The Yukon is going to receive substantially less than expected in territorial transfer payments next year.
The shortfall was caused by a change in the way the federal government calculates payments to all three territories.
Premier and Finance Minister Darrell Pasloski said the Yukon will receive $23 million less than it should in the 2016-17 fiscal year. He said the change came as a surprise when his government learned about it earlier this month.
“Two of the foundational principles of the TFF (the formula used to calculate transfer payments) are predictability and stability,” he said. “This notice this late in the year violates those principles.”
Pasloski said he raised the issue with federal Finance Minister Bill Morneau at the finance ministers’ meeting in Ottawa this week.
“I’m hopeful that he’s going to try to find a way to restore the funding. However, he made no commitment to do so.”
For now, Pasloski said, the government will have to tighten its belt as it prepares next year’s budget.
“That’s 23 million less dollars that we have for health care, for education, for tourism and job creation.”
To be clear, Yukon’s transfer payment is still increasing, from $923 million this year to $930 million in 2016-17, including the Canada health and social transfers. That’s not the case in the Northwest Territories, where the transfer payment will actually decrease for the first time since 2008.
And at first glance, it’s unclear how the government calculated a shortfall of $23 million. In the Yukon’s spring budget projections, the government was expecting a payment of $943 million in 2016-17. Given that the territory will actually be receiving $930 million, a shortfall of $13 million seems more accurate.
But Tim Shoniker, director of fiscal relations for the Department of Finance, said Yukon’s estimates have changed since the spring. This year, he said, government tax revenue ended up being less than expected, which should lead to an increase in transfer payments.
Because of that, the Yukon’s latest estimate was closer to $953 million, so $930 million is $23 million less than expected.
At $930 million, next year’s transfer payment will mark an increase of only about 0.75 per cent – less than the rate of inflation. Shoniker said this is the first time that’s happened in at least 15 years.
Still, the rate of increase in transfer payments has slowed over the last several years. Shoniker said that’s partly because spending by provincial and local governments across Canada has dropped, and those changes factor into the territorial transfer payments.
“We don’t need to spend as much to keep up,” he explained.
That decline will likely continue in the coming years as transfer payments factor in the recent drop in oil prices.
But Shoniker said the Yukon government can predict those changes.
“We’re able to forecast the declines that are coming. But this was totally unexpected.”
That’s because Statistics Canada has changed the way it measures spending, and the federal government calculates transfer payments based on those data.
The territorial funding formula is typically revised every five years. But Pasloski said this is year two of the latest five-year agreement. He said methodological changes should be discussed at the end of the five years, not in the middle.
Morneau recently wrote a letter to Pasloski announcing next year’s transfer payment.
“I understand that you have concerns regarding recent changes made by Statistics Canada affecting the calculation of your Territorial Formula Financing amounts,” he wrote. “I have asked my officials to discuss with yours possible options to address this situation going forward.”
This isn’t the only financial shortfall the Yukon government will be facing as it prepares its next budget.
Based on this fall’s supplementary budget, finance officials are expecting $15 million less in personal and corporate income tax this fiscal year than they did when the spring budget was tabled.
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