On the deficit, the Yukon government is hamstringing itself

Meanwhile, the Yukon Party is being dishonest about its own role in inflating spending

Justin Trudeau once infamously remarked that the “budget will balance itself.”

His statement was met with guffaws and consternation that such a ludicrous statement had been made by a man who was within striking distance of the Prime Minister’s Office. Balanced budgets don’t magically occur. They are created by the active efforts of policymakers who bring expenditures into line with revenues.

A charitable interpretation is that Trudeau was alluding to was the fact that drastic measures like painful service cuts or tax increases are not always necessary to correct certain kinds of budget deficits.

If spending growth is kept in check and the economy keeps chugging along, rising revenues and the passage of time will eventually eliminate a deficit. Conservatives laughed at Trudeau, but this is how Stephen Harper’s government eliminated Canada’s deficit in the years following the financial crunch of 2008.

This is the good news part of the Yukon’s own Financial Advisory Panel final report released last week: “draconian cuts to spending or dramatic increases in tax rates are not necessary to put the territory’s finances back on a sustainable footing…. All that would be required is a slower rate of growth in nominal spending to more closely match the rates of increase in prices and population.”

The panel projects if a two per cent growth rate is “maintained beyond 2020, then the territory is on track to balance by 2022/23.” In other words, the budget will balance itself. Kind of.

Well that is all good news. What is the bad news?

The bad news is that 2022/23 is a few years off and in the meantime we have a slight problem — federal law limits the amount we are legally allowed to borrow. And as the panel noted “absent … a large positive development [in mining] … the debt limit of $400 million … will likely be reached soon (perhaps by 2020).” So unless we see some substantial economic growth or convince Ottawa to increase our borrowing limit “a balanced budget for the 2021/22 fiscal year, and potentially earlier, becomes a … binding target.”

That’s a problem.

So where do we go from here? The problem is that the government has already written of some ideas including some proposed by its own panel.

Cuts to the civil service? Out. A territorial sales tax? Nope not doing that. Increasing placer royalties? How about no? And while they haven’t explicitly ruled it out if I were a betting money I’d predict that the proposal to eliminate the Homeowners Grant — that $450-$550 credit you get against your property taxes each year — will never see the light of day.

There are understandable political reasons why the government might want to avoid these moves.

Higher placer royalties would disproportionately hit Premier Sandy Silver’s own Klondike riding. And while economists seem to love them, sales taxes are a very visible and politically unpopular form of taxation. We prefer if government takes our money in ways that are less obvious.

I was most disappointed that the government chose to completely write off cuts to the public service as a means of hastening the return to balance. I say that not because I want to see across-the-board service cuts. But because there is quite clearly fat to trim on the Yukon government payroll, with an abundance of make-work type positions and overall compensation in various pay classifications that has risen far beyond what the market for those positions could justify.

I appreciate that this must be a frustrating position for the government to be in. Surely it came to office wanting to put its own stamp on the territory, but its term will now instead be spent addressing our fiscal challenges.

It must be particularly galling for the government to be so restrained when the remnants of previous Yukon Party government — which got to engage in a 14-year spending spree thanks to rapidly increasing transfer payments — has been so lacking in self-reflection about its own role in all this.

It has also shown a willingness to engage in half-truths to pin all of this on the Liberals, hiding behind accounting technicalities to imply that everything was just peachy when it was in charge. When the Yukon Party left office the amount of cash leaving the government’s coffers each year already exceeded the amount coming in by tens of millions of dollars. Had it been re-elected in late 2015 it would be dealing with the same challenges the Liberals are today. This train was set in motion years ago.

But as unfair as it might feel, it is also true that where we go from here is entirely up to the current government. I am afraid that by limiting options which might inflict political pain upon itself that the Liberals have painted us into a corner. The options to reduce the deficit are not limitless.

At this point incurring some amount of debt is probably unavoidable without painful spending cuts or tax hikes. But how deep we go is a choice. Asking Ottawa to increase the debt limit is an option the panel suggests. It argues that it isn’t quite as bad, economically speaking, as it might sound. But I’m not sure it is the responsible choice, particularly in a territory with little natural economy of its own.

My fear is that this government will take the politically easy way out and ignore the other options before it. Given the choice between raising taxes, cutting spending and running deficits, politicians seem to prefer deficits.

The Financial Advisory panel “applaud[ed] the government for responding quickly to a recent deterioration in the territory’s finances.” But appointing a panel to study the issue was easy. The legacy of this government will be determined by the more difficult choices it make, or refuses to make, in the months and years to come.

Kyle Carruthers is a born-and-raised Yukoner who lives and practises law in Whitehorse.

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