Manitoba has time to improve on fiscal exercise score

It’s tempting to conclude the province should cut spending or raise taxes — or both — to avoid financial ruin, after a national report labelled the Manitoba government’s fiscal status as “unsustainable.”

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Opinion

It’s tempting to conclude the province should cut spending or raise taxes — or both — to avoid financial ruin, after a national report labelled the Manitoba government’s fiscal status as “unsustainable.”

However, drawing that conclusion would be a mistake.

In its 2022 fiscal sustainability report, released last week, the Office of the Parliamentary Budget Officer found the federal government’s long-term finances are sound, but some provinces could be facing fiscal disaster.

At current spending and taxation levels, the Manitoba government’s debt as a percentage of the economy could double to almost 80 per cent by 2046, and soar to 270 per cent by 2096, the report found. At those levels, the province would likely become insolvent.

The report raises valid questions about the sustainability of government spending, especially under current federal/provincial tax structures. However, its findings should be taken with a grain of salt.

The report raises valid questions about the sustainability of government spending, especially under current federal/provincial tax structures. However, its findings should be taken with a grain of salt.

The main reason: there are far too many unknown variables over that length of time to draw conclusions about the long-term health of any province’s finances.

To be sure, governments that run perpetual deficits with no plan to balance the books will eventually go bankrupt. The Saskatchewan government came dangerously close to that in the mid-1990s. The federal government wasn’t far off in 1995-96, when its debt-to-GDP ratio hit 67 per cent.

Manitoba was headed in that direction under the former NDP government in the late 2010s. The NDP doubled the province’s net debt to $21.9 billion between 2007 and 2016. That occurred in part because of a global recession in 2007-08 and a severe flood in 2011.

However, even as the economy rebounded, the NDP still posted large and growing deficits. The shortfall grew to $932 million by 2016, the year the party was voted out of office.

From 2008 to 2016, the province’s debt-to-GDP grew to 34.6 per cent from 21.6 per cent, resulting in several credit rating downgrades. Had that trend continued, the province would have struggled to find creditors to lend it money.

From 2008 to 2016, the province’s debt to GDP grew to 34.6 per cent from 21.6 per cent, resulting in several credit rating downgrades.

The Progressive Conservative government turned the province’s finances around during its first term in office.

The Tories posted a modest surplus in 2020-21, and slowed the growth of debt. They did so in part by rationing health-care spending, which has led to staff shortages and long hospital waiting lists. A more responsible middle ground could have been found.

Still, financial stability was restored — until the COVID-19 pandemic struck. Like all governments in Canada, the province had no choice but to fall back into deficit, as some sectors of the economy collapsed and pandemic-related costs soared.

Fortunately, the financial fallout was less severe than predicted: Manitoba’s debt-to-GDP was expected to exceed 40 per cent, yet it remained well below that level.

The PBO report shows Manitoba’s debt-to-GDP reached 40.6 per cent in 2021. However, the province has revised that to 36.4 per cent. It’s projected to fall to 35.9 per cent this year, and will likely dip further next year.

It’s heading in the right direction, leaving plenty of room to increase spending in priority areas such as health care, without jeopardizing the bottom line.

It’s highly unlikely the province’s debt-to-GDP would more than double to almost 80 per cent by 2046, as the PBO suggests. The only way that would happen is if government embarked on a reckless spending spree over multiple years that far exceeded economic growth. That seems unrealistic.

The PBO’s long term outlook is an interesting academic exercise. However, it doesn’t mean the province has to start cutting spending or jacking up taxes to avoid insolvency.

That’s not to say the PBO report doesn’t provide policy makers with some valid warning signals about future spending, particularly when it comes to the impact an ageing population is having on health care. That’s one of the biggest threats to the province’s bottom line.

Still, pressure from the baby boom generation and its impact on provincial budgets won’t last forever. A 2017 provincial wait time task force report shows the number of Manitobans aged 75 to 84 is projected to start shrinking sometime after 2036.

The PBO’s long-term outlook is an interesting academic exercise. However, it doesn’t mean the province has to start cutting spending or jacking up taxes to avoid insolvency.

The province’s finances would only become “unsustainable” if government committed to deficit financing on an ongoing basis. That appears unlikely.

tom.brodbeck@freepress.mb.ca

Tom Brodbeck

Tom Brodbeck
Columnist

Tom has been covering Manitoba politics since the early 1990s and joined the Winnipeg Free Press news team in 2019.

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