July 15, 2019

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Economic rhetoric

Despite what parties may say, there are no easy fixes to Manitoba's debt woes

MIKE DEAL / WINNIPEG FREE PRESS files</p><p>The economic and fiscal outlook tabled by the NDP just prior to the election saw the deficit rise to more than $640 million.</p></p></p></p>

MIKE DEAL / WINNIPEG FREE PRESS files

The economic and fiscal outlook tabled by the NDP just prior to the election saw the deficit rise to more than $640 million.

Hey there, time traveller!
This article was published 26/3/2016 (1206 days ago), so information in it may no longer be current.

Of all the issues that will work their way through the narrative of the 41st provincial election campaign, there is one that may likely decide the final outcome.

Manitoba is facing an economic and fiscal predicament of enormous proportions. The provincial economy is growing, but not at a rate that is generating government revenues necessary to pay for core services. Deficit financing is the order of the day, and the net debt continues to grow unabated.

Opposition parties are committed to making the fiscal performance of Premier Greg Selinger and his incumbent NDP government the ballot-box issue. In short, the Tories and Liberals believe the NDP has run out of ideas on how to fix the economy and the budget.

“I don’t think anybody really believes this is a premier who’s even interested in achieving any sustainable management of money the taxpayers have given.”

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Hey there, time traveller!
This article was published 26/3/2016 (1206 days ago), so information in it may no longer be current.

Of all the issues that will work their way through the narrative of the 41st provincial election campaign, there is one that may likely decide the final outcome.

Manitoba is facing an economic and fiscal predicament of enormous proportions. The provincial economy is growing, but not at a rate that is generating government revenues necessary to pay for core services. Deficit financing is the order of the day, and the net debt continues to grow unabated.

Opposition parties are committed to making the fiscal performance of Premier Greg Selinger and his incumbent NDP government the ballot-box issue. In short, the Tories and Liberals believe the NDP has run out of ideas on how to fix the economy and the budget. 

WAYNE GLOWACKI / WINNIPEG FREE PRESS PC Leader Brian Pallister

WAYNE GLOWACKI / WINNIPEG FREE PRESS PC Leader Brian Pallister

 "I don’t think anybody really believes this is a premier who’s even interested in achieving any sustainable management of money the taxpayers have given."

 — PC Leader Brian Pallister 

"Manitobans have lost trust in this government. This is not a credible government."

— Liberal Leader Rana Bokhari

 

The baseline fiscal numbers certainly bear out much of the opposition’s criticism. Manitoba has seen seven consecutive budget deficits. And rather than shrinking the shortfall, the economic and fiscal outlook tabled by the NDP just prior to the election saw the deficit on the operating budget rise to more than $640 million.

A record such as that is, by all definitions, pretty weak. So weak, it affords opposition parties the opportunity to criticize without offering much in the way of specific solutions. To wit, neither Pallister nor Bokhari are willing to promise to balance the books by any specific date. And while Pallister has suggested slowing the rate of growth in spending, neither he nor the rookie Liberal leader are advocating severe austerity.

Strip away all of the campaign rhetoric, and the reality of the situation is Manitoba is facing a fiscal challenge that defies easy or simple solutions. We know this because just about every other province and the federal government is mired in the same challenge.

In its budget tabled this week, the federal government elected to spend billions of additional dollars to restore programs cut by the former Conservative government and stimulate the economy on the hope growth in GDP and revenues eventually bring the budget back into balance. This will keep Ottawa in deficit for years to come and add significantly to the debt.

Other jurisdictions have taken a more austere approach. For example, Ontario and Quebec have held spending increases well below the rate of inflation and, in some cases, cut some budget lines outright. This has quickly reduced their previously enormous budget deficits, but it has also caused significant impacts to core services such as health and education. 

British Columbia is the outlier in this equation. That province used modest austerity and tax increases (corporate income tax, health-care premiums, sin taxes) to balance its budget. It was the only province to start this year in a surplus position.

MIKE DEAL / WINNIPEG FREE PRESS Liberal Leader Rana Bokhari

MIKE DEAL / WINNIPEG FREE PRESS Liberal Leader Rana Bokhari

Fiscal challenges across Canada

The naked, disturbing fact of the matter is Canada is in the midst of an unparallelled fiscal challenge that is causing many citizens to re-examine what it is they expect government to do. 

That has been a difficult debate, particularly since our current economic crisis followed one of the strongest eras for growth and prosperity.

Using 2008-09 as the watershed year — the year the Great Recession took hold across the globe — we can see two dramatically different fiscal landscapes for governments in Canada.

Prior to the recession, Canada enjoyed nearly unprecedented economic growth and increases in revenues.

