From the Fiscal COVID Collapse – A Roadmap for Rebuilding Manitoba Public Policy

Commentary, COVID-19, Economy, Government, Peter Holle

Canada’s Triple A credit rating was downgraded a notch to AA by Fitch Rating on June 24th.  Sadly, it’s no surprise – expect more downgrades as politicians stumble over each other to throw borrowed (and printed) money at the victims of their unwise COVID-19 virus lockdown policies.  

Historians will eventually explain how governments were stampeded into delaying the effects of a virus by declaring essentially medical martial law based on badly flawed computer models constructed by an academic modeller with a spectacularly bad track record – Professor Neil Ferguson of London’s Imperial College. 

Ferguson’s model predicted that, unmitigated, COVID-19 would kill 510,000 in the U.K., 2.2 million in the U.S., and 326,000 in Canada. To avoid swamping their healthcare systems, countries were advised to lock down their economies. 

Incredibly, politicians continued to shape policy around these increasingly fishy projections even when it became apparent, early on, that the virus would not be as lethal as projected and these numbers were wildly exaggerated. For example, in Canada there have been about 8,500 deaths of mostly immuno-compromised senior citizens – annually always vulnerable to influenzas and other respiratory diseases.  While this is indeed tragic, it is no basis for cratering the economy and blowing government budgets to smithereens. 

In Manitoba, there have been 315 cases of COVID-19 with 7 related COVID fatalities. These numbers are similar to those found in the province’s normal annual flu outbreaks. For this, the Manitoba government decided to run a $5 billion deficit and pursue a policy course that is bankrupting thousands of businesses across the province.  

In retrospect, the folks in charge continue to be unaware of the broader and deadly trade-offs that are being made.  Ultimately, the lockdown policy will end up killing more people than it saved, when calculations include deaths of people who delayed critical hospital procedures or were sidelined when the system went into full COVID war mode, temporarily closing other critical treatments.  And there will be other deaths – like suicides stemming from business closures, divorce, and exploding poverty. The tradeoffs here are particularly lopsided because a young suicide victim, with say 50 years of good life to go, is being effectively traded typically for marginal life extension of an 80-year-old senior with chronic health conditions. 

Ironically, it’s not well understood that closing down the economy merely DELAYS the virus – when the next wave of COVID -19 arrives, governments will simply be too broke to collapse their economies again with more lockdown ‘therapies’.  With the second wave, cash-short governments will proceed with a more nuanced course of action – protecting the vulnerable (seniors) and advising populations to wash their hands and avoid crowds. 

Why our politicians continued with the lockdown policy when more accurate information and projections showed COVID-19 was no Spanish Flu deserves deep study.  Was it weak political leadership?  Was it a lack of policy capacity at the senior levels of governments?  No doubt the mass media’s groupthink and lack of policy literacy have played a major role by maximizing the COVID-19 alarmism that continues to animate our politicians today.

Wall Street Journal columnist Peggy Noonan observed how many politicians got carried away. She wrote: “they received too much adulation, enjoyed the role of saviour too much, and the lockdowns became longer.  Told we were grateful someone was taking responsibility, they became micromanagers of human life. Briefings became self-aggrandizing and Castroesque in length”.   

Thus the Kafkaesque COVID-19 theatre: line ups in front of stores, school closures, shut playgrounds and hiking trails, ridiculous one-way markers in store aisles, and officious and ludicrous $6,000 fines for nail salon operators and barbers trying to make a living. 

The ‘positive’ side of all this is that we are heading into a hell of a policy storm that could fundamentally improve how our governments operate.  Manitoba’s projected $5 billion deficit basically cuts the province out of the debt market. Implementing tax and fee increases on a shrunken and badly damaged Manitoba private-sector economy would be just dumb. So we are left going back to basics, the necessity of cutting government spending by at least 25%.  

Fortunately, it is possible to do this while improving services and managing the transition as painlessly as possible.  Herewith, a by no means comprehensive Manitoba COVID-19 Policy Roadmap that will find the missing billions required based on best practices policy around the world:

  1. Public sector reform – A much leaner, flatter, meritocratic civil service would be 30 to 40% smaller with a vast reduction in management layers.  Private sector accounting systems to allow managers a measurable and objective basis for contracting out services. Performance pay increases senior level compensation.  End of seniority and the closed shop model allowing competence focused hiring of outside staff. Central agencies become advisory bodies, losing the ability to micro-manage departments. (New Zealand)
  2. Health reform – Change hospital funding from global budgeting to activity-based (results-based) funding so facilities budgets are based on the number of patients served. (Sweden) Create a purchaser-provider split to remove the conflict of interest that occurs when the service funder and provider are in the same organization. This would sharply drive down costs by enabling competing private and public providers. (Sweden). Begin exploring medical savings account model which would create massive efficiencies by placing resources directly into the hands of consumers (Singapore).  
  3. Education reform – Shift to a voucher model where funding flow through the parents; schools must compete for their business; school boards replaced by local school councils; government’s role is funding parents, certifying teachers, and publicizing standardized test results. (Sweden) Falling enrolments will automatically translate into declining total budgets. 
  4. Universities – Reduce funding to the humanities and shift funding to societal useful STEM topics – science, technology, engineering, and maths.  (Hungary). Lifelong tenure, which was supposed to protect freedom of inquiry and has instead made toxic professors invulnerable, must be reconsidered. Elderly academics with excessive salaries, whose productivity has ceased, should be encouraged to retire.
  5. Municipal reform – Embed high-performance government accounting and personnel models in municipal legislation to facilitate contracting out where beneficial. Separate council politicians from all operations, changing their role to that of a board of directors.  Council to have one employee – the City CEO working with an aggressive results-based performance contract.  Require mandatory publication of performance metrics for all city services in annual reports and on the internet. (New Zealand; Phoenix, Arizona)
  6. Manitoba Hydro – Finally tackle the Keeyask/Bipole 3 mess: separate stranded low-interest debt and add a monthly surcharge to all customer bills to retire it. (Ontario) Separate and sell off Centra Gas division (competing energy source to electric operations), using proceeds to pay down debt.  Separate generation, transmission and retail functions. Transmission would remain non-competitive under local government control, whereas generation and retail would open up to new suppliers and vigorous competition for service to consumers (the New Zealand model). Restore PUB rate setting for Manitoba Hydro.  Shift MH focus away from low-priced export markets by encouraging higher valued domestic consumption of electricity (i.e. supporting electric car charging infrastructure – France).
  7. Other Crown Corporations – Sell retail liquor stores. Sell public housing and shift Manitoba housing’s focus to income assistance to access market housing. (UK) Reform MPIC by requiring strict benchmarking to industry metrics. Remove driver license functions from MPIC and put them and ability to select non-basic coverages online.
  8. Creative growth-enhancing tax reform – End payroll tax.  Harmonize the PST and GST. End property tax for funding schools.  Benchmark income and corporate tax to be the most competitive in Canada. 

This COVID-19 Roadmap shifts the burden of recovery to Manitoba’s consistently low-performing public sector.  It is a positive path for recovery. It is simply better public policy. 

 

Peter Holle is president of the Frontier Centre for Public Policy