November 22, 2017

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Premier risks political injury with health premiums

JOHN WOODS / THE CANADIAN PRESS FILES</p><p>Manitoba Premier Brian Pallister</p>

JOHN WOODS / THE CANADIAN PRESS FILES

Manitoba Premier Brian Pallister

For those of you scoring at home, it’s now officially a revenue problem.

In pursuit of a balanced budget, Premier Brian Pallister has insisted Manitoba’s chronic deficit was the result of years of financial mismanagement at the hands of the former NDP government, not anemic revenues.

This was his mantra before, during and after the 2016 election campaign. It was the perspective cited repeatedly by Finance Minister Cameron Friesen every moment the deficit was being discussed.

It was the same message offered by the province’s hand-picked fiscal-performance advisory panel, which has been studying the province’s finances: “We must recognize our province has a spending problem, not a revenue problem. It is time to get back to living within our means.”

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For those of you scoring at home, it’s now officially a revenue problem.

In pursuit of a balanced budget, Premier Brian Pallister has insisted Manitoba’s chronic deficit was the result of years of financial mismanagement at the hands of the former NDP government, not anemic revenues.

This was his mantra before, during and after the 2016 election campaign. It was the perspective cited repeatedly by Finance Minister Cameron Friesen every moment the deficit was being discussed.

It was the same message offered by the province’s hand-picked fiscal-performance advisory panel, which has been studying the province’s finances: "We must recognize our province has a spending problem, not a revenue problem. It is time to get back to living within our means."

True to that form, whenever the issue of revenues came up, Pallister quickly dismissed any suggestion he would go to Manitobans for more money to balance the budget. His government even committed to a law that requires a referendum on any major tax hike.

And then, suddenly, a moment of clarity.

On Wednesday, at a hastily called news conference to discuss pre-budget consultations, Pallister revealed he is considering the implementation of health care premiums. For the uninitiated, these are annual fees charged by provinces such as British Columbia and Ontario for access to the health-care system.

Pallister told reporters his government had reached a point where, without additional revenue from premiums, Manitobans would have to prepare for significant cuts in service.

"It’s a stark reality, but it’s the reality," the premier said.

This is a watershed moment for the Pallister government. After 17 months of focusing on expenditures and shunning any suggestion of tax increases, the premier has reversed course in dramatic fashion. His change in tack will have a wide range of fiscal and political consequences.

Politics first.

Introducing a new health tax — and to his credit, Pallister conceded health premiums are a form of taxation — would put him in conflict with his pledge to give Manitobans the opportunity to vote on any major tax increase. At the very least, he would be in conflict with the spirit of that pledge.

Pallister limited the referendum law to increases in income, payroll and sales taxes, but there is little doubt health premiums qualify as a "major" form of taxation. If he tries to insist health premiums fall outside the spirit of his original promise, the premier can expect no end of trouble from opposition critics.

The premier has been careful not to get caught on this point. During the election, he explicitly refused to rule out future tax increases, even though he made it quite clear lowering taxes was among his chief goals.

Pallister’s constant rhetoric on what he considers to be Manitoba’s intolerably high level of taxation made it clear he would rather be drawn and quartered than introduce a tax hike. Despite increasing evidence it will be impossible to deliver, he is holding firm to his commitment to cutting the provincial sales tax to seven per cent before the 2020 election.

Now that he has decided to embrace the possibility of a tax increase, Pallister is steering dangerously close to the iceberg that claimed the political career of former premier Greg Selinger.

Selinger categorically ruled out tax increases in the 2011 election, only to do an about-face two years later, when he introduced a one-point hike in the PST to fund infrastructure. While in opposition, Pallister seized on Selinger’s flip-flop like a malnourished shark on fresh chum, accusing him of breaking a solemn promise to taxpayers.

Those attacks cannot be forgotten now that Pallister is the one readying himself to raise taxes.

There is always a possibility Pallister is floating the idea of premiums to divert attention away from the cutbacks in health services his government have already delivered. Despite promising during the last election he would not cut front-line services, Pallister has done just that. And not just in health care.

Hundreds of government workers have lost their jobs and services across many departments have either been discontinued to trimmed. Perhaps the prospect of premiums is being used to show Manitobans there are things worse than service cuts. Perhaps.

However, even if this is a bit of misdirection on the premier’s part, there is no doubt the province has a revenue problem. Manitoba’s economy is relatively stable given the volatility in other areas of the country, but it is not dynamic enough to create huge windfalls in own-source revenue necessary to dig the budget out of deficit through growth alone.

Pallister said Ottawa’s decision to reduce the annual increase in health funding — to three per cent from six per cent — was the main reason for raising the possibility of health premiums.

However, when you look into the province’s balance sheet, that is hardly the only revenue problem facing Manitoba.

Pallister may have finally learned his dream of balancing the budget through "efficiencies" and "cost savings" is not realistic. The provinces that have escaped deficit-financing — B.C. and Quebec, in particular — used a combination of revenue measures and expenditure controls. Any province that attempts to balance the budget solely through spending cuts is doomed to fail.

So, perhaps this is Pallister’s first acknowledgement he was wrong, maybe even a bit naive, about his original deficit-slaying plan. Perhaps this is the first sign he is willing to take a more pragmatic approach that will help him attack the deficit while truly protecting the essence of core government services.

Some will call it a broken promise or a flip-flop. But it would still qualify as progress.

dan.lett@freepress.mb.ca

Read more by Dan Lett.

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