For the most part, this allowed governments to run surpluses, increase spending on core services, pay down or hold the line on net debt and offer citizens a range of tax cuts the likes of which we had never seen. 

This was the case in Manitoba. When the NDP retook power in 1999, it was the start of a period of nearly unparallelled economic growth.

In the nine years former premier Gary Doer led the province, revenues grew by an average of 8.75 per cent annually. Doer used the healthy revenues to fund major investments in government services, pay down debt and pension liability payments and provide tax cuts and credits. Total expenditures rose by an average of 8.27 per cent annually during this period.

Ah, but the good times were not destined to last. Consider that since the 2008-09 fiscal year, average annual revenue growth in Manitoba has been 2.25 per cent, or just over one-quarter of what it had been prior to the great recession. Expenditures have also come down significantly since the pre-recession years, averaging just 3.5 per cent year over year. Bringing revenues and expenditures more into sync has proven to be challenging for governments across the country.

This year, eight of 10 provinces are in deficit. Manitoba ranks very near the middle of the federation in most measurements of fiscal stability. Given this is a national challenge, brought on largely by global economic forces, how exactly can Manitoba achieve balance in its budget plan? The main parties in this election differ greatly in their approaches, but are bound by one overarching sentiment: optimism.

MIKE DEAL / WINNIPEG FREE PRESSNDP Finance Minister Greg Dewar

MIKE DEAL / WINNIPEG FREE PRESSNDP Finance Minister Greg Dewar

"We’re starting to see good numbers now, and we’re anticipating that we shall return to surplus as long as we continue to spend less than we (have) coming in."

 — Finance Minister Greg Dewar, April 2015


Tax hikes or spending cuts?

The Selinger government continued to put its faith in an organic fiscal plan that argues a growing economy will ultimately generate the revenues needed to balance the budget. Unfortunately for the current government, this plan has not achieved its goals. The Manitoba economy continues to grow at about two per cent each year, among the best of all provinces but not enough to generate the revenues needed to match expenditures growth.

That leaves tax hikes (not on the agenda of any of the three major parties in this election) or spending cuts as the principal strategies for attacking the deficit. And the latter is much easier said than done.

 

"If they just held the line on spending, we’d be in surplus this year. They chose to inflate their spending to a ridiculous degree."

 — Tory Leader Brian Pallister, April 2015

At an average of 3.5 per cent annually, Manitoba’s growth in expenditures is, well, pretty average among Canadian provinces.

Although it’s always possible to find efficiencies to bring down spending increases, finding enough efficiencies to cover a $600-million shortfall is a tall order when you look at how government spending is structured.

Of Manitoba’s $13 billion in budget expenditures this year, more than $11 billion was consumed by just six departments: Health ($5.7 billion); Education ($2.5 billion); Family Services/Youth ($1.2 billion); Infrastructure ($626 million); Jobs/Economy ($672 million); Municipal Government ($436 million); and Justice ($547 million). Not surprisingly, no party in this election is promising to cut funding to these areas. Most are, in fact, adding new spending initiatives.

To find $600 million in savings, you’d essentially have to eliminate the nine smallest departments outright. These would include Agriculture, Conservation/Water Stewardship, Housing, Labour and Immigration, and Tourism, Culture, Heritage and Sport. Although they do not represent what most people would describe as "core" services, they are nonetheless departments that affect the lives of a good many Manitobans.

The reality has left opposition parties struggling to enunciate a concrete plan that could do what the NDP has been unable to do: balance the budget. This is demonstrated by the rare ideas that have been uttered.

Progressive Conservative Leader Brian Pallister has described a plan that would slow spending increases by one per cent annually. Although he hasn’t uttered specific numbers, using budget data, that would mean holding to about 2.5 per cent annually from the NDP average of 3.5 per cent. However, it’s unclear that this plan would yield much in the way of results. At current expenditure levels, a one-point cut in total spending (using 2015-16 figures) would lower overall expenditures by approximately $130 million in its first year, or less than a fifth of the current budget deficit. 

And that’s based on an across-the-board reduction of one per cent. If Pallister does not impose slower spending growth in health or education, which account for more than half of the entire provincial budget, then other departments would have to be gutted to achieve his overall savings target. That would most definitely have an impact on those areas of government service.

All of this should generate some sympathy for the electorate. At a time when voters deserve a fully formed plan to restore fiscal stability to the province, they are instead offered a most unappetizing option.

Faith in a failed strategy; or faith in a series of unproven and likely ineffectual strategies. That’s not much of a choice.

dan.lett@freepress.mb.ca

Dan Lett

Dan Lett
Columnist

Born and raised in and around Toronto, Dan Lett came to Winnipeg in 1986, less than a year out of journalism school with a lifelong dream to be a newspaper reporter.

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