By Peter Holle
It’s 2036 and Manitoba’s population just passed three million. The economy is booming.
Imagine for a moment the events needed to bring Manitoba to such a result. In 2018, let’s suppose, Manitoba finally confronted its slow-growth, deficit-ridden crisis by abandoning heavy government ownership of the economy, punitive tax rates and dependency on federal transfer grants. By narrowing government’s role in the economy, the new direction kick-started the economy and made the province a Mecca for people and investment. By holding public sector growth well below that of the private sector, Manitoba doubled its rate of economic growth. Paradoxically, a faster-growing pie produced more tax revenue for public services.
Government returned to its core tasks of funding core services, setting standards and measuring performance. It opened up the education and health-care industries, empowering both employees and consumers through the magic of choice and competitive innovation. Those sectors became dynamic export industries that added value to the broader economy, instead of subtracting from it.
Complementing the separation of public funding from delivery, new performance and cost measurement systems made public services more transparent. Government began to focus on outcomes and outputs rather than process, rules and red tape, and posted simpler, lower administrative overheads. The separation made politicians’ jobs easier by depoliticizing public services and shifting their focus back to the consumers they serve. New technology and vast service improvements followed as service providers rapidly added value to their offerings to attract and retain customers.
By ending the sluggish public monopolies and moving to a system of competing public and private providers, a transformed health-care system became the province’s largest export industry and a hotbed for research and value-added activity. Consumers used the Internet to choose the facilities with the best quality and shortest waiting lists, diverting demand to underused facilities in smaller centres.
With payment based on the volume of service instead of last year’s budget, marginal facilities closed down or turned to other uses. Many were sold to former public employees and private companies, who converted them into specialized clinics. The Mayo Clinic and other prestige health service providers moved in with the latest technologies to service thousands of Americans, capitalizing on our remaining currency advantage and the presence of research talent, with local customers accessing them during off-peak hours at rock-bottom rates charged to the public system. Waiting lists disappeared, while productivity gains and innovations, absent in the old monopoly model, dramatically reduced costs.
Public education similarly changed. Instead of a politicized cost centre, it became a thriving economic driver. The province consolidated funding by dumping property taxes, simply sending money to schools based on enrollment. Quality control was assured by widespread testing and publicizing of results.
Parent-teacher councils at schools replaced school boards, which removed expensive, multiple layers of administration. Individual schools and organizations negotiated their own contracts with teachers, but the profession prospered. It came to resemble the accounting, engineering and legal professions, with star or master teachers earning up to $250,000 a year. Entrepreneurial teachers formed their own schools and school chains. Under-used or closed facilities re-opened province-wide as the teaching industry aggressively marketed its services to thousands of foreign students.
Impressive new efficiencies in these two industries helped pay for carefully planned, but dramatic, tax reductions which made Manitoba Canada’s most attractive place for investment and job creation. To maximize economic growth, the top personal income tax rate fell more than half, to a flat eight per cent from 17.4 per cent over a three-year period, and corporate rates went to the same level. Payroll taxes ended immediately. The provincial sales tax was reduced by one per cent and then harmonized with the GST to simplify administration and pump up private investment by private business, which benefitted from expanding input tax credits on purchases of new plant and equipment. By keeping the same rate over a larger base, the province raised $200 million more in sales tax revenues by 2020. One per cent of the combined rate was transferred to municipal governments on a per capita basis.
The provincial government chose to regulate the services provided by MPI, WCB, MLL and Hydro (other than the transmission network) rather than run them. Citizens benefited greatly when the government broke up the public monopolies by selling their assets and operational licences to the private sector, ending the domination of government-zoned-and-run services. The private sector firms that took over what had been government-run services were joined by competitors, and corporate taxes soared and exceeded the levies government had previously laid on the former Crowns.
Manitoba Hydro’s Keeyask and Bipole investment folly precipitated massive reform of the province’s energy monopoly. Before selling off what had been Hydro’s generation and distribution assets and responsibilities, the then-new PC government recognized a $7 billion loss from unneeded and uneconomic generation and transmission assets. The loss was moved to the province’s books and amortized with interest for 25 years, allowing electricity rates to be kept affordable for consumers and industry.
A particularly important reform re-structured transmission, generation and retailing of the monopoly into separate operating entities. Ownership of transmission assets was transferred to consumers and managed through elected local government trusts across the province, in ways similar to the co-ops of today.
Both generation and retail were opened up to competition, enjoying, for the first time, much enhanced transparency and accountability. Competing natural gas and electricity operations were separated before privatization. Due to sharply accelerating population growth and new and expanded industries – and also to the major policy reform across the economy and government – another good result was that the Keeyask Dam’s capacity was serving the domestic market some 20 years earlier than expected.
Dozens of other reforms lifted barriers to growth throughout the economy, two of them especially important. Targeted housing supplements for low-income earners replaced the remaining vestiges of rent control. This revitalized Winnipeg’s historic downtown and set off a boom that eventually created 100,000 new housing units. A unilateral withdrawal from supply management allowed the egg, poultry and dairy industries to expand rapidly at the base of a diversified food processing sector, creating tens of thousands of new jobs.
Young people scratch their heads when the old-timers talk about Manitoba’s once “have-not” economy….
Does this sound too good to be true? With some vision and a lot of leadership it could happen.
Peter Holle is president of the Frontier Centre for Public Policy, www.fcpp.org