Manitoba's Balanced Budget, Debt Repayment and Taxpayer Protection Act.

• Author: J. Patrick Gannon

Manitoba's balanced budget law, as it is commonly known, has been well-received. The Canadian Federation of Independent Business and the Canadian Taxpayers Federation both describe it as "model" legislation which should be adopted by other governments. The Canada West Foundation and the International Centre for the Study of Public Debt both rate it as the "best balanced budget law" in Canada. On the other hand, critics of the legislation argue that it unduly restricts fiscal policy options. This article summarizes the Government's reasons for adopting tough balanced budget legislation, and outlines the main provisions of the Act.

The 1995 Budget was a significant event in Manitoba's fiscal history. Not only was it the first balanced budget in 22 years, but the budget document included draft legislation that would require the Government to continue running balanced budgets, pay down the general purpose debt, and obtain voter approval before increasing the rates of major taxes. After the Budget was approved by the Legislature, there was a general election in April 1995 which returned the Government to office. Following public hearings on the legislation, The Balanced Budget, Debt Repayment and Taxpayer Protection Act was passed by the Legislature and received Royal Assent last November.

Why Balanced Budget Legislation?

For about three decades after the Second World War, Canadian governments acted with an impressive degree of commitment to fiscal responsibility. Sometimes they ran small deficits; sometimes they ran small surpluses. But the surpluses were generally greater than the deficits over time, and the total amount of government debt actually declined during this period. Not coincidently, the economy was generally very prosperous.

Beginning in the mid-seventies, Canadian governments began to run deficits on a regular basis, even through periods of strong economic growth. Surpluses became rare. The reasons for this are a subject of some dispute, but the results are quite clear. A high level of debt accumulated, and interest payments became a major expense of government. In Manitoba, annual interest costs rose from about $80 million in 1980 to $600 million last year.

The high and rising level of interest payments led governments throughout Canada and elsewhere to raise taxes significantly during the 1980s. However, the higher taxes did not fund additional programs. Rather, they funded part of the rising interest bill. Most governments...