Winnipeg Free Press - PRINT EDITION

Selinger makes a calculated PST gamble

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There was no definitive moment, no epiphany or thunderous realization that led Premier Greg Selinger to do the thing he had steadfastly refused to do.

However, at some point over the past few months, Selinger and his cabinet team realized raising the provincial sales tax (PST) was going to be necessary to pull off a nearly impossible fiscal manoeuvre: fight a budget deficit and increase funding for infrastructure.

For as long as anyone had been bringing up the idea of raising the PST to fund infrastructure, an NDP premier had been dismissing the idea out of hand. First it was Gary Doer, and then his successor, Selinger. Even late last year, when it was clear the province was losing ground in its fight against the 2012-13 deficit, there was no sliver of interest in raising the PST.

But all that changed Tuesday when it was revealed the PST was indeed going up by one point to eight per cent, for a period of 10 years. The tax hike is expected to produce an additional $278 million annually for infrastructure of all kinds: schools, hospitals, roads and highways, and perhaps most importantly, flood protection.

That one measure makes this one of the boldest, and riskiest, budgets ever introduced in Manitoba.

How did Selinger come to see a PST hike as a necessary evil? The premier said the writing on the wall, if you can call it that, came in three distinct waves.

First, there was the awful realization late last year that all hopes of a slow but steady economic recovery would be unrealized. Most provinces ended up last year with deficits bigger than forecast in 2012-13 budgets. The same held true for Ottawa, which saw its deficit swell 25 per cent.

Next, Selinger referenced the federal budget. Although there was a renewal of infrastructure funding, Ottawa did not bring back stimulus-level spending. And new rules for participation meant Manitoba would likely have to find more of its own money to match federal dollars and take full advantage of what Ottawa had to offer.

The final galvanizing point was the realization, early in 2013, that this was going to be a significant flood year. The province was still reeling from the 2011 flood, the most expensive in Manitoba history, which at last count has cost $1.2 billion. Early flood forecasts suggested this year would not be that bad. Recent snowfall and a colder-than-normal spring have everyone worried the treasury will once again be under pressure to prepare, fight and clean up after a massive flood.

Selinger noted the flood forecasts were complicated by a provincial report that showed the province needed to invest more than $1 billion in hard infrastructure to protect the most flood-prone areas. This on top of other infrastructure demands that are never fully satisfied.

The good news is Selinger forges ahead with this plan knowing that he has, in theory at least, the support of some important opinion leaders. This is an idea that has been promoted by the Business Council of Manitoba, the Winnipeg Chamber of Commerce and a host of other municipal and community leaders.

The theory, as espoused by those groups, is the public will support a tax increase if the money it raises is dedicated to fixing infrastructure. The NDP government is promising to do that with enabling legislation that not only limits the period for the tax increase to 10 years, but also describes how the money will be accounted for in the budget.

However, the legislation will also remove the need to hold a referendum as required under the balanced-budget law for any proposed tax hike. In doing this, Selinger is kicking a hornets' nest.

He is clearly wagering that supporters of a PST hike will not abandon him because there is no vote. It seems like a good bet, but even some of the most steadfast supporters of the hike in theory were expressing their dismay Tuesday about the absence of a referendum. This has the potential to become a bigger issue down the road.

The most important job now for Selinger is to introduce clear, focused legislation that proves without a shadow of a doubt that all the money from the additional point of PST is going where it's supposed to go. That's going to be a difficult thing to pull off, in large part because infrastructure is a difficult program to track in the budget. The province pays cash for roads, highways and bridges, but borrows money to build structures such as schools and hospitals.

A tax increase, in and of itself, does not automatically mean political suicide. Governments across the country are increasing major taxes in a bid to fight deficits and preserve core programs. There is nothing in the NDP plan here that is outside the parameters of fiscal strategy in most other jurisdictions.

But this is still a politically and fiscally risky move. Although there is support in principle for the tax increase, that support will evaporate if the execution is lacking.

Having spent so long denying he would raise the PST, Selinger has to show in earnest he has the ability to not only embrace the new strategy, but also make it a winner. At this stage, it is far from certain he can do both.

 

dan.lett@freepress.mb.ca

Republished from the Winnipeg Free Press print edition April 17, 2013 B2

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