Time for a payroll tax on fly-in-fly-out workers

Have you noticed who’s boarding in Zone 1 for the Whitehorse flight recently? It’s not just mining executives and government officials who regularly make the Ottawa run.

I recently sat near some FIFO, or fly-in-fly-out, mine workers who had luggage tags showing elite frequent flyer status. If you fly a long distance to and from the Yukon every two weeks, the miles rack up.

The Yukon’s rainy day cash fund will run out this year as spending continues to outpace revenue, as it has since 2016. Controlling spending is hard work and unpopular, as is raising taxes on voters, so any government would want to find new sources of cash that can’t vote.

This logic puts the wallets of FIFO workers in the middle of the spotting scope. With the number of mines in operation in the Yukon slated to rise, and unemployment already at record lows in the Yukon, we can expect a large portion of the new mining jobs to go to Outside workers.

Our neighbours in the N.W.T. have had a payroll tax since 1993. It skims two per cent from money earned working in the N.W.T. and raked in over $40 million in 2017. That’s more than fuel and tobacco taxes combined, and over a third of the personal tax revenue stream, which is the N.W.T.’s biggest source of tax revenue.

We don’t know how much a payroll tax would raise here since there aren’t good public figures on the number of FIFO workers. But if we raised something in the range of the N.W.T.’s $40 million take, that would go a long way to closing the Yukon government’s $51 million cash deficit this year.

The payroll tax is a good idea for a bunch of reasons.

First, it captures a greater share of the economic activity associated with mining. A sizeable portion of this naturally leaks outside the territory as mines hire Outside contractors and workers, buy diesel and equipment, and so on. A payroll tax ensures a high percentage stays in the Yukon.

In particular, it skims revenue even from mines that are unprofitable. Mines on crown land exploit a public resource and benefit from public infrastructure and have environmental risks and costs. This is fine when a profitable mine creates years of jobs, personal and corporate tax revenue, and royalty payments.

But there have been mining projects that pulled public resources out of the ground, but didn’t pay much in the way of tax or royalties. Unprofitable mines don’t pay corporate income tax, and if a mine shuts early before it has recovered its exploration and development costs it may leave a hole in the the ground without having paid much into public coffers.

Importantly, a payroll tax also captures other types of temporary workers. This could be seasonal staff, temporary project workers or even people who work most of the year in the Yukon (and use our public services) but then move away shortly before the tax residency deadline on Dec. 31.

The territorial government’s financial advisory panel recommended exploring a payroll tax, although their recommendation is limited to FIFO workers at “large-scale mining operations.” They point out that the payroll tax could be deductible for Yukon residents, so it would have no impact on Yukoners.

One downside is that this may annoy mining companies, who already face high transportation and energy costs here. They can’t vote, but they have other cards to play. They invite friendly ministers to photo opportunities, and some donate generously during election campaigns. Since employers deduct the payroll tax from paycheques, a payroll tax is extra work for them. They also might have to bump up the salaries they offer Outside workers to make up for the tax, which would increase their costs.

One question is how high to make the tax. The N.W.T.’s two per cent rate might be the place to start, but I would investigate higher rates too. A higher rate would make out-of-territory workers more costly for firms, although it would also encourage people to move here for tax purposes. This would also trigger increases in our transfer payment, which works out to over $20,000 per Yukoner after population figures are crunched through Ottawa’s formula.

The path of least resistance for the territorial government is to cover the cash deficit through borrowing. That conveniently leaves some future government to deal with spending control and revenue generation. However, as debt levels and interest rates keep rising, this will get increasingly expensive.

I suggest they accelerate looking at a payroll tax on all non-resident workers.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.

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