Winnipeg Free Press - PRINT EDITION

Critical budget faces bumps

Getting finances back in black will be hard

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The budget is one of the most important things the province does each year. And yet, one wonders how many people are paying attention.

Voter turnout is down. Cynicism and apathy are way up. It may be easier for many people to tune out all talk of politics and governing than to keep track of the most recent developments.

Even so, on April 16 the government of Premier Greg Selinger will deliver a new budget for the 2013-14 fiscal year. It is a very important document, with real implications for core government services, civil-service employment and your wallet.

The basic facts are thus: Manitoba continues to struggle with a nagging deficit that last year totalled almost $540 million. The deficit is fuelled by slow economic growth, flagging revenues and increasing costs in core services such as health care, education, family services and justice.

Finance Minister Stan Struthers had projected that the deficit would go down last year; in fact, it went up by $107 million. These are tough times.

At the same time, the province is projected to spend tens of millions of dollars fighting spring floods. In 2011, floods cost the treasury nearly $500 million. Although the exact magnitude of this year's flood is not yet known, it is likely to be expensive, making deficit reduction in 2013-14 a tough act.

What else should you keep your eye on when the budget is tabled next week? Consider these five critical issues:

 

Revenues

Revenues will no doubt be projected to grow in this upcoming fiscal year, but not by much. Slow economic growth -- now projected to be less than two per cent nationally -- will keep own-source revenues down. That will put pressure on the province to find relief on the expenditure side of the equation.

And what of federal transfers? The recent federal budget shows Manitoba will receive $3.363 billion this year in support for heath, post-secondary education and social services, along with equalization payments.

That's a lot of money, but the worrisome part is it's the same amount of money Manitoba received last year. Total transfer payments are essentially frozen at 2012-13 levels.

Last year, 24 per cent of Manitoba's total revenues came from Ottawa, which is in the middle of the pack nationally. Transfers cover 32 to 34 per cent of total revenue in Atlantic Canada but only nine per cent of revenue in Alberta and eight per cent in Newfoundland and Labrador.

The biggest concern this year and for the future is that federal transfers in all areas continue to cover less and less of overall provincial costs. Whether it is Legal Aid, health care or social services, federal transfers simply haven't kept up with the increases in cost. That trend is expected to worsen in the next decade.

 

Expenditures

Spending has already slowed in Manitoba, but will it actually decline? Not many provinces have actually called for less spending than the previous year, but almost all of them have tried to slow the rate of growth in spending. That has still required significant spending cuts, including layoffs.

Last year, Manitoba found an estimated $128 million in savings through the reduction of regional health authorities, the merger of Manitoba Liquor and Manitoba Lotteries and other austerity measures. Critics are watching closely to see if Struthers lived up to those pledges. Sources confirmed the upcoming budget will contain similar savings going forward.

The real challenge is to avoid overspending. In the 2011-12 fiscal year, the province suffered $437 million in net flood costs, most of which were unavoidable. However, in this last year, it overspent in several budget lines to the tune of $120 million. With another spring flood coming, it will be difficult for Struthers to hold the line without some resolve on spending.

 

Taxes

Across the country, governments are tinkering with taxes to boost revenues in a period of slow economic growth. In fact, many of the taxes that went down in the 2000s, when the economy ran hot and revenues were lush, are now creeping back up.

Most governments, including Manitoba, are increasing fees, surcharges and other soft revenue streams. Even Ottawa found extra revenue by boosting tariffs on import items.

However, many governments, including British Columbia and New Brunswick, are hiking major taxes, including personal and corporate income taxes. B.C. also significantly increased its monthly health-care premium.

Governments seem to be wagering the public in general, and special interests in particular, will tolerate some measure of tax increase to protect core government services without prolonging deficit financing.

In Manitoba, could major taxes go up? The province could use the additional revenue, but it would come with political risk. Even though taxes were not cut here as deeply as in other provinces, this is still a government that avoids any suggestion of raising taxes. The smart money says this trend should continue.

A motivating factor for Struther's resolve is that taxes here are, in general, higher than other jurisdictions. Direct comparisons of provincial taxes are difficult, as each province has radically different tax brackets. However, it is correct to say that Manitoba's taxes are, in most areas, at the high end.

Maybe because of that, Manitoba is expected to keep pledges for some modest tax cuts made in previous budgets.

Manitoba increased the Basic Personal Exemption (BPE) by $250 on Jan. 1 this year and will do the same Jan. 1, 2014. Over the past four years, bumps to the BPE have taken about 22,000 Manitobans off the tax rolls and cost the treasury about $77 million.

Manitoba will also bump the education property tax credit for seniors by $75, and increased benefits by lowering the income threshold to qualify to $32,500 from $40,000.

 

Collective bargaining agreements

Over the past three years, the province has benefitted from wage-freeze agreements with many of the largest collective bargaining groups. This includes the Government Employees Master Agreement (GEMA), doctors, nurses and employees of some Crown corporations. In the 2010 and 2011 fiscal years, this saved the province more than $120 million. However, after two years of voluntary wage freezes, the province is scheduled to start paying wage increases in this fiscal year.

Doctors, who accepted a two-year freeze, are scheduled to see their fees go up by 6.4 per cent this year, and 4.2 per cent in 2014. The GEMA group, the largest of all bargaining units, sees a 2.75 per cent wage bump this year.

The province recently completed a deal with employees of Manitoba Public Insurance for a wage freeze this year and a 2.75 per cent increase next year.

This year, it's expected the province will ask 5,000 hospital support workers to do their part.

 

The official Opposition

The Opposition Progressive Conservatives see a big opportunity brewing for them as long as Struthers continues to struggle in eliminating the deficit.

The Tories are already seen by many as better at managing the economy. To date, however, voters have not taken out their concern about the sagging economy on the ruling NDP. That raises the question of whether there is political hay to be made out of this budget.

Pointed and intelligent commentary about the budget is always a valuable political asset. To date, however, there is no sign this PC party, under the direction of new leader Brian Pallister, has upped its game since last year.

Tory attacks on NDP fiscal policy and performance have been limited to hyperbole, and poorly constructed hyperbole at that. If the Tories are to weaken NDP support, particularly within the city of Winnipeg, they will have to come up with a dynamic new idea of their own that slays the deficit while protecting core services. So far, that idea has been elusive for the Opposition.

dan.lett@freepress.mb.ca

Republished from the Winnipeg Free Press print edition April 8, 2013 A4

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