Most of us are fine with deficit spending, provincial poll suggest
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Hey there, time traveller!
This article was published 23/12/2015 (2647 days ago), so information in it may no longer be current.
A new Probe Research poll suggests deficit-spending on infrastructure is OK with a majority of Manitobans, whose province now ranks among the worst in Canada on several measures of fiscal prudence.
A telephone survey conducted by Probe early this month suggests 73 per cent of Manitobans believe it would be acceptable for the province’s next government to run a modest deficit in order to spend more money on infrastructure.
The survey of 1,000 adults also suggests 23 per cent of Manitobans believe deficits should be avoided, even if that means cutting back on infrastructure spending.
Manitobans go to the polls on April 19. The governing New Democratic Party has posted deficits every fiscal year since 2009-10. But the poll results may be just as welcome for the opposition Progressive Conservatives, who have pledged to roll back the provincial sales tax by one percentage point and forgo hundreds of millions in revenue as a result.
“This gives some wiggle room to the Tories, who have sort of painted themselves into a corner with their PST-reduction promise,” Probe Research president Scott MacKay said in an interview on Wednesday. “It gives them a little bit of room to present a modest deficit for a limited time.”
As recently as a decade ago, deficits were so unpopular in Canada, governments generally wouldn’t dare to present them. But red ink came back in vogue following the worldwide recession of 2008, when some economists began preaching the benefits of economic-stimulus programs as well as the financial wisdom of borrowing money to fix crumbling infrastructure while interest rates are low.
The success this fall of the federal Liberal Party, which promised to post a series of deficits, illustrated Canadian voters are no longer allergic to red ink, MacKay said.
Deficits are so acceptable to the Manitoban electorate, Probe Research found support for them among survey respondents who support all three of the province’s most popular political parties. Support for deficits was highest among NDP supporters (89 per cent) and lowest among Tory voters (60 per cent).
A separate Probe Research survey of 200 Manitoba CEOs and business owners in November and December also found support for modest deficits, with 59 per cent of business leaders in favour and 37 per cent opposed.
MacKay noted his poll question did not reference the long-term effects of running successive deficits. All the results suggest, he said, is the public is OK with the idea of a small deficit, for a specified period of time.
Earlier this week, Manitoba Finance Minister Greg Dewar projected the province’s 2015-16 deficit – its seventh consecutive pool of year-end red ink – would wind up $63 million higher than initially expected, at $485 million.
That is the fourth-highest projected deficit among Canadian provinces and it will help push Manitoba’s accumulated debt up to $20.4 billion, which is the fourth-largest provincial debt burden in Canada.
Manitoba also suffers from the worst debt-to-GDP ratio in western Canada as well as the worst bond spread – a measure of borrowing costs — west of Quebec.
Meanwhile, the province’s continued practice of spending more than it rakes in led to a credit-rating downgrade this summer. While that didn’t cause borrowing costs to rise significantly, Asper School of Business finance professor John McCallum said the next credit downgrade will impair the province’s ability to provide services, especially if higher borrowing costs are coupled with interest-rate hikes.
“If we don’t get a serious grip on the trajectory of debt growth that we’re on, down the road we’re not going to like what we see,” McCallum said. “We’re going to be shipping money to California pension funds while we can’t afford to pay for hip replacements at Concordia Hospital.”
Earlier this week, Dewar said he wasn’t concerned about the prospect of higher interest rates, claiming he’s been assured by the Bank of Canada rate hikes are unlikely. Dewar also said the market did not respond when Manitoba’s credit was downgraded.
Further downgrades, which drive up borrowing costs, are possible when Canadian provinces fail to demonstrate they’re capable of reducing and eliminating their deficits, said Trevor Tombe, an assistant professor of economics at the University of Calgary.
“Governments absolutely do need to be concerned about the perception and the reality associated with continuing to post deficits with no end in sight,” Tombe said in an interview from Vancouver.
McCallum said the time for Manitoba to get serious about controlling costs was three or four years ago, noting the worst of the recession was over by 2010.
“It’s really simple: you have to set spending targets and you have to stick to them,” he said. “No is the most important word a government needs to know.”
Updated on Wednesday, December 23, 2015 10:19 PM CST: Correction: Manitoba's debt-to-GDP ratio is 30.9