Manitoba’s Balanced Budget Law is dead — good riddance

Hey there, time traveller!
This article was published 01/06/2016 (3448 days ago), so information in it may no longer be current.

Dearly beloved, we are gathered here to mourn the passing of one of the most controversial and divisive laws in Manitoba: the Balanced Budget, Fiscal Management and Taxpayer Accountability Act.

The Balanced Budget Law (BBL), as it was commonly known, was one of the seminal pieces of legislation introduced by former Tory premier Gary Filmon in the volatile 1990s. The NDP maintained the law through their 16 years in government while introducing many amendments, weakening many of the original provisions and strengthening a few others. But then, in his budget speech on Tuesday, Finance Minister Cameron Friesen announced the BBL would finally and mercifully be repealed.

There is some delicious irony in having the new Progressive Conservative government repeal a law that the former NDP government was afraid to eliminate. It has made even more delicious by the fact that Premier Brian Pallister was a minister in Filmon’s cabinet when the BBL was first introduced, and is remembered as one of its most vocal proponents.

Friesen has promised there will be new legislation that forces the province to hold a referendum before introducing any major tax increase, a throwback to a provision of the original BBL. However, he was much less clear on whether that law, or some future bill, will force the government to balance its budget on an annual basis.

Friesen said his government remains committed conceptually to the idea of a law that “compels” government to avoid deficits with tangible consequences and penalties. However, he could not define what those penalties would be, and would not commit to a firm timetable for tabling a new bill. “(The tax referendum) is the starting point,” he said.

Even if Friesen is a bit fuzzy on the details, it appears obvious the new PC government will wait until it is close to eliminating the current deficit — forecast at $911 million in this week’s provincial budget — before committing to new balanced budget provisions. Currently, the Tories will only say the deficit will be slain sometime in their second term, which could push it back to 2020. That would be entirely consistent with the strategy employed the Filmon government; the original BBL was not introduced until the spring of 1995, when Filmon ran his first surplus.

And to be frank, there is so much wiggle room in Friesen’s comments that the PC government could avoid bringing in a new version of the BBL altogether. That would be refreshing given the fact that balanced budget laws, in general, are pretty useless.

Fiscal hawks and populists love the idea of laws that force governments to balance their books or hold the line on taxes. However, although legally preventing current and future governments from running deficits is politically popular in some constituencies, it makes for very bad policy.

Balanced budget laws are based on the premise that government must live within its means by never spending more than it receives in tax revenue. Proponents believe strongly that any government can balance its budget if it has the will and discipline to make it so.

Those are worthy goals. Still, there are several flaws in that premise.

First, it is unrealistic to force a government to balance its budget every year while also restricting tax increases. Asking government to maintain core services and balance the budget, while also holding the line or reducing own-source revenue through tax cuts, is a suicide mission. Government is so much more than just expenditures and revenues. There are forces at work — inflation, labour market demands, monetary policy and the markets — that can significantly impact a government’s bottom line. BBLs do not account for any of those forces.

As well, balanced budget laws simply do not recognize that there are instances where government is justified, even compelled, to exceed its budget.

Last year, the NDP government urgently increased funding to Family Services to get vulnerable children out of poorly supervised hotel rooms and into foster homes. That scenario would not have been included in the brief list of exceptions in the old BBL that allowed the province to run a deficit. Even so, many Manitobans would likely approve of those expenditures, given what is at stake.

The flaws in logic do not end there. BBLs also do not recognize that the events that drive higher expenditures are not always contained within any one fiscal year.

In 2011, Manitoba suffered the most expensive flooding in its history, a disaster that cost the province more than $1 billion that year. However, the impact of that flood event on program spending is still being felt. In the budget tabled this week, the new PC government included millions of dollars for flood mitigation projects that were first identified in 2011.

Finally, BBLs are inherently blind to the new economic reality facing governments all over the world. Prior to the 2008 global financial meltdown, provincial governments in Canada were the beneficiaries of gaudy revenue growth. Surpluses were more the rule than the exception.

Following the meltdown, and the subsequent global recession, economic growth and tax revenues have been dramatically pared back. Many economists believe we will never again see pre-2008 growth and revenue numbers. That is devastating for government, given that inflation on the cost of providing government services continues to rise relentlessly.

For now, the old BBL is dead. And for all it did — and didn’t do — good riddance.

As for the future, the new government would be well served if it focused its efforts on actually balancing the budget and then seeking the approval of voters in the next election. Any time spent designing and implementing balance budget legislation would be, in almost every respect, wasted time.

dan.lett@freepress.mb.ca