If Ottawa gave you $1.542 billion, how would you spend it?
My recent column sparked some interesting questions around the wood stove last weekend.
Yukon governments of various political stripes for the last 20 years have been using the same recipe: get more money from the feds, spread it out across all the departments, hire more people, and jack up the capital budget for more “announceable” projects.
The only difference was that, for a while about a decade ago, the government was spending slightly less than it was bringing in. This led to the accumulation of a rainy day fund. Since the later years of the Pasloski government and through the Silver years, the policy has been to spend more than revenue. The rainy day fund is long gone and we are now nine digits in debt.
But in terms of the overall money burn rate, it is a relatively minor difference. For a while we told our friends we were on a diet and only ordered a double cheeseburger. Now every budget is a bacon double cheeseburger.
And as wonderful as a restaurant that only serves bacon double cheeseburgers is, people are beginning to ask if there are other choices. Multiple entrepreneurs have told me they’d like to grow their business, but keep losing key staff to government jobs with higher pay and better benefits. There are so many government construction jobs, it’s hard to find a contractor. Young Yukoners find themselves in bidding wars with newly arrived government employees whose house budgets are fuelled by government salaries and cash winnings from the Vancouver housing lottery.
In economics, there is a concept called “crowding out.” It occurs when government spending gets big enough that it competes with the private sector for resources like workers or construction capacity. You can spot crowding out when you hear entrepreneurs say things like, “There’s demand to grow my business, but I lose staff to government faster than I can hire them.” Or, “I was going to expand my building, but the bids I got were through the roof.”
In this sense, the territorial government has one Department of Economic Development and 17 other Departments of Competing with the Private Sector.
The risk is a spiral where ever-bigger government crowds a shrinking private sector, especially at a time when inflation is already at a 30-year high. This increases our reliance on federal cash, and sets us up for serious pain if there is ever a financial crisis or change of priorities in Ottawa.
So how could the Yukon government spend in a way that helps regular Yukoners and grows the private sector while doing less crowding out?
There were plenty of options on the table that the premier decided not to pursue.
First, the choice to borrow an extra $111 million on top of the transfer payment this year. The number of jobs in the Yukon has already recovered to levels above pre-pandemic days. Instead of providing extra stimulus to an already stimulated economy, this borrowing power could have been saved for when we will really need it. For example, for one of the multiple big renewable power projects we’ll need in the next 10 years to meet our climate goals. Judging from the cost of the Atlin project, these will not be cheap.
In fact, the government could have chosen to put more of its capital budget into paying for the Atlin project. It decided to cover 100 per cent of the capital and operating costs of widening the Alaska Highway, for example, but the costs of the Atlin project and the profits of its investors will be flowing onto your electricity bill for years to come.
Second, the choice to grow the number of government employees. We don’t know how many are planned this year, but in the four years prior to the pandemic the Yukon public service grew by about 200 employees per year. Deciding to hire 200 people in a place with a labour shortage causes disruptions to everyone else. With the exceptions of nurses and teachers, they could have told the other departments to hold the line during the labour shortage.
They could also have delayed some capital projects, especially ones that do not address our major bottlenecks like housing. For example, do we really need to start a major $30-40 million Arts and Heritage Centre in the middle of an inflationary boom when contractor and material shortages are already making new houses more expensive for Yukon families?
There are also plenty of options to help regular Yukoners. Cutting taxes is problematic, since it tends to benefit the richest and also can trigger counteracting reductions in our federal funding formula. But there are lots of workarounds.
The Quebec premier just announced a $500 inflation compensation cheque for citizens with net incomes below $100,000. The Yukon premier’s recent budget speech did not mention the word inflation.
The territorial government could help people struggling with high housing costs by increasing the Homeowner’s Grant and, for renters, a new program like they have in Ontario that helps cover rental costs. This could be tapered off for higher-income Yukoners. It could also ramp up the subsidies for people who add a garden suite or rental unit to their homes.
The Yukon government could boost private sector employment by paying part of the Workers Compensation fees for private-sector employers. Or by promising to cover the planned paid sick leave instead of adding it to small business costs.
There are also options to grow the productive capacity of the economy. The government could announce a 10-year plan with dramatically enhanced subsidies for Yukon households who switch to low-carbon heat, combined with a program to train the trades to do the work. This would give a clear signal to Yukoners thinking of career choices that they had a long and prosperous runway ahead of them. Or it could announce a similar 10-year program to digitize Yukon government operations to encourage more local coding shops.
There are lots more options out there. We’ll see if a future government develops a taste for something other than the bacon double cheeseburger. In the meantime, expect to hear the phrase “crowding out” more often.
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.