Economic storm brewing for Manitoba

Manitoba’s mandate-hobbled Auditor General (who lacks the power to “audit” policy and policy outcomes) has provided stark information on the provincial government’s finances. Borrowing is out-of-control. What Pallister’s own Treasury Board describes as economic “storm clouds” loom in the future — rising interest rates on rising debts, Hydro’s rocketing borrowing, and credit downgrades.

Pallister forecast a balanced provincial budget by the end of his coveted second term, which would be 2024, assuming his government survives with its majority in the 2020 election. The only way his forecast works depends on his new carbon tax, ramping up Hydro rates well beyond the annual inflation rate, and slimming civil servant staff while capping pay hikes to sub-inflation levels for a decade.

The auditor’s information reveals that the debt-choked Manitoba government will have difficulty slaying the provincial deficit as interest rates inevitably increase. For just every 1% increase in rates — once current debts are renewed — would add at least another $220 million more in interest costs annually, plus eventually more than $250 million more annually for utility customers.

With $15 billion of direct provincial debt to mature within five years and additional provincial core borrowing of another $2 billion, annual interest cost increases will build quickly. As for Hydro, while replacing the $4 billion of debt to mature over the next five years will not push up Hydro’s costs, new Hydro debt of as much of another $10 billion will be subject to higher rate hikes — extra costs to be recovered through utility rate hikes.

Buried within Auditor General Norman Ricard’s most recent report on the province’s public accounts is his observation that, over the 10-year period ending in 2017, government’s loans, guarantees and obligations have virtually doubled. While it took 137 years for the provincial government to reach financial liabilities of $22 billion, only 10 years of continuing NDP governments was “required” to double that level by the end of fiscal 2016-17. The province requires $1 billion to meet its current core government operations debt servicing obligations, but then add in provincial government entities (Crown corporations, Hydro, plus other government entities), which are already paying out another $700 million in debt servicing costs — funded by utility and other ratepayers.)

Speaking of Hydro, it’s debt has and still is soaring — from $5 billion to $16 billion over 10 years — and headed for $25 billion.

Manitoba’s taxpayers anticipating real and substantial tax breaks from the Pallister government are dreaming. In a government that painfully lacks capacity for serious public sector reform, expect tax hikes (by way of carbon tax), higher Hydro rates and MPI premiums, municipal tax and fee increases (forget help coming from the province for municipal governments), and higher tuition for students. Pallister’s government needs more from you to reduce its annual deficit and bonus its cabinet ministers (now “suffering” from deductions from their salaries because of a “too high” deficit).

An unpublished-widely Treasury Board financial analysis, making the rounds of Crown boards of directors, suggests “storm clouds” are forming. Frankly, prepare for a “downpour,” one that will soak taxpayers and utility ratepayers after the 2020 election. More in two weeks.

Auditor Aids Government

On a lazy August 2018 afternoon, Scott Fielding, the newly appointed Finance Minister, issued a news release commenting favorably on a report issued by the Province’s Auditor General. The report, Public Accounts and Other Financial Statement Audits, included commentary that patted the Pallister government on the back while highlighting the annual deficit streak of the former NDP government. The report was on financial statements and transactions as of and ending March 31, 2017 – now 17 months ago. The bar is low.  Imagine a private company issuing financial reports way over a year out of date?

Anyway, the Finance Minister was delighted that the auditor prefers measuring government results based on the summary accounts, not the government’s core operations. Summary accounts include not only the results of the government’s direct operations (health, education, social services, Justice, etc.) but those of Crown corporations and other operations that the auditor considers to be controlled by government. These include Manitoba Hydro, MPI, Lotteries and Liquor, universities, hospitals, etc..

Trouble is, the auditor does not help taxpayers by mixing the results of core government operations – mostly funded through taxation and federal transfers – with the results of enterprises funded by utility ratepayers, gambling and liquor revenue, students’ tuitions and the like. Yet there is a good reason Pallister politicians would be praising their government with such a news release. The auditor’s focus may well help Pallister’s cabinet ministers get back salary lost because of the annual deficits as the summary account deficit falls.

With both core operations and separate operations (goods and services mixed together), the government has the ‘best of two worlds’. Government can levy various fees and taxes on Crown enterprises, pushing up fees and rates, enriching the summary accounts. The best example is found with Hydro – first, ‘core’ government annually taxes and fees on Hydro of $400 million plus. Then, Hydro, required to operate ‘in the black’ to have a satisfactory ‘balance sheet’ (despite its boondoggle expansion), will up utility rates. (Also, while government treats its’ charges on Hydro as income as received, Hydro doesn’t offset it as an immediate cost, boosting government’s summary account: a no-no in private industry.)

Returning to the scope and actions of the auditor, the auditor has no mandate to review and comment on government policy, unless directed to by government. Government doesn’t ask, thus the Hydro boondoggle rests untested: neither an independent and comprehensive inquiry nor a value for money audit.

If directed to by government, the Auditor General has the capacity, staff and knowledge to audit to assure government-controlled organized operations seek ‘value for money’, but appears not to do so with the large Crown corporations. Few would argue that Hydro doesn’t need a good value for money audit, but it has never been done. Same with MPI,  WCB, etc.

When such an audit would help bury the former government, the Pallister government has had the auditor do one – such was the case with the east-side road project. The auditor’s mandate needs a major make-over. And, cabinet members should earn back salary lost by deficit performances of core operations by focusing on improving their rock-bottom performance, not muddying that dismal picture by including backdoor fees and taxes.

And, let the taxpayers laud the auditor, not the government.