Filmon versus Pallister: that was then, this is now

Opinion

Hey there, time traveller!
This article was published 14/04/2017 (2815 days ago), so information in it may no longer be current.

The NDP can barely contain its fury.

For much of its 17 years in government, New Democrats thrived largely by convincing voters that any Progressive Conservative government would trigger deep austerity and cuts to core services. They based these allegations on the carnage left behind in the 1990s when Tory Premier Gary Filmon unleashed a wave of austerity in an effort to slay the deficit.

The NDP narrative went something like this: caught between a deep recession and a severe cutback in federal transfer payments, Filmon unleashed layoffs, forced days off and deep cuts to health, education and infrastructure funding to rush the provincial budget back into balance.

Look at what the Tories did then, the NDP would howl, and you will get a forecast of what they would do if they ever got back into power.

Eventually, the tack wore thin with voters. Its back broken by a string of self-inflicted political wounds and an inability to get a handle on the budget deficit, the NDP was punted from office last year. Premier Brian Pallister’s Tories finally got a chance to govern again, this time with a promise it would not repeat the mistakes of the Filmon years.

That brings us to the budget delivered this past week. Finance Minister Cameron Friesen’s second budget did not live up to the predictions of deep austerity, but it was austere nonetheless. Health and education funding has been more or less frozen, along with infrastructure funding. Spending in many other departments was cut, and Pallister is proceeding full-steam-ahead to cull managers from government and impose a wage freeze on the civil servants who remain.

Given the similarities between this budget and the worst of the Filmon budgets, the NDP could not contain their horror that, after two decades of warning Manitobans about the dangers of another PC government, all of the party’s worst fears had come true. “We really hope that they don’t… carpet-bomb the people of Manitoba with more austerity measures, but every indication is that’s exactly where they’re going,” NDP finance critic James Allum said in the wake of the tabling of the budget.

And yet, is that a fair picture of the intent and impact of this budget?

A deeper analysis of both the economic conditions and austerity measures brought in by Filmon in the 1990s, and those unleashed this week by Pallister, show many important differences that will make it difficult for the opposition NDP to draw a direct comparison between the two PC governments.

First, let’s look at the Filmon years. After winning a minority mandate in 1988, the Filmon-led Tories did institute some austerity measures immediately, although none were particularly profound.

There were layoffs and a general effort to keep spending under control. Filmon immediately started to fulfil a campaign pledge to eliminate the payroll tax for small businesses. To help pay for that tax cut, he reduced tax expenditures and used tax increases on items such as tobacco and gasoline.

However, the austerity for which Filmon has become so well known did not start until well into the 1990s. 

Total program expenses from 1988 to 1993 increased by an average of four per cent annually. Revenues were very flat, however, thanks largely to a recession — and they actually decreased by more than five per cent in the 1992-93 fiscal year. The result was that the deficit exploded.

When the Tories came to power in 1988, they inherited a budget shortfall of $141 million. By the end of the 1992-93 fiscal year, that had ballooned to $566 million. With the economy starting to show some signs of recovery, the Filmon government could not seem to get a handle on the deficit.

That set the stage for the first truly austere budget in 1993-94, when overall expenditures, including allocations for health care, education and highway infrastructure, were actually reduced from the year before. Filmon also introduced $100 million in tax increases and changes to tax credits.

Taxes on tobacco and gasoline went up and the base of goods and services subject to the Provincial Sales Tax was broadened. This was due to an agreement with Ottawa to harmonize the tax base to match goods and services subjected to the newly introduced GST.

The Filmon government also made significant changes to tax-credit policy. The government reduced the education property tax credit from $325 per homeowner to $250 and introduced a minimum threshold that required every homeowner to pay at least $250 in property taxes. The $175 pensioners’ education property tax credit was clawed back from higher-income seniors, and other tax credits were reduced for those receiving social assistance, workers compensation and the federal Guaranteed Income Supplement.

On the tax reduction side, Filmon continued to increase the threshold to relieve small businesses of the burden of the payroll tax.

