2002: Year in Review

Commentary, Role of Government, Frontier Centre

In policy terms, the highs and lows of 2002 depend on one’s point of view. Was the glass half full or half empty? Or was it just the wrong size? Like most of life, the year was a mixed affair.

Internationally, a likely war with Iraq and widespread economic doldrums made it twelve months to forget. Remarkably, Canada alone among the G7 countries continues to run a small fiscal surplus, an achievement some say rides on a knockdown 64 cent dollar. But it is clearly threatened by desires to create “legacies”, like simplistic plans to reform Medicare by throwing more cash into a dysfunctional monopoly. To his credit, the Prime Minister has hinted strongly that no big pile of money awaits devotees of the Romanow Commission, which chose to recommend more of the old-time religion instead of promised innovation.

Two international wild cards may flip the whole deck for our policy makers. The first is increasing evidence of deflation or falling prices in various economic sectors, courtesy of rapidly industrializing China and tight money policies in the second half of the 90’s. The second is the prospect that Bush will cut more taxes in the United States. Both wild cards mean more competition for our manufacturers and our top brains. It seems an inappropriate time for Ottawa to downplay tax cuts here and slip back into deficit by dreaming up new entitlement programs. The spending culture is pushing hard in Ottawa. We need to heed competitive realities, accelerate the pay down of federal debt and move faster on tax reductions.

A list of the range of low quality federal spending that can be eliminated without affecting core services would easily turn into a thick book. The debacle over the gun control registry is only a recent, spectacular highlight. But this is peanuts compared with the vast federal spending of billions on various ineffective subsidy and regional development schemes. Indeed, Manitoba presents an interesting case study of how ineffective such spending continues to be.

The provincial economy has responded well to record low interest rates and the weak Canadian dollar. The housing market, with the cheapest prices in the country thanks to high property taxes and persistent out-migration, is strong. These factors, however, are lifting house prices and exports across the country and are not unique to Manitoba.

What has the provincial government done that rates some kudos? It deserves praise of four kinds. Even though the environment file and the Kyoto bogeyman have now become the prime route to policy mischief in Canada, Manitoba brought in an environmental tax credit program to assist farmers who withdraw marginal lands from production. A mild modernization of the City of Winnipeg Act, the key to a more effective city structure and lower property taxes, passed in 2002, but there is much left to do. The commitment to the balanced budget law, noteworthy for an NDP government, under pressure from its intellectual fossils symbolizes fiscal responsibility. Finally, the government gets high marks for it’s immigration policy, particularly its highly regarded provincial nominee program which allows business and community groups to sponsor immigrants to come and work in Manitoba. An aggressive program to attract 10,000 immigrants annually to Manitoba makes for a good start.

It’s bold policy, but it puts the cart before the horse. Without the prerequisites for economic growth, the ambitious program could founder. Manitoba needs to address why it continues to haemorrhage people. Over the last five years, more than 18,500 people, the youngest and most productive, have left for places like Alberta. Statistics Canada projects the province’s annual population growth will drop to 0.15 percent, less than one-third the national rate of 0.55 percent. Failing to counter the fundamental causes of the broader population drain means our newcomers, too, will eventually move on.

It’s a complicated problem. For institutional reasons, the province is trapped in a spiral of rising public spending and falling private investment. Regional subsidy programs like equalization create perverse incentives to keep taxes and public spending high, so natural growth is stifled. Old policy models, particularly one of pervasive government ownership of the economy, starve the tax base and crowd out normal commercial activities that bring sustainable growth. Over-regulation like rent controls kills the downtown so we can splurge on subsidies for arenas and affordable housing to stop the decline. Our politicians turn to “pie in the sky” schemes to create jobs, witness ethanol subsidies.

Transfer payments allow the government to spend more than it would if it had to raise the money locally. Manitoba spends the highest per capita on health care in Canada (see 2002 per capita health spending), but the legendary issue of hallway medicine gets worse. The government’s dogmatic position on banning private competition within a publicly funded single-payer health system remains its most fixable failure.

None of the parties in Manitoba have made discernible progress on the “vision” file and they seem to be reluctant to address the tax and growth gap that is driving the ongoing exodus from Manitoba. Yet the science of creating the most value from our community with new public policy continues to perfect itself. It just takes time for that knowledge to seep through to our old-style politicians.

Manitoba will boom, once the lessons are absorbed. Happy New Year to all, let’s keep the glass full.