Fiscal pain flows downhill as cutbacks mount

Hey there, time traveller!
This article was published 10/10/2017 (2976 days ago), so information in it may no longer be current.

Fiscal trouble typically runs downhill for government.

If Ottawa makes a decision to help improve its fiscal position, it usually involves something that hurts the provinces. When provinces are forced to take action to shore up their fiscal position, there almost always are consequences for municipalities.

This constant downloading of fiscal burdens is one of the most enduring qualities of our federation despite the fact that, as politicians at all levels understand, there is only one taxpayer.

A parade of recent examples helps to prove this fiscal fact of life.

Last week, federal parliamentary budget officer Jean-Denis Fréchette delivered an updated fiscal sustainability report that was chock full of good news (for Ottawa) and bad news (for the provinces).

The report examined debt-to-equity ratios for the federal and provincial governments, then calculated what would happen if those governments continued on current trajectories. Fréchette found that Prime Minister Justin Trudeau’s Liberal government is on track to eliminate its enormous debt in just over 40 years, much sooner than previously forecast.

Unfortunately, it appears Ottawa’s good fortune is coming largely at the expense of the provinces.

Fréchette found that eight of the 10 provinces, including Manitoba, are locked into an unsustainable fiscal policy that will require billions of dollars in spending cuts and/or tax increases to wrestle their debt into submission. The notable exceptions were Quebec and Nova Scotia.

These conclusions need to be viewed with some caution. The numbers are not associated with the total size of a province’s debt; Quebec had the best performance out of all the provinces on Fréchette’s so-called “fiscal gap” analysis, and it also has the highest debt level of any province.

So how did Ottawa achieve a positive trajectory, while most of the provinces are headed into the dumper?

Fréchette credited long-term interest rate forecasts for some of the good news. However, he also acknowledged that Ottawa is benefiting from “declining transfer payments” to individuals and the provinces alike, as a share of GDP.

This analysis certainly supports the point that Premier Brian Pallister has been trying to make in his long-running battle with Ottawa over health transfer payments.

Pallister has been among the most strident critics of the federal government’s decision to cut the increase in health-care transfer payments from six per cent annually to just three per cent. That decision, Manitoba has argued, will shrink federal transfer payments by about $2 billion over the decade-long life of the funding accord, and will reduce Ottawa’s share of the total cost of providing health care to Manitobans to just below 20 per cent, considerably less than just a few years ago.

With total health costs expected to continue to rise, Pallister stunned observers by floating the idea of charging Manitobans a health premium. Nobody knows whether the premier intends to follow through on this idea. However, for a politician who is philosophically opposed to tax increases, it was proof of his level of concern over Ottawa’s decision to reduce the annual increases in transfer payments.

It also deserves to be said that health transfers are not the only area where Ottawa is using restraint as an excuse to download costs to the provinces. From medical transportation for First Nations people, to legal and settlement costs for the hundreds of asylum seekers who have arrived in Manitoba from the United States, Ottawa is not holding up its end of the bargain when it comes to cost-sharing services where it has an obvious role.

Pallister has also been critical of the former NDP government for policy decisions that have pushed fiscal burdens onto municipalities.

In particular, he has criticized the decision to raise the PST by one point.

In question period last week, Pallister accused the NDP of higher taxes on small businesses and “jacked-up” property taxes. Officials in the premier’s office said he was describing the effect of higher PST, charged on a broader base, on municipalities and small businesses.

If we set aside the hyperbole of the term “jacked-up,” Pallister is not wrong about the fact the PST, charged now on things such as employee benefits and insurance, has an effect on the bottom line for municipalities. Anything that increases costs to municipalities could have an effect on property taxes, their principal source of revenue.

However, Pallister is conveniently forgetting that some of his decisions have hurt municipalities.

Last year, the Pallister government awarded the smallest annual funding increase for school divisions in more than 20 years.

According to a report by Free Press reporter Nick Martin, that meagre bump dropped Manitoba’s overall share of funding to 60 per cent from 61.5 per cent, shifting the financial burden onto school boards, which have responded with an average property tax increase of 5.3 per cent.

For an average $300,000 home, that translates into a $98 tax increase annually.

That’s not the only way the province is putting pressure on property tax levels.

In this year’s budget, the Tories essentially froze funding to municipalities and cut funding for other municipal cost-shared services such as policing and transit. The result, according to those local governments, has been more pressure on them to raise property taxes.

Elected officials must remember two things: first, that taxpayers live at the mercy of fiscal decisions made at every level of government; and second, that shovelling your fiscal problems onto another level of government isn’t progress.

It’s just plain, unadulterated crap.

dan.lett@freepress.mb.ca