Manitoba’s Model at a Dead End

Commentary, Government, Graham Lane

Circa 1915 Winnipeg was frequently described as a second Chicago, a serious transportation hub with a bustling private economy. In 1921 it was the third-largest city in Canada. In the 1960s Winnipeg was western Canada’s corporate headquarters city.  Today Winnipeg is Canada’s ninth-largest city, known more in the U.S., if not by most Canadians for the Winnipeg Jets.  Meanwhile, senior management roles at major Winnipeg-based corporations continue to shift to Ontario. 

From a population, economic and political perspective, Manitoba’s ‘weight’ is in the same category as the Maritimes and Newfoundland and Labrador.  Manitoba has never been the home of a Canadian Prime Minister.  At federal election time, the focus is on seat-rich Ontario and Quebec, certainly not on Manitoba’s 14 ridings.  As to deliberations on heavy’ economic issues, both the governing party and the opposition focus on Ontario and Quebec.  Even Manitoba’s more affluent western neighbours get more attention in Ottawa.

Manitoba’s provincial government depends on long calcified federal transfer programs to fund an astounding 37% of its budget. The federal government’s finances, in turn, depends disproportionately on tax revenues from a few so-called ‘rich’ provinces to help fund the essential public services of the other ‘poorer’ so-called “have-not” provinces through its dysfunctional and increasingly divisive 64-year old equalization program. 

This was less of a problem when the federal government was relatively ‘flush’ and had ‘small’ overall federal deficits. Much research shows that inter-governmental transfers tend to “stick” to the public sectors in recipient provinces –“have-nots” have significantly larger government sectors per capita than “have” provinces like Ontario, B.C., Alberta and Saskatchewan. 

Manitoba’s weight in the federation continues to decline – with about 4% of Canada’s population its share of the total economy has fallen to 3.2%.  By choosing to fight Covid-19 by locking down the economy, the federal government increased its borrowings by an astounding half a trillion dollars, falling back on the Bank of Canada’s ‘printing press’.  In this new reality, Manitoba finds itself leaning on a wounded ‘bison’ – Canada’s federal government.

Let’s not be naïve, Canada’s transfer programs will likely be sideswiped by the Trudeau government’s fiscal Covid bonfire.  It will also be aggravated by foolish anti-energy federal climate policies that are suffocating the country’s largest source of tax and export revenue.  In particular, blocking different pipelines to highly-priced Asian market forces Canadian producers to be a price-taker in the U.S. market – depressing prices to industry and tax revenue to government. 

Especially egregious is Quebec’s blockage of the Energy East pipeline which would see domestic oil from western Canada displace expensive foreign imports from Saudi Arabia.  Quebec receives about half of the equalization pie, benefiting unfairly from a loophole in the equalization formula which exempts its electricity exports.  This jiggery-pokery will figure in Alberta’s upcoming equalization referendum, which could be a prelude to a sharply accelerating discussion around western separation. 

Manitoba, with its 1970s-era big government plus high taxes model, is heading for an overall $60 billion debt (including Manitoba Hydro!), is totally unprepared for coming national higher-level fiscal and political storms.  And, this time, the federal government, facing its own fiscal chaos, is in little position to help.

Newfoundland and Labrador is not the only Canadian government that needs another economic model.

 

Graham Lane, a retired CPA CA, is a member of the Frontier Centre for Public Policy’s expert advisory panel.

Photo by Mahesh Gupta on Unsplash.