The first budget tabled by the Yukon Party government in its second majority mandate is in deficit.

The $861.9-million budget for the 2007-08 fiscal year, tabled in the legislature this afternoon, shows the territory will be $2.6 million in the red.

The spending shown in the main estimates is the largest in the Yukon's history, exceeding the $784 million originally booked last year.

However, with the end of the financial year, the supplementary budget is now showing the government spent more than $867 million in 2006-07.

In a 29-page budget speech, Premier Dennis Fentie, who also serves as the territory's Finance minister, told the legislative assembly the money allocated for the year will be used to implement the election commitments made in October 2006 to build a brighter future for the Yukon.

'We are proud of this budget and all the good work it will do,' said Fentie.

Operations and maintenance expenditures for the year are estimated to be $649 million for the fiscal year. Capital expenditures are currently set at $212 million.

Approximately $138.8 million of the budget is showing as recoverable.

A deficit budget has not been tabled by the Yukon Party government for the last two years.

The government closed off the 2006-07 year with a $46.6-million surplus.

Finance officials report the small deficit has to do with timing and when money is coming to the territory from the federal government and when it is being spent.

The more important number for the financial health of the territory is the net financial resources of the territory, which show the Yukon in an $87.5-million surplus position for 2007-08.

The figure is based on a new accounting method that enables the government to take into account the value of all the government's assets, including buildings.

There are no tax changes in this year's budget.

The government is projecting it will bring in $9.7 million in corporate income tax. It's a 138 per cent increase in revenue from the tax, connected to the end of the Yukon's mineral exploration tax credit on March 31.

Approximately $41.2 million in revenue will be generated from personal income taxes, making up five per cent of the territory's total budgetary income.

The Yukon's budget income for the fiscal year is set at $823.8 million, 72 per cent of which comes from transfers from the federal government.

The largest transfer from Ottawa comes through the $543.6-million territorial financing formula.

The money is being directed through a new agreement with the federal government on the formula used to calculate the transfer to the territories. It is approximately a $26-million increase compared to last year.

The arrangement is based on a gap-filling approach that looks at the territorial revenues based on a representative tax system.

'I cannot overstate how important this new territorial funding formula arrangement is for the Yukon,' said Fentie.

The agreement was just announced by the federal government in its federal budget tabled in the House of Commons last month.

'It is perhaps the most important achievement of our government to date.'

The money will help promote long-term and sustained fiscal stability for the future, said Fentie.

The Yukon will also receive $22.5 million from the Canada Health Transfer, $6.3 million for the Territorial Health Access Fund, $9.5 million for the Canada Social Transfer, $4.5 million for the patient wait times guarantee and $5 million for the ecoTrust for clean air and climate change.

An additional $25 million that will be provided to the Yukon each year over the next seven years from the federal government for infrastructure is not included in this budget. It is expected to appear in the supplementary budget when it is tabled in the fall.

The $5.4 million from the Northern Strategy administered by the federal government is booked under the operation and maintenance of the Executive Council Office for a variety of projects in the territory.

The accumulated surplus for the 2007/2008 surplus year is $532.3 million.

The budget shows small increases in the operation and maintenance of the Yukon's roads after a report regarding the Department of Highways and Public Works was released by the auditor general earlier this year.

The Department of Health and Social Services will have the highest costs in operation and maintenance, topping the $200.9-million mark. The Education department ranks next in line with $115.9 million.

It is Highways and Public Works, however, that will have the largest capital budget, at $72.3 million. Community Services ranks with the second-largest capital budget at $45.6 million.

When looking at the total budget, Health and Social Services continues to top the list at $213.9 million.

Highways and Public Works is second with $151.5 million. Economic Development is next in line with a total budget of $125.9 million.

The total budget and operations and maintenance (O&M) spending for the other departments, include:

Community Services at $97 million, $51.4 million O&M;

Economic Development at $15.8 million, $6.4 million O&M;

Energy, Mines and Resources at $40.3 million, $35.1 million O&M;

Environment at $24.9 million, $22.3 million O&M;

Justice at $46.6 million, $42.8 million O&M;

Tourism and Culture at $21.2 million, $15.8 million O&M; and

Yukon Housing Corp. at $30.3 million, $12.4 million O&M.

'I believe a majority of Yukoners will say that we are off to a very good start in fulfilling the vision we offered to Yukoners on October 10, 2006,' said Fentie.