the government’s economics expert

After what happened with the Provincial Comptroller, I went into this day of testimony expecting to be met with some obviously unconvincing arguments about Manitoba’s economic challenges. I was pleasantly surprised.

They didn’t convince me that the Public Services Sustainability Act was at all necessary, but at least they didn’t make me roll my eyes as they tried.

direct examination – by Michael Conner

I have to hand it to Dr. Di Matteo and Michael Conner. The way this evidence came out, I not only followed it, I even found it interesting. Pretty good for the 12th day of trial. Dr. Livio DiMatteo was solidly professional, and Michael Conner led him through the economic expert reports with commendable clarity.

I still didn’t buy it, but that’s a different issue.

This economic evidence is to support the government’s “in case it’s unconstitutional” Section 1 fallback defence:

Even if the PSSA substantially interferes with collective bargaining, and thus violates Section 2(d) of the Charter, Freedom of Association, it is still reasonably and demonstrably justified in a free and democratic society.  (Saved by Section 1).

In this context, this would mean showing that there were very serious financial concerns, and that there was no other way Manitoba could address them, and when they did infringe on the rights of public sector employees, they didn’t go any further than they had to. It’s an extremely high hill, and it seems, to me anyway, that they just didn’t have the supplies or equipment they would have needed to make that climb.

As with Labour’s expert on collective bargaining, Dr. Livio Di Matteo’s resume was very impressive. He is a professor of economics at Lakehead University, and he has done extensive research on public finance and the public policy behind it. He has also written extensively on the sustainability of health care (I believe mostly in Ontario), and the problems with funding to keep up with demand. And he mentions the motto of his former high school – Agimus Meliora, Let us do better – as one of his guiding principles.

I thought, well, he’s pretty good, so if there is something that can legitimately justify the PSSA, this guy should be able to find it.


I gather that the government decided to base its claim that they needed the Public Services Sustainability Act to rein in spending because of the level of Manitoba’s debt.

According to Dr. Di Matteo, debt is not necessarily a bad thing just because it is there. Debt is a useful tool for financial management and it is perfectly reasonable for a government to have debt when there is an economic downturn, or if there are large infrastructure projects that require capital.

The question is, if you are going to acquire debt, then can you manage it responsibly? If the Province’s economy is not in recession, debt is harder to justify. But if you are in a recession, governments will often spend to stimulate the economy, and when they do, revenue rolls in creating a surplus to offset the debt they created while spending.

If the economy is growing and yet the government is still adding to debt, economists would say that there is a structural imbalance (presumably this is something that should be corrected).

During periods of economic times, you want to be paying down the debt, because the money you spend on servicing the debt servicing is money that the Province could be spending on something useful, like meeting its health care needs. The more debt you carry, the more money you are taking away from supporting general government operations. And, if the debt load gets too high, it can affect the borrowing rate that lenders will give you, and thus debt will end up costing you more and more.

Manitoba’s Debt

According to Dr. Di Matteo, the deficits from 2009 until 2018, were the longest string of deficits in Manitoba’s history, and as a result, the Province’s debt increased from around $10.5 billion to $21 billion (?). Because the population and the economy grew at lower rates, the Province’s debt increased faster than its resource base.

Similarly, from the 2005/06 fiscal year to that of 2015/16, the Province’s expenditures were consistently outstripping its revenue growth, an indication that there was a structural imbalance in the economy.

A Financial Crisis?

Oh. There wasn’t one. The Net Debt to GDP ratio (which, we find out, is the critical indicator for determining when debt is a problem) is 35%. Although Dr. Di Matteo describes this as “pretty high, at the high end” even he acknowledges that 35% is somewhere in the middle compared to other Canadian provinces.

In Dr. Di Matteo’s opinion, Manitoba’s fiscal situation in 2016 was “challenging but not a crisis,” and if Manitoba didn’t take steps to correct it, the situation could get much worse. You do want to correct structural imbalances, and always run the risk that if interest rates go up, the debt servicing costs can quickly become overwhelming.

