The Case for Selling Crown Corporations

Commentary, Valuation of Crown Corporations, Crown Corporations, Graham Lane

This is far from the best time for most Manitobans. Covid-19 has poisoned the prairie province’s economy, the finances of the government, education, healthcare, small businesses and more. The reining party is on the ropes in a difficult environment that favours an even bigger spending opposition to win next election. That though would exacerbate problems for Manitoba’s beleaguered private sector taxpayers. Inflation will up government deficits as public sector unions push for more pay than governments can afford.

With the fortunate early departure of the completely self-involved Brian Pallister, there were high hopes that it would set the stage for a new Conservative leader who could turn the province’s economy around. But an unfortunately severely flawed leadership process saw the party’s approval rating diving.

At best, the now rattled government of Heather Stefanson has two years to do what Brian Pallister couldn’t. She should forget focusing on winning the next provincial election and use her party’s massive margin in the legislature to move the province sharply more conservative with policies favouring a larger private sector.

Best to start by explaining to taxpayers the advantages of selling Crown corporations. Manitoba’s private sector taxpayers hasn’t benefitted by the provincial government owning and directing the critical operations of Crown enterprises (such as Manitoba Hydro, Centra Gas, Manitoba Public Insurance, the Workers Compensation Board, the casinos and liquor sales). The major decisions of public sector enterprises are being directed by politicians.

A recent commentary by Ian Madsen, a senior policy analyst for the Frontier Centre for Public Policy, listed the advantages (or, more bluntly, subsidies) that Crown enterprises have over private sector enterprises. They don’t pay income taxes (having non-taxable status), have access to low-cost public sector borrowing rates, benefit from government guarantees of their debts, which assures them of certainty of survival. There are no active shareholders demanding accountability, which means little or no proper scrutiny or consequences for dubious grandiose projects. And no active pressure by government to generate acceptable returns on invested capital (if even any positive cash flow at all). Add it up and no surprise, the crowns are a hugely hidden burden on taxpayers.

Madsen also cites the stumbling effects naturally inherent in government-owned management and operations: slack bureaucratic cultures featuring a lack of innovation without effective incentives to improve efficiencies and lower costs. All of this is compounded by the lack of competition that comes from having government-granted monopolies. Madsen concluded it would be in the public interest to “… break them up and sell them off”.

When major decisions are to be made with respect to Crown corporations and operations, politicians now make the call. And those politicians making ‘the call’ typically have little or no experience in the field, in business, or in truly serving customers. Now making ‘the call’ in a non-transparent system with little accountability usually brings expensive political decisions (par for the course).

So when Manitoba decided to build a new hydroelectric generating dam, MPI adds a new benefit, relocates a casino, and pays fancy union benefits and salaries it’s you the taxpayer that pays.

 

 

Graham Lane is a retired CPA CA, after forty years in executive positions in the public, private and institution fields. He is on the Frontier Centre’s Expert Advisory Panel.