The Yukon cabinet has a major problem. A problem that is both large and probably unique among governments across the planet.
It has too much money. Way too much money.
After the latest budget update published this week, it looks like the Yukon government will have $176,819,000 in cash on hand at the end of the current fiscal year. That’s over $4,800 per Yukoner.
It’s also a problem that’s getting worse. The cash mountain was supposed to be only $140 million when the budget was released last spring. In just six months, the government has somehow ended up with another $37 million in its coffers.
Most places with this kind of surplus government cash are oil producers. However, the slide in oil prices from over US$100 per barrel in June to the US$80 range is rapidly solving their cash surplus problem. Iraq’s budget goes into deficit if oil prices are less than US$93. For Saudi Arabia the figure is US$87. For Russia, it is over US$100.
Meanwhile, the Yukon’s equivalent to oil - transfer payments - remains rock solid.
Let’s just luxuriate for a moment to think of how much money we have.
The cash surplus would pay for a tax holiday of two years and five months on Yukon personal income tax. Yep, that’s a zero percent Yukon income tax for over two years.
Or for a 14-year holiday on booze and fuel oil taxes. Think of it: “Tax free booze and fuel for a decade!” Now, that would be a campaign slogan!
Thinking a bit bigger, the cabinet could take the entire population of the Yukon on the rockingest group holiday ever to the Hard Rock Hotel Cancun in January, which is billed as the “ultimate beachfront celebrity playground” with a “Mexican setting and cosmopolitan flair.” Two weeks winter vacation for the entire population, including airfare, would still leave the Yukon government with over $60 million to spend on boring things like infrastructure and hospital gadgets.
Or the Yukon government could declare “reverse bankruptcy.” Like when a debtor says he can’t ever pay back his loans, the government would admit it can’t possibly spend all that money and just write a cheque for $4,800 to each Yukoner.
More prosaically, the government could try harder to find things to pave. Why not build a second bridge to Riverdale to put an end to the agony of Riverdale Rush Minute? Or why not double-lane the Alaska Highway to Marsh Lake, since it also has congestion several minutes per day?
What about giving some of the money to the City of Whitehorse? Nice idea, but the city has a similar problem. Property tax revenues have soared from $23 million in 2008 to $33 million in 2013. That’s an increase of over 40 per cent, handily outpacing both inflation of around 10 per cent and population growth of 12 percent over the period. The city generated a tidy annual surplus of $4 million in 2013, while reserve cash in the bank has also nearly doubled to $27 million since 2008.
The city government has so much money it is considering building a new multi-million dollar headquarters building for itself. Where is the electoral glory for a territorial politician to underwrite that?
Having this much money in the bank is a political problem. When interest groups ask the government for money, they will usually grudgingly accept the response that “we really like your project, it’s just that health/education/something costs are spiraling out of control.”
People generally get mad when your answer is “we would give you the money, it’s just that we’d rather keep it in the bank earning zero per cent interest.”
The $177 million figure exposes the government to a lot of political risk. Even though some of it is probably already allocated to future projects, and it’s a good idea to have some kind of cash reserve, the headline figure of $177 million will attract a lot of attention. Everyone knew the Yukon government was well funded. Now they know it has an absolutely ginormous pile of cash it is sitting on as the next election approaches, likely some time in 2016.
The cabinet probably has some kind of secret plan to spend its way to victory in the next election. If so, it had better start spending soon. The most recent budget update boosted spending by only $30 million this year, which hardly makes a dent in the cash pile. They’ll have to do much better than that in next spring’s budget.
The problem is that it’s not easy to spend that much money sensibly in a short period. Things that can deliver decades of benefits - like renewable energy projects or a second Internet line - take years to plan, permit and build. There are some projects in the pipeline such as affordable housing in the communities or the new hydro dam project, but given how slow the Yukon government works I wonder how many will actually get built before the election.
My guess is that in the next budget they’ll cut some taxes, which is quick and easy to do. Then they’ll spread millions over the Community Development Fund and groups that receive government grants and contributions. Then, to insulate themselves from criticism they haven’t done anything for the long-term benefit of the territory, they’ll announce big bucks to projects like the new hydro dam, internet cable and affordable housing (even if no construction actually gets accomplished before voting time).
They’ll also boost the capital budget, so there are lots of projects for local construction firms to work on.
In theory, they might even make some kind of announcement of a new fiscal partnership with First Nations, essentially sharing some of Ottawa’s bounty with First Nation governments for self-government implementation. This would make some sense since the Yukon government’s budget has grown enormously since the self-government agreements were signed, but First Nations funding has grown much less. However, this idea seems out of character with how the current government works with First Nations. Anything they announce now would be transparently political.
In any case, they will be under huge pressure to spend. Otherwise, they risk entering the next election with a huge pile of cash for the Opposition to make promises with, after having alienated every interest group in the territory by saying no to their requests. Imagine if the legacy of the Yukon Party government is giving newly elected NDP Premier Liz Hanson over $100 million to spend on poverty programs, raises for government workers, and social housing projects!
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Channel 9’s Yukonomist show or Twitter @hallidaykeith