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Manitoba needs a solid fiscal strategy to balance its budget

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Is no news always good news?

On Thursday, Manitoba Finance Minister Jennifer Howard delivered a budget completely absent of the shock and awe of last year, when the NDP government hiked a lot of user fees and bumped the provincial sales tax by one per cent to pay for infrastructure.

No significant tax changes, up or down. A wee bit of relief for seniors on education property taxes. No tax hikes, and only minimal, exotic fee increases. Not exactly stop-the-presses stuff.

This is a budget that seems well in line with current trends in provincial fiscal plans. Across Canada, the federal government and the provinces are for the most part taking small, cautious steps with their budgets. The economy is, for the time being, growing and government revenues are going up. However, with the recession still fresh in everyone’s mind, there isn’t a finance minister anywhere interested in big tax hikes or cuts, or big boosts or cuts to spending.

So, how relatively bad or good are we doing in Manitoba?

On the macro side, most of the major economic markers are improving in Manitoba. Own-source revenues are up, both in real terms and as a percentage of GDP. Expenditures continue to go up, but are declining as a percentage of GDP. The economy is growing above the national average, unemployment remains fairly low and the budget deficit is shrinking, if only at a glacial pace.

On the negative side, debt is going up, as is the case in almost every jurisdiction in Canada. But the province’s debt-to-GDP ratio is still manageable.

The summary deficit is now expected to shrink to $357 million, down from an estimated shortfall of $432 million for the 2013-14 fiscal year. Howard is still forecasting she will be able to book a small surplus in her 2016-17 budget.

However, Howard’s efforts to retire the deficit remain vulnerable to unforeseen event, and to an NDP pledge there will be no significant cuts to the core services of government — health, justice, education and family/social services — which make up more than 70 per cent of total expenditures.

For example, the province had to set aside $100 million last year for a cost-shared program with Ottawa to rebuild roads and housing for First Nation communities devastated by the 2011 floods: yet another expense related to the most expensive natural disaster in Manitoba history.

The NDP continues to have trouble controlling expenditures on the core side of the budget, which excludes all Crown corporations and special operating agencies. Core spending last year was over budget by $131 million, with the gross majority coming in increased demands in family services, justice, agriculture and the appropriation for First Nations housing and infrastructure.

Howard has no solution for the combined impact of those two aggravating forces — natural disasters and insatiable need for more money in priority program areas. This is a government that has repeatedly rejected austerity — real cuts to spending — in favour of incremental efficiencies and increased revenues from economic growth.

With this strategy, it is theoretically possible for the province to balance its budget by 2016 as planned, but only if nothing — absolutely not a single thing — goes wrong between then and now.

No significant flood events and no droughts. No extensive forest fires, ice storms or massive blizzards. And no nasty surprises from Ottawa regarding transfer payments. The NDP government needs absolutely perfect weather and predictable revenues from Ottawa for at least two more years.

The chances of that happening are, quite obviously, pretty slim. In fact, the upcoming year already has some bad news queued up and ready to go.

Federal transfer payments — still an important element in overall revenues —have been flat for the last four years. Part of that is a result of lower equalization, a dubious reward for the fact Manitoba’s economy is performing better in relation to the most troubled provincial economies in the country.

However, the other downward force on transfers comes from the ongoing dispute with Statistics Canada over population figures. Manitoba believes it has been unfairly stripped of 18,000 people in population estimates. Regardless of which side you believe, the naked fiscal fact of the matter is there isn’t going to be a windfall coming from Ottawa to support core services that seem to be over budget each year.

Either way, the space between the budget rock and the fiscal hard place is getting smaller and smaller for Howard and Selinger. In 2014-15, the gap could close altogether, squeezing the remaining life out of this government.

Government budgeting is no easy task. However, government should never be in a position where its principal fiscal strategy is a healthy dose of good luck.

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