A Seinfeld Election

Commentary, Equalization, Peter Holle

Jerry Seinfeld first pitched his megahit 1990s TV sit-com as “a show about nothing.” That description fairly applies to Manitoba’s current election campaign. That’s regrettable. The world outside our borders is ripe with policy innovations directly applicable to our circumstances. We could have better provincial services at lower prices – and a much more vibrant economy – if we simply went out and harvested them.

The most important one is quite basic. Place the public sector in a framework that measures results objectively.

That means eliminating, wherever possible, the conflict of interest when departments both fund and provide services. Our healthcare bureaucrats, for instance, are well-intentioned people who want to help the sick. But they feel no pressure to sharpen their game because the Ministry of Health and its junior surrogates, regional health authorities, buy services from themselves. That’s why, when they get more money, services don’t expand. They simply raise their own prices and add layers of bureaucracy. That’s why Gary Doer’s pledge to end hallway medicine failed, despite massive new spending.

We should learn from the Swedes and the British, who’ve broken up health monopolies, encouraged competing private providers and now buy services from various suppliers operating within a single-payer system. In the lingo of public policy, they separated the purchaser from the provider.

The next lesson comes courtesy of New Zealand. The Kiwis thoroughly modernized public accounting systems to enable fair, apple-to-apple price comparisons. They no longer tolerate the nonsense where government departments receive hidden subsidies and thereby appear to have lower costs than private providers. To let them compete fairly, they freed agencies of rigid internal controls and red tape and built firewalls between politicians and daily operations. They moved away from union orthodoxies like seniority and rewarded public staff with pay increases based on profit-sharing and performance.

In the education file, a transparent system would dismantle Manitoba’s “Rube Goldberg” funding model of rebates, grants and property taxes. Like Holland, Denmark and Sweden, it would retire school boards and fund public schools from general revenues, with grants following kids, including larger grants for special cases. Schools would prosper – or close – based on results, measured by the published scores from standardized tests.

Once these major envelopes have incentives to perform productively, they will return better value for money spent and cost much less. It’s worth noting how much we could save if, over a reasonable time period, we simply set targets for returning Manitoba’s spending levels to the Canadian average. In 2006, we spent 13.1% of GDP on health costs. If that were lowered to the national average of 10.3%, we would save at least $620-million. For public schools, spending at the Canadian average would save about $100-million.

Our balanced budget legislation represents the ideal tool for bringing discipline to provincial spending. For years, Manitoba budget has expanded faster than its economic growth. We should tie all provincial and local-government spending to a formula based on inflation plus economic growth, with increases above that subject to a referendum. Second, rather than simplistically equating more money with more service, we have to measure the outputs, or outcomes, of spending. Last, we could divert savings from lower, but more effective spending into cutting the taxes that most impact economic activity.

Even if we ignore the mispricing of electricity (worth $1.2 billion annually, see “Our Green Dilettantes), these reforms would immediately save taxpayers hundreds of millions of dollars a year providing ample room for lower taxation. We can maximize economic returns by cutting so-called “growth taxes” on capital and business. Next, we should match Alberta’s flat 10% provincial income tax. In addition, as a Frontier Centre study in preparation shows, raise the basic income-tax exemption to Alberta’s level, $15,900, an action equivalent to raising the minimum wage to $9.20 an hour. Finally, eliminate the payroll tax, which comes right out of workers’ pockets in the form of lower wages.

Let’s nail up the coffin of Manitoba’s fiscal dependency with a productive alternative to federal transfers, particularly equalization. Offer to swap them for the GST, along with a one-time payout from the feds. Next, harmonize the PST and the GST and then unconditionally give one point to local governments.

With higher performing public services and an expanding economy, Manitoba would come roaring back. Fast.

All this beats Gary Doer’s assorted small potatoes like skating rinks, hiring clinical assistants or trimming business taxes by one percent. While most aggressive on tax cuts, the Conservatives have allowed Doer a cakewalk by playing on the NDP’s decaying intellectual turf (particularly regarding Manitoba Hydro), a curious strategy given the obsolescence of key NDP ideas like government ownership and monopoly services. Jon Gerrard’s Liberals have offered a more robust policy product, particularly its recent straight talk on ending our foolish university tuition freeze.

StatsCan’s latest report on job creation – 0.9% in Manitoba, or 5,100 new jobs, compared to 2.3% nationally – confirms our relative challenge. Drilling down reveals the broader problem at hand. We gained 8,500 public employees but lost 3,400 private-sector jobs. Doer says that tax cuts must be responsible and affordable. “Can we afford to cut taxes?” is, however, the wrong question. More appropriately, it should be“Can we afford all the government Manitoba has?”

That’s the missing question in this Seinfeld election.