Premier Pallister’s Trump-esque statement that budget 2018 was going to be the “best budget ever” has fallen a bit flat.
Instead of a bold plan to deal with climate change, poverty and our crumbling infrastructure, we are presented with two alarmist scenarios to justify further tax cuts and a lack of decisive action: the recent tax cuts in the US and our provincial debt.
Ever since the Conservatives have been elected, they’ve been ringing the alarm bells about our deficit, and much of the media and business sector lobbyists have been uncritically echoing their concerns, with one recent report labelling the deficit as ‘massive’.
Manitoba does not have a massive deficit. It has a manageable deficit that is decreasing at the same time the economy is growing. In other words, the two elements of our Debt/GDP (Gross Domestic Product) ratio are both moving in the right direction. The top numerator is decreasing and the bottom denominator is increasing.
The ratio tells us how much our total debt is as a percentage of the size of our economy. According to this year’s budget analysis, our Debt/GDP ratio is 34.3%, down from last year’s 35.7%.
Very few economists would argue that a Debt/GDP ratio of 34.3% is of great concern. Nonetheless, we continue being distracted by debt alarm bells and missing other important issues that should be dealt with. In fact, many important problems like poverty and our infrastructure deficit could be greatly improved by deficit spending. In a low interest rate climate, it makes sense to invest in programs that will, in the long run, reduce spending on healthcare, incarceration and the increased cost to repair rapidly deteriorating infrastructure.
Critics will point to the growing possibility that interest rates will continue to increase, raising our debt servicing costs. We have a long way to go before the cost of investing outweighs the benefits, but it is true that there is another way to reduce our deficit.
A deficit is affected by both expenditures and revenues. Maybe revenues need to increase, but few governments consider this possibility. Even the former NDP government reduced taxes by a cumulative $1 billion over its mandate. But this race to the taxation bottom is dangerous because without resource royalties from oil to fill the tax revenue gap – such as enjoyed by Alberta and Saskatchewan – constantly falling revenues can only mean cuts to services and dis-investment in social programs and infrastructure maintenance. Consider what is happening in the US.
The budget speech points to the huge tax cuts in the US as a justification for lowering taxes here. There are many reasons why one would not want to hold up the US as an example to be followed, with the highest rate of income inequality in the G8 countries as the main concern. In some states, ultra-low taxes are wreaking havoc across the board. According to The Economist magazine, Oklahoma and Kansas have cut their education budgets so deeply that teachers have to take part time jobs to make ends meet, and school districts are only able to offer classes 4 days a week. There is an exodus of teachers to higher-paying states. Police cannot fill the gas tanks in their cars and under-resourced prisons are close to the breaking point.
We are far from that point in Manitoba, but it is worrisome that we have to compete with that level of underspending. At some point, Canadian jurisdictions have to say enough to tax cuts. The best budget ever would explain why responsible taxation is needed to provide adequate services to citizens and to implement policies that deal with big issues: crumbling infrastructure, an ageing population, educating children.
Instead we will have, by the end of 2020, an estimated $250 million cut resulting from the indexing of the personal tax brackets ($10 million/year) and the increase of the Basic Personal Exemption ($230 million by end of 2020). The change in the indexation lowers everyone’s taxes, even those who could afford to pay more, and Manitobans in the lowest tax bracket will realize a $42 benefit by 2020; higher income Manitobans will see a $255 benefit over the same period. The end result is less to spend on a variety of programs that could help Manitobans whose income is so low they don’t pay any income tax. Does the individual benefit really offset the cumulative loss of revenues that pay for services we all use?
Also of great concern is the promise to reduce the PST by 1 per cent by 2020. This decrease will remove a further $300 million from revenues, an amount that is awkwardly touted as offsetting the carbon tax.
The carbon tax is not just a mechanism to remediate the negative effects of climate change, it should discourage us from polluting. Most of Manitoba’s GHGs are produced by our cars and trucks, so it makes sense to tax gasoline. The Conservatives should not try to sugar coat that policy by suggesting that the increase in the basic personal exemption or coming reduction in the PST will offset the carbon tax. It’s unlikely that Manitobans will connect those dots, and they shouldn’t: if you pollute, you should pay. True, if you’re low-income, you do need an offset, but you also need a reliable, publically funded transportation system. Such a system should be supported by the carbon tax.
The less-than-inflation increase in healthcare and education spending represents a cut in these departments, despite the more than $200 million increase in health, social and equalization transfers.
In contrast, the best budget ever would have used the carbon tax to fund bold programs that would electrify our transit system, and reward green industries while lowering GHGs. It would have introduced programs to help low-income Manitobans deal with heating costs, and at least covered inflation in healthcare and education spending.
The best budget ever would not have fixated on the budget deficit at the expense of helping low income Manitobans and infrastructure spending. It would not have presented the increase in the basic personal exemption as the best way to help Manitoba’s poorest. Instead, the best budget ever would have increased EIA rates so Manitoba’s most vulnerable could make ends meet.
The best budget ever would have had the courage to explain why taxes are a much needed tool that allows governments to support a healthy society, and why our debt level is not unreasonable.
Unfortunately, the best budget ever remains somewhere in our future.
Lynne Fernandez holds the Errol Black Chair in Labour Issues at the Canadian Centre for Policy Alternatives, Mb.