Implementing a sales tax and reducing government spending are options available to return the Yukon to a sustainable financial future, says the Financial Advisory Panel.
This morning, the panel released its draft report and recommendations on how to address the negative position the Yukon government has put itself in over the last 10 years.
Economics professor Ron Kneebone of the University of Calgary explained at a briefing this morning that over the last decade, government spending has been growing a little more than revenue taken in.
“We applaud the government for starting to take steps to ask Yukoners what they should be doing to solve the financial problem,” said Kneebone.
He said he’s been involved in similar financial assessments for every province in Canada, though this is the first territory to undertake such an exercise.
Premier Sandy Silver announced the formation of a five-member Financial Advisory Panel when he delivered his first budget last April.
The premier pointed out in his budget that under the current trajectory, the territory would be heading into annual deficits beginning next year.
The first round of public engagement and consultation was held during the summer. The next round of public engagement to gather input on the draft report begins today with a public meeting in Haines Junction, continuing tomorrow in Burwash Landing and Thursday in Beaver Creek.
It ends in Whitehorse in the first week of October.
John Glynn-Morris, the panel’s public engagement consultant, said the intent is to have the final report delivered to the government by no later than the first week of November.
The Yukon’s own tax revenue has also paid for a declining share of overall public spending, falling from 21 per cent in 2012 to less than 16 per cent in 2016, the report points out.
Kneebone said economists are united in their belief that the most effective method of raising revenue is through a sales tax.
Finding efficiencies in government can help to improve the financial picture, and there’s not a large corporation he knows of that can’t find efficiencies, the professor said.
During the public engagement process leading up to today, for example, it was suggested that government cut back on flying staff to conferences and to do more
teleconferencing, he added.
But while finding efficiencies in government will help, that alone will not correct the situation, Kneebone said.
The panel has suggested restraining growth in government spending to two per cent a year would return the territory to a balanced budget by 2022/23.
Kneebone pointed out, however, that curtailing growth in spending comes with the price of restraining services to the public.
Cutting growth in spending even deeper, down to one per cent, would return the territory to a balanced budget by 2020, according to the conclusions of the panel in its draft report.
It says the government could combine restraint in spending with a territorial sales tax.
Implementing a sales tax would see an estimated 25 cents on the dollar being raised from visitors to the territory, the report notes.
Examples of steps that can be taken in the near future were pointed out this morning, including:
• Capping spending growth at two per cent and introducing a four per cent territorial sales tax to balance the territorial budget by 2020/21;
• Capping spending growth at 1.5 per cent and introducing a four per cent territorial sales tax to balance the territorial budget by 2019/20.
• Capping spending growth at 0.5 per cent and introducing a two per cent territorial sales tax in order to balance the territorial budget by 2019/20.
Each per cent of a sales tax is equivalent to $7 million, the report points out.
It says the government can do nothing and hope for the mining industry to heat up and provide additional revenues, as has been forecast by the Conference Board of Canada.
“The panel also notes the risk of doing nothing,” says the report. “If increasing revenue does not materialize, Yukon’s fiscal situation will become more difficult to manage at a later date.”
Kneebone said there are choices to be made, but there is no free lunch to be had.
If you’re digging yourself into a hole, the quicker you stop digging, the sooner you can crawl out of the hole, the professor suggested.
The report also points out medium- and long-term options that can assist with the territory’s financial health, right down to addressing the needs of aging Yukoners by helping them to stay in their homes longer to avoid the higher costs of being in care.
Perhaps there are efficiencies to be gained through developing partnerships between the government and private sectors, partnerships with First Nations, says the report.
In all, there are 26 options presented.
They include reducing personal and corporate taxes, and implementing a savings fund in the territorial tax system where money can be deposited when tax revenue exceeds the benchmark set for that year.
The fund could be drawn upon in years of not so plenty, the report suggests.
Eric Clement of the Department of Finance confirmed this morning the Taxpayer Protection Act requires the Yukon government to hold a referendum before introducing any new taxes.
A referendum would have to be held if a sales tax was introduced, or the legislation would have to be amended, he pointed out.
The impending carbon tax, he explained, is a federal tax.
In its options to be considered, the panel has recommended changes in the territorial tax structure which includes a universal cost-of-living tax credit of $300 per year.
“Undertake a review of the Yukon mining royalty and tax regime,” the report suggests.
“In particular, explore the possibility of increasing the rate on placer mining operations.”
Kneebone and panel chair Norm McIntyre, a Whitehorse chartered accountant, said they had no reason to doubt the Liberal government’s forecast of future deficit budgets presented in last spring’s territorial budget.
McIntyre noted the work of the panel has been completely independent of any government influence.
In his first budget, Silver forecast an annual budget deficit of $49 million in the 2018/2019 fiscal year followed by a $58-million deficit the year after and a $42-million deficit in the 2020-2021 fiscal year.
In addition to Kneebone and McIntyre, the panel includes Grace Southwick of the Kluane First Nation, Tim O’Neal, former vice-president and chief economist at the Bank of Montreal and Trevor Tombe, assistant professor of economics at the University of Calgary.
During the vast majority of the 10-year overspending pattern the advisory panel cites, the territory was governed by premiers/Finance ministers Dennis Fentie and Darrell Pasloski of the Yukon Party.
Silver’s Liberal cabinet was sworn in last December.