A budget that’s balanced

Commentary, Taxation, Graham Lane

Finance Minister Jennifer Howard seeks advice for the 2014-15 provincial budget. Does she truly want advice, or is the offer made to provide the illusion that government listens to taxpayers? In the 2011 election, the NDP pledged no tax increases. Then it extended the coverage of provincial sales tax and jacked up fees in 2012, before upping the PST rate to eight per cent from seven in 2013. All together these increases, which should have been approved in a referendum, are taking $600 million more from our pockets.

Let’s review the economic context within which the 2014-15 budget will be presented. Government spending and borrowing have soared since the NDP took power in 1999. Despite the recession being over (2009 was the only year real gross domestic product fell), the government continues to run deficits with its gross debt now $30 billion.

Net debt — deducting from gross debt sums to be serviced by ratepayers (served by agencies and Crown corporations separate from the core public sector) — has risen from 1998-99’s $9.9 billion to a forecast $17.5 billion. Over the last five years, the government has racked up summary deficits of $2.5 billion, despite soaring revenues. Fortunately, interest rates are low, but what will happen when rates rise? With provincial spending increasing 2.5 times the inflation rate since 1999, it should be obvious that the NDP has a spending-control problem, not a revenue shortage.

Rather than an endless blizzard of spending announcements, we need a giant leap forward in common sense and accountability. This leap should extend beyond the operations of government departments and include all agencies funded by taxpayers’ money.

My primary concerns are: out-migration of Manitoba’s educated young, recently arrived immigrant-business people and professionals; the absence of new large industry (nothing for more than 10 years — Facebook and Rogers “flew” over Manitoba); losing Manitoba’s touted “advantage,” low electricity rates, due to Hydro’s risky expansion plans; accounting practices deferring the realization of negative economic impacts to future years; and ongoing deficits increasing debt, risking a credit downgrade.

In its 2014-15 budget, the government should pledge to end Crown agencies relying on ratepayer funding undertaking activities (such as driver licensing at MPI) that are a core government responsibility. It should also direct Crown agencies to write off intangible assets, such as goodwill, and adopt cautious accounting. And, it should pay attention to signals from the federal government that the days of massive transfer-payment increases are over, and start planning for more innovative and less expensive service-delivery models.

The government should create a level playing field for municipalities and, among other measures, end Winnipeg’s exemption from PUB’s setting of water and sewer rates. And, to prevent further occurrences of libel chill, the government should support whistleblowers, providing assurance that disclosures will be welcomed.

Government should change its approach to appointing the leaders of Crown corporations and other government-controlled agencies, and vet appointments through a committee of the legislature.

With respect to reporting government’s annual summary accounts, the net incomes of Hydro, MPI and other government enterprises should be segregated (when their surpluses are reserved by law or convention for the benefit of ratepayers, not government).

To round out my list for better, fiscally sustainable policy:

  • Restore the balanced-budget law, particularly the safety-valve requirement for referendums on tax increases.
  • Harmonize PST and GST in a revenue-neutral manner, employ it wisely with reasonable exemptions, and send one point to local governments on a per-capita basis.
  • Phase out the school portion of property tax over three years (find the necessary funds through savings throughout the public sector).
  • Increase personal tax exemptions to the Canadian average, and index the exemptions.
  • Provide provincial income splitting for couples with combined taxable incomes of $50,000 or less.
  • Amend the tax treatment of income arising from of the death of an individual and de-registration of tax-deferred plans, establish a flat provincial tax rate of 10 per cent (to better ensure well-off taxpayers remain in Manitoba following retirement).
  • Increase the housing allowance for those on social assistance.
  • Move to a defined contribution pension plan for new hires in the public sector.
  • Extend Pharmacare to cover hearing aids, glasses and dentistry. The present exclusion of these necessary services represent a hardship for lower-income families.

Finally, government should operate using two-year budgets, based on reasonable assumptions, and achieve a balanced budget without further increases in either taxes or fees.

The budget for 2015-16 should be balanced, ahead of the expected spring 2016 election, without counting restricted surpluses of government agencies.

Relatively low revenue growth, as expected for the core government account, will tempt government to implement further tax and fee increases. Ideally, government should look at this challenging environment as an opportunity to create a more innovative and effective public service. At a minimum, it should resist temptation and practice restraint.

To stay in the game with our thriving provincial neighbours, the government’s goals should include lower income and sales tax rates.