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Future considerations

Four key areas where short-term budget thinking doesn't cut it

Right now, interest rates are low, making government projects affordable. In future, cheap borrowing will disappear. By the time the province funds more rapid transit or personal care homes, it could be much more expensive.

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Right now, interest rates are low, making government projects affordable. In future, cheap borrowing will disappear. By the time the province funds more rapid transit or personal care homes, it could be much more expensive.

Loans for winter tires, new daycare spaces and an extra property-tax credit for seniors are some of the goodies in Thursday's budget, the shiny pennies typical of short-term thinking embedded in government budgets.

It�s not clear just how much the aging demographic will end up costing provincial governments in terms of health care.

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It�s not clear just how much the aging demographic will end up costing provincial governments in terms of health care.

Our frigid winter is a reminder that climate change could wreak havoc on future budgets. Droughts and floods can take a huge bite out of provincial coffers.

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Our frigid winter is a reminder that climate change could wreak havoc on future budgets. Droughts and floods can take a huge bite out of provincial coffers. (CP)

Aging baby boomers, who tend to frown on tax increases,  could be responsible for a future shift in budget priorities.

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Aging baby boomers, who tend to frown on tax increases, could be responsible for a future shift in budget priorities.

The trouble is, some big and ugly problems are looming in the coming decades, and it's not clear how and when those might swamp government spending, including in Manitoba.

There are at least four potential budget pitfalls on the horizon, two caused by demographics, one linked to the vagaries of the global economy and one uncomfortably familiar to the 600-plus Winnipeggers who have frozen water pipes.

Meanwhile, the province's biggest and most dependable voting bloc is getting older. The baby boomers, who tend to frown on tax increases, could be responsible for a significant shift in budget priorities. Politicians will face pressure to expand home-care programs and prescription-drug coverage but sidestep calls for better daycare that helps young families who have limited political clout.

Here are some long-term budget risks:

 

1. HEALTH CARE

University of Manitoba aging expert Verena Menec hates the catchphrase "grey tsunami," in part because it's not clear just how costly the tidal wave of aging baby boomers will be for provincial health-care budgets.

"The quick response is always 'We have an aging population, wow, we're going to have a real problem,' " says Menec, director of the U of M's Centre on Aging. "Right now, it's this overwhelmed feeling."

Research into rising public-sector health costs in the decade leading up to 2008 found an aging population was responsible for a relatively small chunk of the 7.4 per cent spending increase. Technology, inflation and drug costs were the real drivers.

But by about 2025, as the bulk of the baby boomers hits 75 and begins to have more complicated, expensive illnesses, budgets for everything from Handi-Transit to home care could skyrocket.

Recently, the Winnipeg Regional Health Authority's chief nurse Lori Lamont warned the city needs five new personal care homes right away and then one per year until 2036. After that, the need plummets as the boomer bulge ends.

If health-care budgets can shift to prevention programs that keep people out of hospitals, that could free up money to pay for the aging cohort, said Menec.

 

2. LABOUR SHORTAGE

The province has long enjoyed a low unemployment rate but suffers shortages of skilled labour in key sectors.

University of Manitoba political scientist Karine Levasseur says there's a growing fear of a labour shortage due to falling fertility rates and baby boomers retiring.

Levasseur that could signal a huge budget shift toward labour-market programs -- training, apprenticeships and money for advanced education.

That's already underway. The province has promised to boost the number of workers by 75,000 by 2020 -- an aggressive goal since roughly 65,000 people will also be near or at official retirement.

Thursday's provincial budget also focused heavily on skills training and apprenticeship grants designed mostly to boost the economy but also to combat the labour shortage.

Wilf Falk, the province's chief statistician, says Manitoba has the third-youngest population in Canada, which means any looming national labour shortage might hit Manitoba later. And if the province continues to lure immigrants at the current rate, that could offset retiring boomers.

But few governments or private-sector employers have seriously reformed pension and retirement programs to give older workers more flexibility, allowing them to work part time or return to the workforce if they want or need to, says Menec.

 

3. INTEREST RATES

Manitoba's debt has increased 43 per cent during the last five years, partly because borrowing has been extremely cheap for the last decade. Interest rates show no immediate sign of increasing.

In recent years, Manitoba's debt-servicing costs have remained fairly flat because old debt has been renegotiated at lower interest rates. And most new debt, especially for large projects, is locked in at low rates for decades. Even Manitoba Hydro uses low rates to downplay the eye-popping amount of money it's slated to borrow in the coming years to build the next generation of power dams.

It's impossible to know how long the cheap money will last. By the time the province funds the third leg of rapid transit or a batch of new nursing homes, for instance, rates could be prohibitive and stall economic growth, which also damages provincial budgets.

 

4. CLIMATE CHANGE

Just this week, city Coun. Dan Vandal warned climate change could put pressure on future city budgets. That's not difficult to imagine given how Winnipeg's frigid winter has stymied snow-clearing crews, caused hundreds of water-main breaks and left even more homeowners coping with frozen pipes. And it's not even pothole season yet.

Philip Gass, a climate and energy project manager at the Winnipeg-based International Institute for Sustainable Development, said increased climate volatility means increased risk in the coming years.

Already, Manitoba's budget has taken two unexpected and damaging blows -- a 2004 drought that cost Manitoba Hydro $426 million and the 2011 flood that caused a deficit close $1 billion.

Gass says future finance ministers will have to grapple with hard-to-predict changes in the agricultural sector that could boost bailout costs and insurance expenses. Warming could mean some areas become more agriculturally productive, too. Melting permafrost could further shrink the winter-road season, and flooding could increase.

It could also mean, according to a 2011 federal report, Manitoba's timber resources dwindle by five per cent during the next six years and more than double that by 2050 due to pests and fires. Exactly how governments pay for those things and shift economic development away from fossil fuels and toward a green economy is still unclear. Conservation Minister Gord Mackintosh says work has begun on a plan.

 

maryagnes.welch@freepress.mb.ca

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