Norm McIntyre, centre, chair of the Financial Advisory Board, with Ron Kneebone, right, a University of Calgary economist and financial panelist, and John Glynn-Morris, engagement process support, speak at a media briefing Sept. 12. (Joel Krahn/Yukon News file)

Silver rules out HST, layoffs and royalty changes

Yukon’s financial advisory panel has released its final report

Yukon’s premier says there’s certain things he’s not willing to do to improve the territorial government’s financial situation.

Yukon’s independent financial advisory panel released its final report this week filled with 136 pages worth of options for the government. Premier Sandy Silver was quick to rule out three possible routes.

“There will be no sales tax — no HST. There will be no layoffs of Government of Yukon employees. There will be no changes to the placer royalties either. This was a campaign commitment and we are not going to raise the royalties on placer miners,” he told the legislative assembly Nov. 15 when the report was released.

The Yukon government is projecting years of budget deficits if the territory continues on this path. Economists estimate the government needs to either raise about $50 million more a year or save that amount of money through cuts if it wants to get the books back in order.

“All of this discussion is really about what options are available, what the consequences of choosing one over the other (are) and what the tradeoffs are,” said advisory panelist Tim O’Niell.

The panel held more than 60 meetings across 15 communities this fall, as well as allowing people to submit responses online, to come up with its final suggestions. More than 800 individuals, governments and organizations took part, according to the government.

Mega government

Generally speaking, Yukoners seemed to be more in favour of of finding efficiencies within the government as opposed to raising revenue through something like taxes, said panel chair Norm McIntyre.

Panelists say they heard from Yukoners concerned about the size and growth of government.

“Spending by governments accounted for less than one-quarter of the territory’s economy in 1980. By 2015, this share had more than doubled to now account for the majority of economic activity,” the report says.

Yukon and Nunavut are the only two jurisdictions in Canada where government spending exceeded 50 per cent of GDP.

“There was a common view expressed among Yukoners that the territory is a ‘two-track’ economy. On one is government and its suppliers, with high and stable incomes and disproportionately concentrated in Whitehorse,” according to the report.

“On the other is the private sector and those living in more remote communities, with far lower and more volatile incomes and standards of living.”

As of 2016 there is roughly one government job for every four Yukoners. The public sector accounts for just over half of total labour compensation in the territory and that’s up 40 per cent from 20 years ago. Almost all of that growth has been in the territorial government, the report says.

Options from the panel included a comprehensive review of all department and programs, to a review of specific grant programs such as the homeowner grant, or implementing a public sector compensation and hiring freeze.

Sliver appeared to rule out a blanket hiring freeze across government particularly with the Whistle Bend continuing care facility opening next year.

“How can you do a hiring freeze when you have to hire that many people just for one facility that wasn’t contemplated by the previous administration?”

The government also needs to hire teachers and education assistants based on the number of students in need, he said.

“For us to say anything more about a freeze, there’s just so many things that would have to be considered.”

Silver appeared to suggest attrition was a more likely possibility.

“There’s lots of things that we can do to right-size this government. We have an aging population of government as well, people are retiring.”

The premier did say his government would be doing departmental reviews starting with the health department. Health is by far the largest department, accounting for 30 per cent of government spending.

“Our emphasis is on making sure that we’re offering the programs and services properly, and there’s a lot of overlap right now,” Silver said.

“And I think we have to do a better job as a government of taking a whole-of-government approach and looking at how we spend taxpayer money.”

Silver didn’t have specifics of when that review would happen and what it would cover.

Taxes and fees

The idea of an HST is still part of the final report, although the premier has ruled it out.

The final report includes options for other ways to generate income. The government could consider a Yukon-wide hotel tax or impose a payroll tax for those working in the Yukon who don’t live in the territory.

The territory could also increase its various fees and fines, the panel said.

Of total government spending in Yukon, only five per cent is funded by user fees. Nationally, the average is just over 13 per cent.

If Yukon matched the same 10 per cent share that exists in the Northwest Territories, it would raise over $60 million, more than enough to cover the estimated imbalance in upcoming budgets, according to the report.