Ok. You’ve convinced me that there were and are fiscal challenges. But you haven’t convinced me that you need immediate and exceptional action to address them. Nor have you convinced me that freezing the wages of Manitoba’s public sector workers was a way, was a good way, or was a necessary way to correct the structural imbalance and/or reduce the debt. And you know why? You haven’t even tried. None of this was even mentioned.

What they did try was to rely on a projection of the Parliamentary Budget Office that predicted that if Manitoba didn’t change anything, the Province’s debt servicing costs would grow to 104.9% of the Province’s budget in 2042.

I’m not sure why anyone would bother with this. Sure, if all Manitoban governments from now until the next few decades of future, were so totally stupid and utterly incompetent that they wouldn’t do anything except continue to rack up the debt at the same rate, yep, the Province would be in some serious debt doo-doo. (Actually, this gets explained by Labour’s economics expert, Dr. Bealieu. These kinds of forecasting are just thought experiments to highlight the problem as a means of motivating action.)

Nevertheless, Dr. Di Matteo’s direct examination returned to and ended with some reasonableness. He said that while there was concern, not a crisis, you don’t want to wait for a crisis until you change course.

In numbers terms, the challenge would be to close the Fiscal Gap in Manitoba’s economy. I’m not sure how the Fiscal Gap is calculated but Dr. Di Matteo describes it as the gap between revenues and expenditures into line so that the Debt to GDP ratio doesn’t grow.

After all the figuring is done, what this means is that 20% of the current budget would have to be reduced, which, I gather would require either a 20% reduction in expenditures or an increase in taxes.

CROSS-EXAMINATION – BY garth smorang

As might be expected, Smorang-the-Smasher took some ninja-slashing to all of these points.

1. This Ain’t No Global Financial Crisis

The failure of the sub-prime mortgage market was a serious financial crisis, the second worst economic crisis of all time, in fact. But, according to Dr. Di Matteo’s own report, Manitoba did not enter into the kind of recession that Ontario did as a result of the 2008 crash. Manitoba appeared to have recovered quickly, most likely due, at least in part, to the fact that it had a robust economy as compared to other provinces.

“So,” says Smorang, “Manitoba is not in crisis, it wasn’t in 2016, and it isn’t now, and this is nothing like what was going on with the Great Recession, right?”

Dr. Di Matteo agrees.

2. We’re Just the Muddled Middle

Smorang goes through a bunch of lists ranking Canadian provinces in their debt load and deficit levels, and gets Dr. Di Matteo to concede that in every one, Manitoba is right in the muddled middle where it always has been.

The “muddled middle” bit is taken from the title of an article on Manitoba’s economy that Dr. Di Matteo wrote in 2011. In it, he described Manitoba as “the perennial goldilocks province, never to hot, never too cold.” And yes, he agrees that Manitoba’s current fiscal picture is just as it seems to have always been.

3. Political Choices?

This one gets a little more cutting.

   Smorang:   You say in your report that any debt acquired is affected by political choices and winning elections. But all debt matters are heavily influenced by political concerns, true?

Dr. Di Matteo: Yes.

   Smorang:    And financial choices made by governments aren’t always the choices economists would make, true?

                         And they make these choices because they want to get elected, right? This is what is called the political business cycle, true?

                         It’s like if I have $1,000, and I use it to buy new bicycles for my kids instead of paying off my mortgage. There’s eventually a price to pay, and it may not be the best decision, but I could do it true?

                         And the choices governments make for political purposes are not necessarily the most economically sound, true?

Aww, Garth is going to buy bicycles for his kids instead of paying off his mortgage to make them like him more.

I’m not sure what exactly Dr. Di Matteo said to all this, as he was very soft-spoken. It was mostly non-commital murmurs, and a shrug or two. He didn’t, however, seem to be making any objections or offer any contradictions.