What were the net impacts of these fiscal policies? Starting in this fiscal year and carrying through the next three or four budgets, austerity left its mark on the province.

There was shrinkage and attrition but the Filmon government did not, as the NDP has claimed widely, lay off 1,000 nurses. Nurse positions were eliminated, although the exact number is closer to 300 than the 1,000 cited by the NDP, because of a reorganization of the service delivery in Winnipeg hospitals.

(More impactful was a decision in the early 1990s to cut back on medical school admissions and nurses’ training. This was part of a national initiative to help control health-care expenditures that is widely acknowledged now to have been a diastrous policy that created profound shortages of both doctors and nurses over the next two decades.)

How does all that compare with the current budget and economic conditions? In short, the budget delivered by the Pallister government this past week was nowhere near as austere as the Filmon budget. 

While Filmon delivered actual cuts to health and education, and a 3.1 per cent cut to spending overall, Pallister has offered a modest 2.1 per cent increase in overall core funding, with 1.8 per cent hike for health, and 1.1 per cent for education. Given that those allocations are below the rate of inflation, it is likely there will be cutbacks in both service areas, although not to the extent seen in the 1990s.

If Pallister is able to avoid the deep cuts seen during the Filmon years — and we have yet to get an accurate picture of exactly how the most recent budget will impact services — it will be because economic conditions now are much more favourable than they were back in 1993.

It is true that we are now, as Filmon was then, in a period of post-recession recovery. But the pain and suffering from the 2008-09 global financial meltdown was quite mild compared to the impact from the 1990 recession, when Canada’s GDP contracted by more than three per cent and unemployment was running at double-digit levels.

And yes, both governments find themselves mired in deficit financing, but the order of magnitude shows that Filmon faced a much bigger challenge then than Pallister does now.

The deficit now ($840 million) is larger than the deficit back in 1993 ($566 million). However, the deficit as a percentage of GDP back in 1993 was 2.3 per cent; the deficit forecast for the current year is only 1.2 per cent of GDP. Simply put, the deficit was a much bigger deal back in 1993 than it is now. 

On the revenue side, Pallister has a distinct advantage as well over Filmon. The year before the 1993-94 budget, total revenues for Manitoba went down by 5.4 per cent; revenues for the Pallister government in the year prior to this most recent government grew at a very reasonable 3.9 per cent. And Filmon would have to navigate an actual decrease in annual revenues again in 1996-97 when the full impact of cuts to federal transfer payments flowed through to the provinces; there is no immediate threat now that Pallister’s government will have to face an actual decrease in revenues.

The one area where Pallister wins the misery battle is on debt.

When Filmon tabled the 1993-94 budget, the debt-to-GDP ratio was 27 per cent; for Pallister, it is projected to be a lofty 35.7 per cent. There is no doubt that debt levels are a much bigger concern now than they were in the early 1990s.

There is no escaping the negative impacts of Filmon’s budgets. By the time the province posted a balanced budget (1995-96) and began to restore funding, the austerity scars were plain to see: fewer doctors, nurses and teachers; higher property taxes as education costs were downloaded to homeowners; a larger inventory of decaying infrastructure; larger class sizes in schools and less capacity in the health care system.

The trade-off was a budget surplus and a levelling of total public debt.

It also deserves to be said that Filmon’s heavy lifting paved the way for NDP Premier Gary Doer to make massive investments in health care, education and infrastructure in the 2000s. But, it’s also fair to say that many of those investments were made larger and more expensive because of the damage done by cuts during the Filmon years.

The impact of the most recent Pallister austerity budget will take time to measure. We do not yet know, for example, if there will be cutbacks in elective procedures to allow the regional health authorities to live within leaner allocations. We also don’t know what the impact will be on school divisions — rumours of teacher layoffs are already rampant — and on homeowners that may face increased education property taxes to make up for the virtual freeze on provincial education funding.

However, although there are some similarities, there are enough differences between this most recent budget and the most austere of Filmon’s budgets that will require some restraint in the allegations levelled against the current government.

That is to say, that was then and this is now — at least until the next provincial budget.

dan.lett@freepress.mb.ca