US embassy cable - 03OTTAWA1180

UNCLAS SECTION 01 OF 02 OTTAWA 001180 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EB/IFD, WHA/CAN AND WHA/EPSC 
TREASURY FOR OASIA/IMI - HARLOW, MATHIEU 
USDOC FOR 4320/MAC/ON/OIA/JBENDER 
CALGARY PASS TO WINNIPEG 
 
E.O. 12958:    N/A 
TAGS: EFIN, ECON, ETRD, CA, Manitoba 
SUBJECT: MANITOBA BUDGET "STEADY AS SHE GOES" AGAIN 
 
1.  Summary:  On the eve of a provincial election this spring, 
Manitoba's left-of-center New Democratic Party (NDP) government 
delivered a cautious budget on April 22, laying out its fiscal 
plan for the upcoming year.  As in previous NDP budgets, this 
years' rendition features very modest tax-cuts for middle-income 
earners and devotes more money to health care.  Based on an 
anticipated real growth rate of 3.2 percent, Finance Minister 
Greg Selinger projects the NDP's fourth consecutive balanced 
budget since taking power in 1999.  Successive Manitoba 
Governments have brought down balanced budgets each year since 
1995. 
 
2.  The NDP continued the tradition they began in last year's 
budget of raiding the revenues of the publicly owned electric 
utility, Manitoba Hydro, for C$52 million to help balance the 
books.  In total, the GOM will collect approximately C$365 
million in fees, "dividends" and assorted charges from Manitoba 
Hydro in 2003-4.  A C$48 million draw on the province's fiscal 
stabilization fund will leave only C$145 million in the fund, 
compared to C$264 million when the NDP took power in 1999.  The 
province expects to spend C$7.256 billion in 2003-4 (an increase 
of 4.7 percent over the previous year), with revenues increasing 
by 5.4 percent.   End summary. 
 
 
Manitoba Tax Rates Uncompetitive 
-------------------------------- 
 
3.  Manitoba's meager - and largely symbolic - tax reductions, 
while welcome, have not kept pace with the more rapid reductions 
in most Canadian jurisdictions, feeding fears in the Manitoba 
business community that Manitoba is no longer competitive with 
other Canadian provinces, much less bordering states.  Even after 
the cuts, Manitoba's personal and business tax levels remain 
among the highest in Canada.  For example, Manitoba's personal 
income tax rates at all levels of income are higher than the 
rates paid by residents of six of Canada's ten provinces, 
including Ontario, Alberta, and British Columbia.  At the same 
time, Manitoba's general corporate income tax rate is the second 
highest in the country.  Provincial comparisons aside, when 
Manitobans expressed concerns that their tax rates put them at a 
competitive disadvantage with their U.S. counterparts, the 
Provincial Finance Minister responded that Manitoba retains a 
cost of living advantage over U.S. jurisdictions because higher 
payroll taxes and healthcare costs are not included in the U.S. 
figures.  Manitoba also boasts relatively lower prices for 
electricity than neighboring provinces and states. 
 
A Little Here, a Little There. 
------------------------------- 
 
4.  In a budget devoid of major initiatives or incentives, 
funding Manitoba's publicly-funded healthcare system clearly 
remains a priority for the NDP.  Funding in 2003-4 will increase 
by 5.7 percent to just over C$3 billion, or 41 percent of the 
province's total budget.  Most of the new money for health care 
is coming from the federal government. 
 
5.  Manitoba businesses will be offered a new tax credit to 
invest in equipment or technology that reduces their own energy 
consumption.  The measure, which the GOM predicts will cost C$1 
million, is meant to leave more hydroelectricity on the grid for 
export, mostly to U.S. customers.  The GOM offered no estimate of 
the amount of energy that will be saved by the measure.  As 
previously announced, the corporate tax will fall by a further 
0.5 percent in 2004 to 15.5 percent. 
 
6.   Other spending decisions announced in the budget include a 
C$20/per month increase in welfare rates for single recipients 
and people with disabilities, as well as C$1 million to find new 
markets and products to shore up the beleaguered Port of 
Churchill. 
 
Local Reaction:  Underwhelmed 
------------------------------ 
 
7.  Business and taxpayers groups have roundly condemned the GOM 
for failing to provide any meaningful tax relief, and for the 
NDP's failure to keep Manitoba competitive with neighboring 
jurisdictions.  The President of the Winnipeg Chamber, Robert 
Kreis, said "It is a very good day for our competitor provinces 
and our competitor businesses outside the province."  Jim Carr, 
president of the Business Council of Manitoba called it 
".typically cautious without much risk taking, and there isn't 
much dare-devilling going on.  It tries to straddle the middle, 
where most of the voters are.  We would have liked to have seen 
more aggressive cuts to personal taxation." 
 
8.  The NDP's traditional allies on the left were slightly more 
restrained in their criticism of the budget, with Sid Frankel of 
the Social Council of Winnipeg applauding the move to inject $6 
million into child care, but said the NDP is going to have to tax 
upper-income earners more if it plans to keep funding social 
programs, adding "Government has really put itself in a situation 
where it's not taxing those who are really benefiting from the 
economy."  Gaile Whelan Enns, Manitoba director of the Canadian 
Nature Federation's Wildland Campaign, praised the NDP's new tax 
credit for businesses to reduce energy consumption, but panned 
the government for only funding the creation of one new 
provincial park while 138 areas in Manitoba need protection. 
 
9.  Reaction in Winnipeg's major newspapers has also been 
unfavorable. The centrist Winnipeg Free Press said that "if the 
middle class can be bought off with an average tax cut 20 months 
down the road of $155, what does that say about Manitoba?"  It 
further lamented "that there does not seem to be an effective 
opposition with a vision more compelling to voters than the 
promise of a pitiful $155 saving on taxes eventually."  The right 
of center Winnipeg Sun described the budget as having "far too 
many empty carbohydrates and not enough energizing protein." 
 
Comment 
------------ 
 
10.  This year's budget is consistent with the NDP's established 
practice in the last four budgets of being cautious to a fault, 
increasing funding to health care, and offering small, targeted 
measures on a multitude of issues, and continuing with the most 
modest tax cuts of any province in Canada.  They have outlined 
the fiscal path they will use in the upcoming election campaign, 
and will be quite content to campaign on a balanced budget, a 
strong economy and the lowest unemployment rate in Canada at 5.2 
percent.  The opposition parties - especially the Progressive 
Conservatives - will likely focus their attacks during the 
campaign on Manitoba's uncompetitive tax environment and how it 
is preventing investment and growth as well as hastening the loss 
of the province's best and brightest to greener pastures 
elsewhere. 
 
Cellucci