4. What Would a Prudent Government Do?

Garth prefaces this section by getting Dr. Di Matteo to agree some “motherhood” statements – these are obviously such very good things, and/or so very true.

→ A government should not collect less money than it spends over time.

Fiscal prudence is a necessary virtue. Ongoing efforts should be made to reduce the deficit and this can be accomplished by:

  1. Increasing revenues;
  2. Reducing expenditures;
  3. Some combination of 1 and 2. 

→ Ideally, the prudent government reduces the deficit without reducing expenditures.

That’s interesting news, since reducing expenditures is what the Public Services Sustainability Act is all about. But of course, as Dr. Di Matteo points out, you can only increase taxes by so much before you start damaging the economy.

So then, there are choices, and how is the Government of Manitoba doing? They made explicit choices to cut expenditures, but as Smorang points out, they could have made explicit choices to increase tax revenue.

Instead, Manitoba is reducing tax revenues. And, in the 2019/20 Budget, the total tax revenue that the government has given up by reducing the PST and income taxes is calculated to be $395.4 million.

What???? It’s the first time I’ve seen what the tax numbers are and it’s a bit of a shock. That’s an awful lot of money to be subtracting from your public pot, especially when you are trying to reduce the deficit and manage your debt. Manitoba may not be in a financial crisis, but if the situation is at least challenging, it seems irresponsible to be throwing back a big whack of revenue like this.

Smorang characterizes it as a cost to government, emphatically implying that this is rather unwise. Dr. Di Matteo defensively quibbles, that “well, it’s a benefit to taxpayers.”

Smorang then follows it up with another smash:

   Smorang:    This is the largest tax cut in Manitoba’s history, but, it is not sound practice to reduce taxes while reducing the deficit, is it?

   Dr. Di Matteo:  Generally speaking, no it is not (ok, that made me chuckle).

                                But, again this puts more money in the hands of taxpayers. And you could if the result was a sufficient stimulation of the economy (yeah, could, but no proof that it would or did).  

                                And, you know, Manitoba has to be sensitive to the economic decisions of its neighbouring provinces, Ontario and Saskatchewan to be competitive. (Oh please.)

Smorang ignores these attempts at excuses. And instead, he asks

   Smorang:    Isn’t that politics, when the first thing out of the government’s mouth is that there is a terrible deficit, and then one year later, they are reducing taxes?

I don’t know what Dr. Di Matteo said to this because I was laughing too much, but he sure looked uncomfortable.

5. And What About that Rainy Day Fund?

I was laughing all the way through this too. Poor Dr. Di Matteo.

   Smorang:    So, increases in net debt are bad right?

                         And if I put $407 million into the Rainy Day Fund, that’s $407 million I could have used to pay down the debt, right?

                        And if I pay down the debt, then I have less debt, and so I spend less money servicing that debt?

Dr. Di Matteo started waffling about net debt, and eventually mentioned something about it being an accounting issue, as opposed to an economics one.

But Smorang-the-Smasher was having none of that:

   Smorang:   But if I pay down my mortgage, I end up paying less interest. So, if the government paid down their debt, they would be reducing their Gross Debt, and paying less interest on it, right?

   Dr. Di Matteo: I don’t feel comfortable giving an opinion on that.

6. Bad Forecasting Means?

So, Labour’s expert (who is up tomorrow) says that this government’s history of having such a wide gap between what the deficit is in the province’s budget, and what the deficit eventually turns out to be, suggests that this government’s budget forecasting ability isn’t strong. (I’m trying not to snicker, because what he is really saying is that the government doesn’t know what it is doing.)

Dr. Di Matteo says he wouldn’t go that far, but he kind of implies that yes, it still isn’t very good.

The Smasher won’t let up –

   Smorang:    But still, it can’t be very good planning if they are always so far out, isn’t that right?

Dr. Di Matteo quibbles again. Smorang presses him. 

