Parsimonious Pallister hits federal transfers jackpot, again By: Dan Lett Posted: 7:00 PM CST Tuesday, Dec. 11, 2018

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This article was published 11/12/2018 (2795 days ago), so information in it may no longer be current.

Everyone, even first ministers, needs a bit of good luck every once in a while. Well, Premier Brian Pallister just got a heaping serving of good luck as a tumultuous year comes to a close.

Manitoba is now slated to receive a $218-million increase in its equalization payments from Ottawa, the second year in a row that Pallister’s government has benefited from unusually high transfer largesse.

The good news came this past weekend, Ottawa released the details of transfer payments to the provinces for the 2019-20 fiscal year, which begins April 1. This annual event typically triggers a national debate among premiers about the pros and cons of transfer payments, in particular the efficacy of equalization payments.

Most of the attention this year is focused on Quebec, which will receive just over $13 billion from the $19.8-billion equalization pot, or 66 per cent of all the federal tax revenue being redistributed among so-called have-not provinces. That is a record share for Quebec, which is traditionally the largest net recipient of equalization.

However, on a percentage basis, Manitoba is not far behind in the relative size of the equalization windfall it will receive from Ottawa.

Manitoba will collect $2.255 billion next year in equalization, a $218-million (or nearly 11 per cent) increase over the previous year. Quebec, by comparison, will get a 12-per-cent boost to its equalization envelope next year.

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Total transfer payments to Manitoba which, in addition to equalization includes support for health and social services, is going up to $4.26 billion, a $299-million (seven per cent) increase.

Next year’s bump comes on the heels of a similar increase last year, when Manitoba received $217 million more in equalization and $283 million more in total transfers.

How unusual and important is this windfall? These are largest increases in both total transfers, and equalization payments in more than a decade. And they come at a time when Pallister is walking a fiscal tightrope, attempting to balance the budget on one hand and cut taxes on the other.

Pallister is making steady progress on the first mission, balancing the budget, thanks largely to strict spending controls. However, the additional federal support — which was largely absent from the final five years of Manitoba’s NDP government — is playing a huge role, as well.

Compared to Pallister’s good fortune, former premier Greg Selinger saw nothing but snake eyes.

Between 2012 and 2016, Selinger’s last year in office, transfer payments never rose by more than $8 million year-over-year, and in one year (2014-15) they actually went down. Overall, equalization increased by only $67 million in annual terms.

Compare that with the first four fiscal years of the Pallister era, which has seen increases that are more than 10 times their predecessors. From 2016-17, the first full year Pallister’s Tories were in control, to the 2019-20 forecast year, transfer payments have gone from $3.53 billion to $4.26 billion, a $730-million increase.

No government or first minister should be criticized for fiscal good fortune. The NDP under premier Gary Doer experienced record levels of revenue growth, including federal transfers, during the 11 years he governed. Premiers are often defined by the economic times in which they serve, and Doer served during a robust period.

Selinger, on the other hand, did not benefit from the same good fortune; combined with an inability to contain expenditures, Selinger left with a legacy of deficit and debt.

All of which brings up an interesting question: does Manitoba support provinces such as Alberta, Saskatchewan and Ontario in seeking changes to the current equalization formula?

Pressure has been mounting from those provinces to change the way equalization is calculated. Most of the attention has been focused on the issue of natural resource revenue. Oil- and gas-producing provinces obviously want resource revenue exempted from equalization calculations, theoretically shrinking the gap between their economies and those provinces that do not rely heavily on the revenues from fossil-fuel resources.

Since taking over as premier, Pallister has been uncommonly quiet on the subject of equalization despite it having been a pressing issue at most first minister’s conferences he has attended. Earlier this year, former finance minister Cameron Friesen said the current formula is working well, for the most part, although Manitoba might like to see equalization include non-residential property values in the final calculation.

That is a change that would definitely help boost equalization to smaller provinces. As such, it could be interpreted as tacit support for the concept of equalization in its current form.

The real question for the current premier is what will he do with all this additional money, both now and into the future? The fiscal picture in Manitoba is, in and of itself, much less certain than the forecast on federal transfer payments.

The good news is that the deficit is shrinking. However, expenditure increases in key services such as health and education have been kept alarmingly low. And Pallister also made an unusual decision to change accounting rules in the last annual report, a move that the provincial auditor general said overstated the summary deficit by $347 million. The auditor offered only a qualified opinion on the annual report, a troubling and unusual development in what is becoming a truly intriguing story.

For the time being, however, Pallister is sitting pretty. There will be no change to the equalization formula for the next four years and barring a significant global economic misstep, Manitoba should continue to reap the benefits of the current system.

Pallister’s political opponents will bristle at the magnitude of his good luck. But in politics, as in life, you need some luck to be good.

dan.lett@freepress.mb.ca

Dan Lett
Columnist

Dan Lett is a columnist for the Free Press, providing opinion and commentary on politics in Winnipeg and beyond. Born and raised in Toronto, Dan joined the Free Press in 1986.  Read more about Dan.

Dan’s columns are built on facts and reactions, but offer his personal views through arguments and analysis. The Free Press’ editing team reviews Dan’s columns before they are posted online or published in print — part of the our tradition, since 1872, of producing reliable independent journalism. Read more about Free Press’s history and mandate, and learn how our newsroom operates.