The Doer government has been assured by Ottawa that the federal government will cover between 70 and 80 per cent of a $710-million overpayment it made to the province.
Finance officials from both governments have been involved in intense negotiations since the accounting error was revealed earlier this year.
The news forced the province to delay release of this year's budget as they scrambled to figure out how to pay if Ottawa demanded all the money back.
But in an interview with the Free Press, Manitoba Finance Minister Greg Selinger said the federal government will take responsibility for the bulk of the transfer funds overpayment.
"Based on precedents and assurances, it will happen," a relieved Selinger said.
He said further details will be made public in tomorrow's budget.
The implications of having to return the entire overpayment would have been significant for the provincial treasury.
While the economy is rebounding somewhat, it is expected to grow by only two per cent this year compared to 3.2 per cent in 2000.
Corporate tax revenues are projected to decline as much as 60 per cent and the province already is budgeting for a $200-million withdrawal from its rainy-day reserve fund.
If Manitoba had to repay the entire $710 million, it would have meant less money for health care or perhaps a delay in phasing out the education support levy, which is tacked onto property taxes.
If Ottawa covers 80 per cent of the overpayment, that would leave $142 million still in dispute.
But Selinger said he believes the federal government could bite the bullet on even 100 per cent of the overpayment.
"All provinces benefited by this accounting error because there was more assumed money coming to Ontario, Manitoba, B.C. and Alberta," Selinger said. "That means equalization payments were higher for all the provinces."
That being the case, Selinger said the federal government would have to claw back money from every province, something he suggested would be unlikely.
"(Federal Finance Minister Paul Martin) just can't correct it for Manitoba," said Selinger. "He would have to correct it for everybody."
If Manitoba has to send back $142 million, it is hoped Ottawa would allow it to be phased over a number of years so as not to strain the treasury.
Selinger said he will be discussing the matter with Martin next week when finance ministers meet in Newfoundland.
Earlier this year, the federal government revealed it overpaid Manitoba, Ontario, Alberta and British Columbia $3.3 billion in transfers since 1972 due to an accounting error. Ironically, it was a decision by a former Tory federal finance minister that helped make Manitoba's case with Ottawa.
Manitoba cited a precedent that centres on a 12-year-old decision by former Tory finance minister Michael Wilson that Manitoba would not be penalized for a transfer-payment miscalculation that was worth $40 million to the province.
david.kuxhaus@freepress.mb.ca
mia.rabson@freepress.mb.ca
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