Good news — at a price

Hey there, time traveller!
This article was published 20/09/2017 (2950 days ago), so information in it may no longer be current.

Finally, some good news. Sort of.

Finance Minister Cameron Friesen was visibly pleased as he delivered the 2016-17 public accounts, the final fiscal report on government finances, which showed the Progressive Conservative government, in its first full year in office, came in $64 million under budget and ahead of its deficit projection.

Informed observers know it is rare for a government to actually spend less than it budgets in any given year. It almost always seems demands over the course of a fiscal year exceed expectations in the budget.

Coming in under budget certainly does reflect a measure of fiscal restraint the previous NDP government could not employ. Former premier Greg Selinger stuck fiercely to his belief that continuing to invest in government services would help sustain the economy and grow the budget out of deficit. He was wrong.

As such, accomplishing a fiscal goal that eluded the NDP serves as a genuinely good moment for Premier Brian Pallister and the Tory government, which has not had to contend with an overabundance of good news over its first 18 months in government.

Still, that good news comes at a price. A reduction in hospital emergency rooms, a virtual freeze in funding to public schools, hundreds of layoffs and elimination of all sorts of government programs have made Pallister’s I’ll-balance-the-budget-without-cuts-to-frontline-services pledge seem rather hollow now.

According to Friesen, the payoff for all this pain was a gain on the balance sheet. A smaller-than-expected summary deficit of $764 million — $147 million less than forecast in the spring 2016 budget — does represent a positive step forward for the treasury.

However, it’s important to take note of exactly how the Tories ended up making so much progress.

Spending cuts have certainly played an important role. But the biggest net contribution to deficit reduction did not come from spending cuts, it came from increased revenues.

Revenues for 2016-17 were $233 million higher than budgeted, driven by increases in nearly all categories of own-source tax revenue, including a $90-million increase in income tax and a $94-million increase in federal transfer payments.

To put that into context, over its last four years in government, the former NDP government only exceeded revenue projections by an average of $78 million. Sometimes it is most definitely better to be lucky than good.

Still, Friesen barely acknowledged the contribution that revenues made in the last fiscal year, and insisted on emphasizing spending cuts. That’s consistent with the Tory mantra that Manitoba has a spending problem, not a revenue problem. The actual numbers from last year’s public accounts certainly suggest that Friesen’s salvation will come as much or more from revenue growth than spending cuts.

Unfortunately, if the Tories live up to all of their 2016 election pledges, then revenues are going to take a beating in the next two years.

The Tories promised to cut the Provincial Sales Tax by one point, a pledge that will cost the province nearly $300 million in unrealized revenue. This promise has a hard deadline of April 2020, which is the rough target for the next provincial election.

This creates a fascinating scenario: would Friesen forge ahead with plans to cut the PST, even if it meant increasing the deficit?

Friesen said he did not accept the premise of the question and tried to steer the conversation back to the cumulative benefits of balancing the budget. However, he would not accept that keeping the PST pledge would set him back on his goal of eliminating the deficit. He pledged that his government would achieve both goals, but would not explain how.

Friesen’s inability to explain how he can both reduce taxes and balance a budget when all available data suggests that it cannot be done within the next two years is the great unresolved conflict of the Pallister fiscal program. But it could also be illuminating.

Last week, Pallister stunned many Manitobans, including many Tories, when he floated the idea of levying a new tax to help cover the steady increase in the cost of health services. Why would a politician that has devoted a huge portion of his political hyperbole to demonizing taxation suddenly change tack? Perhaps he is looking at the public accounts and has realized that he cannot — despite Friesen’s assurances — do both deficit reduction and tax cuts.

Pallister said the health tax could be necessary because Ottawa has slowed the rate in growth of federal health transfers. However, the full impact of a smaller annual escalator won’t be felt for another four or five years. A new health tax imposed next year, for example, would give him the cash needed to offset the loss in revenue from a PST cut.

Pallister promised he would keep a tight lid on expenditures, and the public accounts from last year show that he is a man of his word.

Whether he can pull off the same trick on a host of other fiscal pledges remains very much to be seen.

dan.lett@freepress.mb.ca