Hidden deficit growing

Worth A Look, Role of Government, Frontier Centre

WITH a provincial treasury under siege from drought, the mad cow crisis and one of the worst forest fire seasons in recent memory, one has to wonder whether Premier Gary Doer and the NDP government will be able to balance the province’s books this year.

The answer is yes. And no.

The province will show a small surplus — about $5 million at last count — for the current fiscal year, in keeping with balanced budget legislation that prohibits a deficit on direct program spending and debt costs.

However, when all Crown corporations and government agencies are taken into account, the bottom line takes a decided turn for the worst.

The summary financial statement of the provincial government — which includes all direct and indirect government revenues, expenditures, assets and liabilities including all those incurred by Crown corporations — will likely show a deficit of as much as $500 million for the current fiscal year, which ends March 31.

Auditor General Jon Singleton said the deficit does not present an immediate cause for concern because many of the root causes, such as the drought, will ease. But shortfalls of this magnitude, if left unaddressed, could spark trouble for the province, he added. The summary deficit could erode the province’s credit rating and thus increase the cost of government borrowing, Singleton noted.

“If these deficits are allowed to grow or are allowed to continue for some period of time, it will create a significant problem,” said Singleton. “A lot of the problems are a result of the fact that we are in a drought, and we don’t expect that to continue forever. But it is absolutely necessary that we watch closely what’s going on here, and take steps to address it.”

Tory Leader Stuart Murray said there is also the real possibility that Crown corporations, such as Manitoba Hydro and Manitoba Public Insurance, could have to raise their rates substantially to combat losses.

Murray noted that both Hydro and MPI are asking for rate increases this year and sustained deficits of this magnitude could mean grief for taxpayers who may have to endure more hikes in subsequent years.

“That is just a back-door tax hike,” Murray said.

The other looming consequence of the budget crunch is a significant cut to government spending. Finance Minister Greg Selinger has promised to find a minimum of $20 million from the current budget to offset the demands on expenditures. Doer has already said he will not violate balanced-budget legislation when the government brings forward its spring budget. The budget law requires the government to run a surplus on its operating account — which covers all general revenues and all program spending and debt costs incurred directly by the government, excluding Crown corporations and agencies.

This has been widely interpreted to mean that more spending cuts are on the way, especially outside the priority departments of Health and Education.

A summary deficit appears unavoidable this year given financial challenges faced by Manitoba Hydro — which is forecasting a loss of $360 million — and the tens of millions of dollars spent fighting forest fires, combating drought and compensating farmers hammered by the mad cow crisis.

There is also an estimated $26-million loss in revenues by Manitoba Lotteries Corp., the result of smoking bans in Winnipeg and Brandon driving gamblers away from casinos and VLT lounges.

The province has also been hit with $68 million in unanticipated costs to battle forest fires and the fallout from the mad cow crisis, a $10-million tab for a provincial election, and $60 million in additional health-care expenses.

The province does not issue a quarterly update on its summary financial statement, and won’t officially close its books on this fiscal year until months after the March 31 year-end. As a result, the total magnitude of the deficit for the 2003-2004 fiscal year will not be known until the fall.

Energy Minister Tim Sale said the province feels a sense of accomplishment that despite all the additional costs it has endured this year, it has been able to meet its obligations under balanced-budget legislation.

However, there is concern about the growing debt that is displayed on the summary financial statement, Sale said. This has prompted efforts to slow government spending this year and scrutinize all spending for the upcoming fiscal year, he added.
“Obviously we’re concerned,” Sale said. “That’s why we’ve taken significant steps internally to slow expenditures. That will help. But it’s pretty hard to overcome the magnitude of all these other costs we’ve incurred.” Murray said the government is trying to underplay the seriousness of the situation facing Manitoba taxpayers.

The NDP government is going to have to focus more attention on slowing spending, Murray said, especially in the area of health care.