Yukon News

Deficit spending a risky proposition

Kyle Carruthers

Pointed Views Kyle Carruthers Wednesday May 3, 2017

The Yukon Party dynasty may be gone but the new Liberal government has opted to continue the trend of spending down our financial reserves.

The government may be predicting a small surplus for the 2017-2018 fiscal year, but as has been noted in the past, it can only make that claim because it will acquire some new capital assets, not because it spent less than it brought in. The government’s net financial assets — meaning the amount of money it has available — will decline by $84 million this year.

Assuming everything goes according to plan we’ll finish the upcoming fiscal year with only $9 million in the bank and, if current projections hold, we’ll go into the red shortly after that. That is a far cry from the hundreds of millions we had available just a few years ago.

The Liberals can’t shoulder all the blame for our declining fortunes. This is a train that has been in motion for a while. While boasting of surpluses, the Pasloski-led Yukon Party government presided over a precipitous drop in our fiscal situation, and it can’t wash its hands of all the blame the day it leaves office (as much as the new Opposition’s statements would imply that it would like to do just that).

Nor can it pretend that matters would be significantly different today if it were in power. There was nothing in its platform last fall to suggest that it had a plan to deal with the gap between revenues and expenditures.

But nor can the new government perpetually blame the last one for where we go from here. It is in the drivers seat now. Spending more money than you bring in is a choice. A defensible choice perhaps, but a choice nonetheless. What concerns me most about what we heard last week wasn’t the budget in the annual sense of the word. It was the lack of any meaningful plan to turn things around with deficits and a continued financial decline through 2021.

Simply hoping that things will turn around some day has been tried and has failed elsewhere. It has been the reigning orthodoxy of the Ontario Liberal Party – to name just one prominent and concerning example – for more than a decade, although the province just tabled its first balanced budget since 2008, it still faces a debt of more than $330 billion.

That may well be because debt reduction typically doesn’t present many politically appetizing solutions.

The Yukon government finds itself in the same difficult position that governments in much of the developed world find themselves. They face the demands of their citizens for more spending on new and better schools, hospitals, roads and other programs on one hand. And on the other they face the demands of capital to create an “attractive investment environment” (meaning low taxes) combined with the populist wrath visited upon any politician who suggests that we might need to contribute more to the functioning of government.

For the first part of the 21st century some governments were able to have their cake and eat it too: economic growth for increased spending and reduced taxes all while balancing the books. The spinoff of growth elsewhere spilled over to the Yukon in the form of perpetually rising transfer payments that Ottawa could easily afford.

But since the “great recession” of 2008, that has become increasing difficult. Canada as a whole was able to buck the trend of sluggish growth to some extent thanks to a petro-boom in certain regions of the country.

But that’s over now and it is reflected in significantly lower growth in our transfer payments. Ottawa is dealing with challenges of its own and that puts constraints on how much it can increase the amount it doles out year after year.

To the extent that you can separate the two, ours is a problem of revenue, not expenses.

It may fit conveniently into some narratives that the problem is simply that big spending Liberals are in charge now. But spending isn’t increasing any more than it has in years past. In fact it is less. The government is projecting that its annual operations and maintenance spending will increase by about $138 million through 2021, which is a slower rate of growth than we witnessed under the ostensibly conservative Yukon Party government.

Premier Sandy Silver’s much-vaunted financial advisory panel will spend the next year coming up with a plan. As with so many other expert panels and inquiries I am skeptical that this one will come up with anything we don’t already know. After all, the government already has legions of staff devoted to studying these issues, and the question of how to grow the territory’s economy has been the central point of discussion in the public discourse forever.

There is certainly some waste that can be trimmed to help close the spending gap but our practical ability to extract savings in this manner shouldn’t be overstated.

Ultimately our choices are to bring our expectations about what government can do for us more in line with its capacities at this juncture in history, and our willingness to pay tax. Or we can pin our hopes on the renewed boom times that are just around the corner and will rescue us from the hole we are digging.

Kyle Carruthers is a born-and-raised Yukoner who lives and practises law in Whitehorse.

1 Comment

The Dude wrote:
2:17pm Tuesday May 9, 2017

Myself, I’m having a tough time envisioning where YG could trim costs.  Sure, they could lay off a bunch of policy analysts (great scape goats), but it would take more than a few to make a difference.  And really, laying off YG employees creates its own problems, as government incomes pretty much drive this territory, like it or not.  Also, O&M is going to increase as government infrastructure ages and requires more investment to keep it going.

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