Yukonomist: Stimulating the already stimulated

Yukonomist Keith Halliday

As I read the new territorial budget, the implications were pretty clear for government contractors or anyone in the trades: you should raise your prices. It’s going to be a big year.

Some quick facts.

The budget’s companion economic forecast shows that employment has more than recovered from the pandemic. There were 1,000 more jobs in the Yukon in December 2021 compared to the December before the pandemic.

There is a labour shortage. Canada’s job vacancy rate, which measures the number of job openings employers are looking to fill, is at a record 5.4 per cent as of November. The Yukon figure was higher than that, and the second highest in Canada.

Even hard-hit sectors are recovering. Revenues for “food services and drinking places” was higher in November 2021 than January 2020, just before the pandemic.

There was welcome news on housing. Construction started on more than 600 new units in 2021, compared to levels that bounced around between 200 and 400 units per year over the decade from 2010 to 2019.

On top of this bustling economy, the money plane from Ottawa will deliver an extra $47 million in the coming fiscal year, taking the total to a record $1.542 billion.

On top of that, the Yukon government will borrow an extra $111 million to juice spending further.

Total spending will be $1.742 billion, up a stonking 20 percent over the three years since the last pre-pandemic fiscal year. In fact, if you add back accounting adjustments for things like tangible capital assets and government loan programs, the total dollar footprint of the Yukon government will be $1.965 billion. Breaking the Two Billion Buck barrier is probably only a year away.

Yukon government tax revenue will fall $10 million, with higher revenues from land sales, liquor sales and continuing care fees barely making up the loss. The percentage of Yukon government revenues that it generates from its own taxes and fees will fall to 12.1 percent. Our reliance on the federal government will get deeper.

Budgetpalooza 2022 will stimulate an already stimulated economy. There is a cliché among economists that the job of a prudent central banker is to take away the punchbowl just as the economic party is getting started. This budget is more like the Redbull truck pulling up at a frat house on Friday night.

Economists will be fascinated to see how much the extra spending results in new programs and infrastructure, and how much gets eaten up by higher prices. On top of the surge in private housing starts, the Yukon capital budget is expected to be $1.5 billion over the next five years. Plus, the City of Whitehorse plans $131 million in capital spending from 2022 to 2025.

It’s unclear how many new government jobs will be created with the new spending. Nor can we predict what percentage of those new government employees will be hired out of private sector jobs versus new arrivals from Outside.

Entrepreneurs should plan for higher wage bills. Not only is inflation in Canada at a 30-year high, but there will be increased competition from the government in an already tight labour market. Average weekly earnings for the first 11 months of 2021 rose 3.8 percent compared to the same period the year before. Accommodation and food weekly earnings grew over 10 percent, while transportation and construction were also above average.

Employees, on the other hand, can enjoy a seller’s market. Contractors and the trades shouldn’t be the only ones to get a raise in 2022.

People often ask me if the Yukon government can keep increasing its spending this fast. Growing 20 percent over three years implies doubling in size every 11 years. Both the principles of mathematics and the government’s federally-imposed debt ceiling suggest this can’t go on forever.

But it can for now. So it is.

We were very fortunate that, when the pandemic crisis hit us, the federal government moved so generously to support the provinces and territories. Next time we may not be so lucky. We may end up regretting borrowing $2,500 per Yukoner in a year we didn’t really need to.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He is a Ma Murray award-winner for best columnist.