   Smorang:    But isn’t it true that if you consistently budget for a deficit, and always get a much smaller deficit, that it means that you are not in control of your finances?

Dr. Di Matteo says not necessarily, but it doesn’t matter what he says because it was a rhetorical question anyway. And the point was made.

7. And the Auditor-General Says the Government’s Accounting is Wrong

Another sharp stab at this very embarrassing point. Not only is there a suggestion that Manitoba doesn’t know what it is doing financially, we are again reminded that according to the professional opinion of our Auditor-General, the government is materially misstating its financial situation, and apparently deliberately.

8. In Conclusion

There were a couple of other smashes, but I was too tired by this point to follow. I did, however, pick up on the grand finale.

   Smorang:    So, we had the throne speech from the newly re-elected government just three weeks ago. And look what is in it … [goes through some points] …

                         But there is nothing in here about debt, or any plans to reduce the debt …

                         DOES THAT SURPRISE YOU? (Ha, ha, ha, Garth you are funny)

  Dr. Di Matteo:   Nothing any government does surprises me. (Ha, ha, ha, ha, ha  … that’s even funnier).

Dr. Di Matteo finishes with:

   Di Matteo: If there was no mention of debt, I would find that interesting. But then again, throne speeches are political statements.

Thanks for that admission, Dr. Di Matteo. Smorang didn’t even have to work to get it in.

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

It was hard not to sympathize with Dr. Di Matteo. He seemed stuck between sticking to his expert economics guns, and trying to defend or even explain the Government of Manitoba’s strange (and apparently economically unsound) fiscal behaviour.

Every time Garth Smorang highlighted the contradictions between what a prudent government would do and what Manitoba appeared to be doing, Dr. Di Matteo grimaced, but agreed, however reluctantly.

I think there is something we could say about all this that Dr. Di Matteo might agree with:

Agimus Meliora, Manitoba

We can do better than this.

The Trial Begins

Setting the scene in Courtroom #210 as the trial of MFL v. Manitoba begins. We get some background and meet the players.

Opening Statements

The proceedings begin with opening statements. Here, the lawyers for each side give us an outline of the course they are going to take (and why it is going to take 13 days to get there).

The Testimony of Kevin Rebeck

The President of the Manitoba Federation of Labour testifies about consultations between the government and some Labour leaders prior to the PSSA being passed. They weren’t very fruitful, and there seems to have been some question as to whether the government was being truthful.

Passed but Not Proclaimed?

Why is the government waiting to proclaim the PSSA? I thought there was a financial emergency, and dire warnings of our precarious fiscal position. But it has been 2 1/2 years. Don’t they need it yet?

The Testimony of Elizabeth Carlyle

Elizabeth Carlyle gets cross-examined about what happened in a negotiation between CUPE and the Winnipeg School Division. It wasn’t a lot, and it doesn’t sound as though it was very good.

The Testimony of Dr. Mark Hudson

Remember when the faculty at the University of Manitoba when on strike in November of 2016? Dr. Mark Hudson is here to tell us why it happened. And he fills us in on what was happening between the University and the Province behind the scenes.

The Testimony of Tom Paci

Tom Paci appears on behalf of the Manitoba Teachers Society. His story? A quest for justice for Manitoba’s 15,000 teachers and an appeal to the gods of justice – how can we be bound by the PSSA when it is not law?

Indirect Taxing & Discriminatory Taxation

If a tax by any other name would be as taxing, could wage freezes be indirect taxation? And if members of public sector unions are paying more in taxes to support public services, would this qualify as discriminatory taxation?

The Testimony of Michelle Gawronsky

The leader of the Manitoba Government and General Employees Union recounts her experiences since the advent of the PSSA. Everything she says about her automatic approach to understanding concerns and finding ways to solve problems makes me think ” leader, leader, this is a great leader.”

The Super Six Speak

Six experienced union negotiators come to tell us about what has been happening in their collective bargaining worlds. We learn more about what the PSSA means for public sector unions and their collective agreements.