Hotel taxes are common in other parts of the world. British Columbia charges a two per cent tax, Alberta charges four per cent. In Anchorage, Alaska, the hotel tax is 12 per cent according to panelist Trevor Tombe.

“Every two percent of hotel tax might raise for the Yukon on the order of roughly a million dollars per year,” Tombe said.

By the numbers

The final report shows the amount of revenue the territory has brought in over the last 10 years has grown at an average of 1.7 per cent each year.

Meanwhile, the amount of money it spends has grown at a rate of 2.5 per cent.

That’s the reason why the territory’s financial position has deteriorated.

Silver has referred to those numbers when criticizing the previous government as “spending a $1.50 for every dollar you make.” But it’s not accurate to simply convert the percentages into dollar amounts, Tombe said.

“(The percentages are) just saying that the rate at which you are increasing your spending is faster (than) the rate at which revenue is growing,” he said. “These are percentage changes, it’s difficult to map them into dollars in that way.”

The numbers are adjusted for inflation and population, Tombe said.

Yukon Party finance critic Brad Cathers has accused the Liberals of a narrative that “does not reflect the facts.”

He points to a handful of years when the Yukon Party was in power and revenue increased at a rate that was higher than expenses.

Of the nine years economists could use to make year-over-year comparisons, five were years in which revenue grew slower than spending, and four were years in which revenue grew faster than spending, Tombe said.

One particularly bad year can make a difference in the numbers. The 2015/16 year saw revenue fall $4.7 million while spending grew $62 million over the previous year, he said.

If you eliminate that year from the calculation, the territory had an average annual post-2007 growth rate of revenue of 2.4 per cent versus 2.5 per cent for spending, he said.

“So, that last year is very important, but not biasing the main point. It also reinforces the theme throughout the report that Yukon finances are susceptible to swings in mining sector activity due to movements in global commodity prices.”

The panel’s report was not meant to investigate past revenue and spending decisions, Tombe said.

“It isn’t here to help fight old battles. It’s instead focused on the future. To help Yukoners understand the territory’s current and potential future fiscal situation, and to present a set of options to help ensure future finances are sustainable,” he said.

Opposition weighs in

Cathers said he thinks the current government should balance the books by managing its rate of spending growth not with new fees or less services.

“That does sometimes mean making the decisions … that the government might find a little bit tough but Yukoners do expect their government to manage the finances properly,” he said.

Increasing fees, according to Cathers, “is really a tax increase by another name.”

He said the previous Yukon Party government deliberately kept fees low.

“Because of our view that if you reduce the taxation and fee burden on citizens and business it it more conducive to economic growth both in the private sector and people’s own personal financial resources.”

Cathers accused the premier of using the financial advisory panel as a way of avoiding making decisions.

The report is good but the information “is not substantially new or different” than what the Finance Department could have gathered if it was asked, he said.

For her part, NDP Leader Liz Hanson is less opposed to the idea of more taxes. She’s still disappointed with the government’s decision to cut corporate taxes by 20 per cent.

A tax on out-of-territory workers or a hotel tax are both things that should be discussed, she said.

“The Yukon Liberals are saying we want to be more independent. Well, if we want to be more independent that means we have to look at how we’re going to raise revenues.”

The Yukon’s Taxpayers Protection Act means any new taxes would have to be put to a referendum.

Hanson said that if she were in power, she would have no problem repealing the act.

She said the Liberals needs to “overcome their fear” of the act.

“Some people would call it a taxpayers avoidance act because it was really put in place to put a political chill on any notion that a government in need of revenues would ever consider raising taxes.”

For his part, Silver is not willing to commit to what he will do next.

“Before making decisions on the rest of the options we absolutely have to do our due diligence. We need to consider the impact of any changes and make sure that Yukoners are getting the best possible value for the money that the government spends on their behalf.”

The advisory panel is slated to appear in front of the legislative assembly next week to answer questions from MLAs.

Contact Ashley Joannou at ashleyj@yukon-news.com

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