year that can’t be spent on other priorities. And that might be low, if the government keeps borrowing and rates end up higher than hoped.

Demographics also plays a role on health costs. Older Yukoners go to the hospital more often. The Putting People First report said that Yukoners over 80 years of age cost the health system more than $40,000 per year each on average. That’s about five times the cost for middle-aged people. It also adds pressure on facilities already facing health worker shortages.

According to Statistics Canada, the Yukon’s population was younger than the national average in 2021. Fifteen per cent of Yukoners were aged 65 or over versus the national average of 19 per cent. However, the Yukon’s population was aging at the second highest rate in the country. In 2016, only 11.9 per cent of Yukoners were over 65.

With more Yukoners choosing to retire here rather than Outside, we can expect this trend to continue. It is wonderful for Yukon families, but costly for the health budget.

We have also recently been expanding coverage in areas such as mental health, transgender health coverage and dental programs. This is also good for Yukoners, but comes at a cost.

Over the last 10 territorial budgets, funding announced for the department of Health and Social Services has risen by about the same as overall government spending. Going forward, Yukon finance ministers may be forced to give health higher priority.

Climate change’s impact via floods, wildfires and permafrost is also going to be costly. It is very difficult to predict, but the sums could be eye-watering in some climate scenarios. Rerouting a short stretch of highway and stumping up a few extra million for 2023’s wildfire budget may just be a down payment.

A federally-funded 2022 report by the Canadian Climate Institute estimated that the cost of climate-related road damage alone could exceed $70 million per year in the Yukon. And that doesn’t count buildings, runways or other infrastructure.

We will also have to spend more money on renewable power projects. The announced cost of the new wind turbines on Haeckel Hill was $30 million. They will reportedly provide enough power for 650 homes. At 12,000 kilowatt-hours per year per typical Yukon home, that works out to about two per cent of the Yukon’s total electricity consumption.

If the climate transition requires us to at least double renewable electricity capacity, as analysts in other jurisdictions predict, then we’ll need another fifty Haeckel-sized projects.

Wildfires are a particular wildcard. In addition to the direct costs of fighting them, there is also the economic disruption from closed roads. The air quality effects are also severe, especially for older Yukoners and people with lung and cardiovascular conditions. Besides Yukoners investing in air filters at home, the health care system will also see additional costs.

All of these cost drivers will be on the agenda at territorial budget meetings for decades to come. With the federal government facing its own fiscal issues, these meetings may be happening in an era of tighter budgets than our politicians have been used to.

As cabin owners know, once the Yukon little brown bat moves in it is very hard to get rid of.

It’s the same with these fiscal trends. They aren’t going away. Future governments will just have to decide how to face them. One option is to keep borrowing and leave the reckoning to the next government. Another is to freeze spending in other departments to free up money for health care, debt payments and climate response. If nothing is done, some future territorial government may have to do what has so far been politically unthinkable: raise taxes.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.