Labour’s Collective Bargaining Expert

Dr. Robert Hebdon testifies about the impact of the PSSA on collective bargaining in Manitoba’s public sector. It isn’t good.

The Testimony of Sheila Gordon

We end the union tales of collective bargaining under the PSSA in passed-but-not-proclaimed limbo with MGEU’s GEMA. Sheila Gordon, MGEU’s senior negotiator was there. And she is here to tell us how those negotiations did not go anywhere.

Labour’s Read-ins and One Last Reveal

You never know what read-ins from discovery might reveal.

The Testimony of Richard Groen

Richard Groen, an Assistant Deputy Minister from the Ministry of Finance, testifies about the Province’s budgets and such.

I was expecting him to demonstrate what all the financial fuss in 2017 was about, you know, why our financial ship was sinking so much that we needed all hands on deck. But …

A No-Compete Treat for the Labour Market?

I don’t understand why the government doesn’t think it should have to compete in its own labour market. It does everywhere else.

The Testimony of Garry Steski

Is it wrong to admit that before this I didn’t really know what a bond market was? Well, I do now, and we learn a little about how Manitoba’s bonds were affected by the fiscal challenges in 2016. Or not.

Bean Counters, Businessmen & Business of Government

If businessmen go into government to bring the principles of good business to government, then shouldn’t they act like good businessmen when they get there?

The Government’s Collective Bargaining Expert

It is best to talk about what happened here as little as possible. So we’ll talk a bit about the importance of turkey instead.

The Testimony of Aurel Tess

How a short day of seemingly tedious technical testimony on Manitoba’s Summary Financial Statements turned into a most unpleasant surprise.

Politicizing the Provincial Comptroller

Ok, Manitoba. Politicizing the Office of the Provincial Comptroller?

That takes the poop-cake.

The Government’s Economics Expert

The government’s economics expert, Dr. Livio Di Matteo, has a motto he lives by: Agimus Meliora – Let us do better.

It makes me wonder, Manitoba, can’t we do better than the PSSA?

Labour’s Economics Expert

Dr. Eugene “the Earnest” Beaulieu testifies that the PSSA is not only not necessary, it is a harsh measure that puts an unfair burden on public employees.

Bye Bye, Dumbo

Let’s take one last look at the Elephant in the Room, and then say goodbye.

The Mandamus Application

A day of argument about whether a statute that says “the Minister SHALL FORTHWITH” means that the Minister can decide not to do something and make up his own reasons for why he shouldn’t.

Decision on the Mandamus Application

Justice Keyser, the judge on the Mandamus Application, has spoken. Here’s a hint – MGEU wins.

Bill 9: We’re Gaming Again …

Before we begin all the good stuff, Garth Smorang has some objections to yet another litigation game the Government of Manitoba is playing.

Labour’s Final Argument

Labour’s last stand. Shannon-the-Hammer and Smorang-the-Smasher pull it all together and wrap it all up.

There is an awful lot of it, so Labour’s final arguments have been separated into four separate posts, which start here …

Butt-First Buffoonery

How did the Government of Manitoba get to such an embarrassing PSSA place? They backed into it.

The Government’s Final Argument

Forget the Elephant-in-the-Room.The Government of Manitoba has got many other ways to try to move the goalposts, as they try to change the game.

Kind of seems like they know they are losing.

Labour Replies

The Finale of the Finale. Labour replies.

(This means we are finally done. At least with the evidence and arguments.)

The Onion of Outrage

Why am I here? Why spend so much watching lawyers and judges and reading endless cases? It’s a pretty simple answer.

I was mad.

The Decision is In!!!

The Honourable Justice Joan McKelvey has ruled. Labour won. The PSSA is unconstitutional.

This is what she decided and why.

What Have We Learned?

There’s lots to discover from considering Justice McKelvey’s decision, and not just for labour lawyers. Let’s take a look at what we have learned.