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Struthers' budget to seek spending cuts

Finance minister taking aim at province's deficit

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Finance Minister Stan Struthers didn't hesitate for a moment when asked about the April 17 provincial budget, his first in this portfolio.

"We do intend to come back into balance in 2014-15."

Faced with an enormous deficit from last year, that could be the bravest thing a Manitoba finance minister has ever said. Or perhaps the craziest.

In the last fiscal update, the deficit for 2011-12 is now forecast to come in at $1.1 billion, a new and infamous record of fiscal futility. A good portion of that figure comes from the extraordinary flooding of last spring and summer. It cost nearly $1 billion to battle flood waters, and with the province expected to recoup only about $450 million of that from federal cost-sharing, that means half a billion dollars in unexpected expenditures is weighing down the treasury. In all, it doesn't make for a pretty picture.

Federal Finance Minister Jim Flaherty didn't help much, either. Flaherty's budget galvanized plans to level off future federal transfer payments for health, education and social programs. Given that demand never, ever goes down in those portfolios, the provinces are right in viewing that as a cut in funding. As well, Struthers said the province is watching closely to see how much of the $5.2 billion in program cuts delivered in Thursday's budget will result in higher costs to the provinces to provide key services. Specific details on those cuts are not available yet.

The deficit has not been much of a political issue to date. Most Manitobans, like most Canadians, seem to have decided no government is responsible for the current fiscal fix Ottawa and most of the provinces find themselves in now. A global recession, a decline in revenues and the need for spending to stimulate the economy have left most government treasuries in the red. However, there is no guarantee voters won't turn on governments that tolerate deficit financing too long.

This is a keenly important issue for the Progressive Conservatives. They campaigned in last fall's election on a pledge to balance the budget by 2018-19, four years later than the NDP were pledging. Tory Leader Hugh McFadyen insisted that finances were worse than the NDP were letting on and no one could balance the budget by 2014-2015.

McFadyen was soundly criticized, both within and outside his party, for making this pledge. When the last quarterly financial report estimated the size of the deficit at $1.1 billion (including all flood costs, even those to be paid by Ottawa), the Tories howled they had been right all along. (It probably deserves to be said that McFadyen was not criticized for saying the NDP couldn't balance the budget by 2014-15. He was criticized for pledging a Tory government would balance the budget by 2018, something people from his own party thought he should have said after winning the election. But I digress.)

The fact is the NDP is not making the progress it had hoped for in reducing the deficit. Even though the majority of the lost ground is due to flooding, they did overspend this year. Combined with slower-than-expected economic growth, it seems very difficult to see how the province is going to keep its 2015 target.

More difficult to understand is how the province will deal with collateral fiscal problems being created by Manitoba Hydro. Balanced-budget legislation requires the province to balance its books on a rolling, five-year average. The "book" in question here is the province's summary budget, the financial statement that captures all government operations and crown corporations or special operating agencies. Of those crowns and agencies, none have more capacity to create havoc in terms of the budget than Manitoba Hydro.

Faced with rapidly escalating capital costs for new dam and transmission projects, low water levels in lakes and rivers and -- most important of all -- record-low electricity prices in the once-lucrative U.S. energy market, Manitoba Hydro is fast becoming the millstone around the neck of the province's summary budget. Without a healthy bottom line, Manitoba Hydro could single-handedly keep the entire summary budget in deficit.

Faced with a hand like this, Struthers admitted he will have to mirror his federal counterpart and find significant spending cuts in this upcoming budget. However, unlike Flaherty, Struthers said Manitoba will not cut spending to core services like health and education. The one advantage Struthers has going into the next year is that barring a sudden, prolonged downpour across Western Canada, he will forecast a deficit for 2012-13 that is dramatically lower than the previous year. It will not be fair to attribute that to fiscal acumen, just as it is somewhat unfair to blame the current deficit on fiscal incompetence. Such is the politics of weather.

Going into his first budget, and given a choice between brave and crazy, Struthers would rather be plain lucky.

Republished from the Winnipeg Free Press print edition March 31, 2012 A13

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