In C.S. Lewis’s mythical land of Narnia, it was always winter but never Christmas. Thanks to our generous and ever-increasing transfer payment, if Lewis were a Yukon government fiscal analyst he would say that in the Yukon it was always Christmas but only winter half the time.
This year the federal money plane will bring $30,976 per Yukoner. To a hard-pressed provincial finance minister, this must seem like something from a fantasy novel. New Brunswick only gets $5,037 per person. Indeed, the Yukon’s transfer payment is the equivalent per person to over half of New Brunswick’s total economic output.
This has allowed territorial leaders to build up a big government apparatus in Whitehorse.
Local killjoys such as this columnist often wondered how much longer the happy times could last.
Well, we now have a fiscal problem. And not because Ottawa got less generous. No, it’s because of the Minto and Eagle mine failures happening without any major new mines about to open to replace them.
The fall supplemental budget reported that the territory’s net financial assets will fall by $86 million this fiscal year. That’s almost double the figure of $44 million planned in the spring budget. This extra cash burn will take net financial assets -- the territorial debt, in layperson’s terms -- to a record -$530 million.
That’s more than our previous federal borrowing limit, before it was raised in 2020 at the Yukon government’s request to $800 million.
This year is not a one-off. The Yukon government has been spending more than it got from Ottawa or its own tax base for years. Back at the start of the 2017 fiscal year, net financial assets were $93 million. A swing to -$530 million represents a deterioration of $623 million over the last eight years.
When the government recently published the final public accounts for the previous 2023-24 fiscal year, it showed a burst of unplanned spending. As reported in the Yukon News, a projected $48 million surplus turned into a $43 million deficit by the time the books were finalized. Unexpected spending on the Minto mine cleanup was a factor.
Now Minto and Eagle have shone a 1,500-lumen headlamp on an unsustainable fiscal trajectory. The Yukon government has already advanced $50 million to the Eagle receivers, and public estimates for the full remediation range up to $150 million.
If you think there won’t be cost overruns on top of that, I have a uranium claim inside city limits I would like to sell you.
Thanks to our transfer payment, Yukoners are not used to austerity programs. So what would austerity look like?
We don’t know what decisions the Yukon government will make, but the experiences over the last 15 years from Ireland to Britain to various states and provinces give us an idea.
The first thing finance ministers do is cut the capital budget. Large, unstarted projects with limited financial benefits, or which only benefit small groups, are the first to go. Think of things like the proposed $75-million convention centre.
Next will be things that a lot of planning money has been invested in, but which face a lot of opposition or have dubious cost/benefit ratios.
But you don’t want the capital budget cuts to be too Visigothic. If you heard new British finance minister Rachel Reeves present her recent budget, you’ll understand how not investing enough in public infrastructure in the past can store up plenty of problems for today.
This means you need to look at revenue and operating costs.
Tax rises are almost always part of these programs. Indeed, if we need to ask the feds for some emergency fiscal support, they are going to ask why our tax rates are lower than most provinces and why we don’t have a sales tax. This of course would be very hard to do politically when voters are already feeling the inflationary pinch, so tax increases are probably a last resort here.
Which gets us to operating costs.
There are two big options here for finance ministers.
One is a big, publicly-announced program similar to what Jean Chrétien and Paul Martin did federally in the 1990s. Set a bold target to cut operating costs, organize a rational process to review programs across government, and report on progress as you roll it out.
While policy analysts love the transparency and rationality of this kind of process, politicians often shy away from it. The transparency helps opposition mobilize against it. And the rationality part prompts officials to suggest ending programs that have outlived their usefulness, but which are extremely popular with voters.
This gets you to the stealth option. Just freeze every department’s budget in nominal terms. You can claim not to be cutting anything, but then watch as a few years of inflation eat away at the real value of each department’s budget. The pain is diffused into thousands of small decisions. Position X at Department Y doesn’t get refilled after a retirement. Charity Z gets a 10 percent smaller grant. And so on.
Meanwhile, transfer payments and taxes keep rising with inflation. This gradually creates a surplus for the treasury.
There are variations. You can decide not to freeze the health budget, for example, or choose a few unpopular departments and actually cut their budgets.
The problem with this approach is that it forces managers into things like hiring freezes and zeroing out the maintenance budget, which store up problems for the future.
Neither of these operating cost options are enjoyable for politicians.
Which brings up another option: just keep spending and borrowing until after the next election.
Keith Halliday is a Yukon economist and the winner of the 2022 Canadian Community Newspaper Award for Outstanding Columnist. His most recent book Moonshadows, a Yukon-noir thriller, is available in Yukon bookstores.
