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Yukonomist: The Yukon’s number one election issue

The choice is obvious

What is the top federal election issue for the Yukon?

I’m not talking about whichever shiny policy object has garnered the most mentions from pundits or the media in the latest news cycle.

I mean the policy that the next government, of whatever colour or combination of colours, could change that would have the biggest impact on the Yukon.

The answer is the transfer payment. Nothing else even comes close.

You can think of more alarming possibilities, like Ottawa selling us to Donald Trump, but they are vanishingly unlikely. You can think of changes to other federal programs, like the carbon tax or immigration policy, but their impact would be tiny compared to the ructions a major change in our transfer payment would cause.

We got off relatively lightly from federal austerity in the mid-1990s (even though it didn’t feel like it at the time). For example, Ottawa’s deficit-fighting 1995-96 budget merely froze our Territorial Formula Financing entitlement at 1994-95 levels. Even including cuts to other federal programs, the impact doesn’t compare to what might have happened in 2008 if Canada had been hit as hard by the global financial crisis as, for example, Ireland or Portugal.

If the federal government really had to economize in a big way, it would be very hard to do without reducing transfers to provinces and territories.

We are so totally dependent on the federal transfer that a major cut would cause an exodus the likes of which the Yukon hasn’t seen since news of the Nome gold strike reached Dawson City in 1899 and 8,000 people stampeded out of the territory.

So what does the election mean for our transfer payment?

Political risk analysts would tell us to look at both intentions and capabilities.

In terms of intentions, things look good. Neither of the two parties likely to win the most seats — Liberals and Conservatives — has announced even a hint that they intend to cast a beady eye on Territorial Formula Financing. Nor have the NDP or Greens, who might end up with significant influence in a minority government situation. Indeed, all of these parties are doing their best to promise increases in federal programs across the country, including the Yukon.

As for the Bloc Québécois, a party that also might end up with a lot of influence in the next parliament, their platform doesn’t mention the Yukon or territorial financing. While they are probably not enthusiastic supporters, neither do they seem to have identified it as federal policy worth fighting.

They do have a proposal to rejig the federal equalization program to take money from provinces with above average carbon emissions per person (for example, Alberta) and transfer it to those with lower emissions (for example, Quebec). Ten years ago, this would actually have helped the Yukon if it had been applied to us. Not currently, however, since we’ve stopped building renewable power plants and ramped up our LNG appetite. In any case, the Bloc’s proposal is unlikely to win favour with the mainstream parties.

In terms of spending intentions overall, the best outcome for our transfer payment is continued federal spending, but not so much spending that federal finances end up on thin ice. This happens to be in line with the Liberal, Conservative, Green and NDP platforms, which include continued federal deficits but no increase in the national debt as a percentage of our economy. This percentage would be slightly lower with the Conservative or Green plan since they promise to balance the budget within five years, but the difference is only a few percentage points.

So much for intentions. Let’s talk about capabilities, which is where hard-headed analysts spend most of their time.

Here the news is also quite good. The hard fact is that the current federal net debt is 31 percent of our economy. The total net debt will be about $700 billion at the end of this fiscal year. To put this in context, Kevin Milligan, a professor at UBC’s Vancouver School of Economics, points out that in 1995 the federal net debt was 68 percent of the economy, more than double. One would have to add $830 billion in new debt to get us back into such dangerous territory.

I’m not saying that doubling the national debt would be a good idea. I mean that the feds have a lot of fiscal firepower if they ever needed to borrow and spend in the event of a severe economic downturn.

Economists at Scotiabank recently estimated what a recession in 2019 or 2020 might look like, and how much federal spending might be required to minimize the downturn. They assume the Bank of Canada would lower interest rates again. In fact, they assume the bank would even push interest rates into negative territory, as in some European countries. However, the bank probably wouldn’t be able to go below -0.5 per cent.

This means the federal government’s spending power would be needed to stimulate the economy. The Scotiabank economists look at scenarios where federal spending (and deficits) rise by $25 billion to $125 billion per year.

These are big numbers. But the good news for the Yukon is that the federal net debt is so low that Ottawa can afford that kind of recession response without feeling pressure to cut our transfer payment.

It’s usually a good thing when your number one issue has not turned into a political football during an election campaign. Our transfer payment appears safe, at least for now. That means I’ll leave it to you to decide what the Yukon’s second most important issue is, and how you should vote next Monday.

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 and received the bronze for Outstanding Columnist in the 2019 Canadian Community Newspaper Awards.