The Yukon’s modest deficit is no reason to panic — yet
The Yukon’s new Liberal government recently did its part to keep tradition alive by continuing the time-honoured practice of assuming office and claiming that the cupboards are bare.
The government recently announced that rather than the $9.5-million surplus the Yukon Party predicted last spring, we will end the fiscal year with an $8-million deficit.
Not taking the blame lying down, the Yukon Party shot back, as deposed governments tend to do, rejecting any suggestion that the current fiscal circumstance we find ourselves in as a territory is somehow its fault.
When we left office, claims the opposition, we were in a surplus. It must be something these Liberals have done.
So where is the truth in all this?
The first question is whether it’s important to find someone to blame to begin with. While $8 million might sound like a big number to you and I, in the grand scheme of public expenditures the figure is not that significant.
We are talking about a government with $1.1 billion in annual expenditures, so a $9.5-million surplus like the one that the Yukon Party projected hardly left much margin for error. Budgeting is an inexact science. It shouldn’t come as much of a surprise that things didn’t turn out exactly as predicted.
To go from a $9.5-million surplus to a $8-million deficit means a net change of $17.5 million or less than 1.5 per cent of total government expenditures. In 2014-2015, for instance, the government was off in its projections by $13 million — albeit in the opposite direction.
But this is politics, and blame is the name of the game.
And while the Liberals could have been able to avoid a small deficit, the broader fiscal trajectory we are on was largely set by the Yukon Party. The Liberals have now been in office for less than two months and so far, have had little opportunity to steer the direction of government spending.
It is fair to say the Liberals could have looked for immediate ways to bring the budget into balance. They cannot completely escape responsibility. But I’m not sure it is necessarily in the territory’s interest to have the government make $8 million in hasty cuts more than half way into the fiscal year just in order to claim that they have balanced the budget.
This is especially true when you realize that the concept of us having a surplus this year was something of an accounting mirage to begin with. After all, unless you are up on your public accounting jargon, there is a good chance that the terms surplus and deficit don’t actually mean what you think they do.
Many people likely understand a surplus to mean that a government brings in more money than it pays out, and a deficit to be the reverse. If that is the case you may be concerned to know that, even if we’d lived up to the previous government’s expectations, we would have blown the bank by around a hundred million dollars this year. Last spring, when the then-Premier Darrell Pasloski announced his government’s budget, we were projected to bring in $1.1 billion in revenues through taxes and transfers from Ottawa while paying out just over $1.2 billion.
We only closed that gap and arrived at our “surplus” by factoring in an $87-million “change in non-financial assets.” In other words, we weren’t actually in a deficit even though we spent more money than we brought in, in part, because we got $87 million in new stuff.
The problem is that to buy this stuff and achieve a surplus the territory had to deplete some of its financial assets or, in laymen’s terms, tap into our savings.
Yes, Darrell Pasloski and the Yukon Party could predict a surplus last spring. But they could do it only by spending our assets, which have declining the past few years from $223 million in 2015 to $153 million in 2016 to wherever we end up this year.
This isn’t necessarily a bad thing. After all, the capital projects the government has been undertaking have served as a welcome form of economic stimulus at a time when other sectors of our economy have been struggling to create out jobs.
In any event, we should put the finger pointing over surpluses and deficit into perspective.
We won’t have another $87 million left to do the same thing next year. This puts the new government in a bit of a bind in terms of its options for new spending, and makes Sandy Silver’s cautious approach to spending promises in the last territorial election seem well advised.
If we don’t want to deplete what little stockpile of money we have left — and end up in a situation where we have to start borrowing — the government is going to exercise some spending restraint. And with a stagnant economy, that restraint could come at the expense of jobs.
Kyle Carruthers is a born-and-raised Yukoner who lives and practises law in Whitehorse.