Province should move to tax-sharing plan By: Editorial Posted: 7:00 PM CST Tuesday, Feb. 14, 2023

Opinion

Manitoba’s Municipal Relations Minister Andrew Smith says the province is prepared — after a seven-year funding freeze — to open the purse strings and provide the City of Winnipeg with a “generous” increase to its operating grant.

That was undoubtedly music to the ears of Winnipeg city councillors, who have been forced to cut services, raise taxes and increase borrowing to offset a funding freeze the Progressive Conservative government first implemented in 2016.

It would have been useful for the province, as it has done in the past, to inform the city earlier in the year what level of funding it could expect in 2023. Instead, Mayor Scott Gillingham and executive policy committee tabled a budget last week without the benefit of knowing how much it would receive from the province this year.

Still, the additional funding, whatever the amount, will help the city restore some of the services it had to cut over the past seven years.

It’s unclear how much more the province plans to give municipalities when it unveils its 2023 budget, likely next month. Prior to 2016, the provincial government provided the city with several operating grants, some earmarked for specific services (such as transit and libraries) and others with no strings attached.

The PC government, under former premier Brian Pallister, changed that to a block funding model, ostensibly to provide the city with greater spending flexibility. They also froze funding at the 2016 level, forcing city hall to implement its own austerity measures since, under provincial law, it is prohibited from running deficits.

Now, in an election year, Premier Heather Stefanson has signalled her intention to lift the freeze. Ms. Stefanson could have done so last year in her first budget as premier but chose not to. Consequently, the city posted one of its worst financial years on record in 2022, including an $83-million operating deficit. The city will have to nearly drain its so-called rainy day fund to cover the loss.

If Ms. Stefanson were truly interested in promoting financial stability for municipalities, she would propose a new tax-sharing scheme with local governments by providing them with access to consumption tax revenues.

If Ms. Stefanson were truly interested in promoting financial stability for municipalities, she would propose a new tax-sharing scheme with local governments by providing them with access to consumption tax revenues.

It is not a new idea. It has been proposed many times in the past by municipalities, business groups and policy analysts. The idea is to provide local governments with a share of sales or income taxes that grow with the economy, as an alternative to relying mainly on property taxes (which do not grow as the economy expands).

It is widely understood that municipalities can no longer sustain themselves under the current model. They require predictable and growing revenue streams to pay for expensive infrastructure and to fund local services.

Politically, Ms. Stefanson and the PC party would be well advised to offer municipalities some type of tax-sharing arrangement — sooner rather than later. As a scheduled Oct. 3 provincial election nears, her political opponents will surely propose something in that realm. It is long overdue and only a matter of time before the province moves in that direction.

The PC party could get ahead of that by acknowledging the old way no longer works and that municipalities require a new deal to finance their operations.

It would be both good policy and good politics for a political party that is in desperate need of votes in the City of Winnipeg.