The Fiscal Responsibility and Taxpayer Amendment Act, Bill 27, Manitoba

Presented by Lynne Fernandez, Errol Black Chair in Labour Issues, CCPA MB. Submitted October 24, 2018.

The Canadian Centre for Policy Alternatives (CCPA) is an independent research institute concentrating on economic and social issues. We are pleased to be able to comment on Bill 27 this evening.

CCPA has been engaged in balanced budget legislation (BBL) from its inception in Manitoba, and before we get to the specific amendments in Bill 27, we feel it necessary to first reiterate our opposition to the legislation.

BBL has a strong appeal to those who do not believe that government has a role to play in stabilizing our economy. But economic crises are unavoidable in our system, often from the irresponsible behaviour of the financial sector, as we saw with the 2008 crisis. With governments unwilling to face the fact that taxes have been cut too much, leaving us with a shortage of revenues to deal with these challenges and even closer-to-home social emergencies , it is unrealistic to expect that deficit spending can be avoided indefinitely.

The very spirit of BBL goes against basic principles of Keynesian economics of using government spending and taxing policies to maintain economic stability.  When a crisis hits and the private sector retreats, the government must step in to stabilize demand and prevent massive unemployment. It could also reduce taxes at that time to stimulate demand.  When the crisis ends, government spending should return to normal levels and taxes should be increased to pay down the deficit.

As the BBL stands, it does not allow for deficit spending to prepare for future crises such as are likely to occur with climate change. That said, in no way do Keynesian principles promote endless stimulus spending or tax reductions: a responsible government accountable to voters must use deficit spending prudently.

Modifications of the BBL have at least allowed for emergency spending for natural disasters, but governments’ refusal to remove the requirement for a referendum around raising taxes dooms governments to either underspend and/or run deficits when emergencies hit.

Making matters worse are the perverse incentives in Bill 27 which will penalize Cabinet Ministers when the deficit is not decreased by at least $100M/year. This incentive assumes that Ministers are either not being responsible and/or that no situation will occur that requires a larger deficit, or impedes its reduction. Should another financial crisis occur, or should action be required to improve services in a crucial area, will this government not respond because Cabinet Ministers don’t want to be fined?

Adding insult to injury is the “Jubilee Clause” which will refund any fines paid once the deficit is eliminated. This amounts to another perverse incentive for government to not respond responsibly to any crises that may arise. These disincentives, combined with the need for a referendum to raise taxes, turn Keynesian principles of responsible budgeting upside down.

These incentives also encourage the deficit to be paid down faster than needed and encourage cuts to front line services. Given the considerable challenges segments of our population face, it would be more responsible to base spending decisions on how to reduce poverty and ensure sufficient public services rather than on whether Cabinet Ministers are going to get their penalties refunded.

Finally, notwithstanding the ineffectiveness of BBL overall, the idea of refunding Cabinet Minister’s penalties would seem to defeat the purpose of the penalty in the first place. Every time I get caught speeding or running a red light, I have to pay a fine.  Fair enough; I’ve broken the law.  If I then go a year without breaking the law, I do not expect a refund for my past misdemeanours.

In sum, BBL has been modified in this province and others out of necessity because when governments voluntarily or legislatively constrain themselves from raising taxes when required, deficits become necessary. The amendments in Bill 27 are an attempt to fix this structural problem by pushing Cabinet Ministers to put their personal finances ahead of making responsible budgeting decisions.

The so-called Jubilee Clause gives Cabinet Ministers an escape hatch that no other Manitoban has access to. Should government not make responsible budgeting decisions because of these amendments, Manitobans will be the ones who suffer.

This bill passed Committee stage on October 24, 2018, the night of civic elections across Manitoba. It moves toward Royal Ascent.