Tories left ‘significant hole,’ Kinew says after forecast deficit grows four times in size

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This article was published 05/12/2023 (642 days ago), so information in it may no longer be current.

A slowing economy and drought conditions have quadrupled Manitoba’s forecast deficit to $1.6 billion, as NDP Premier Wab Kinew blamed the former Progressive Conservative government for deepening the massive shortfall.

Kinew and Finance Minister Adrien Sala released the province’s second-quarter fiscal update Tuesday. As of Sept. 30, its forecast deficit had swelled to $1.612 billion from the $363-million indicated in the 2023 budget.

It is the largest forecast deficit in Manitoba’s history outside of the global COVID-19 pandemic.

“It is a significant hole for us to climb out of collectively,” Kinew told a noon-hour news conference Tuesday.

The premier said the NDP government remains committed to affordability measures and improving access to health care, while balancing the budget in its first term and maintaining the province’s credit rating.

“It’s going to take a lot of hard work to restore a sustainable path to the province’s finances,” Kinew said.

Another fiscal update will be provided in the coming days that will include the measures the NDP was elected on and the government’s plan to pay for them, the premier said. The province has also hired consulting firm MNP to conduct a third-party financial audit.

According to the report, the province’s revenue projection has fallen by $719 million, primarily due to a forecast $160-million loss at Manitoba Hydro and a $419-million drop in tax revenue, attributed to a weakening economic environment.

The net debt to gross domestic product ratio is forecast at 37.1 per cent, a 2.5 basis point increase from the budget.

Sala said significant spending in the current fiscal year, effects of inflation and other internal service adjustments were not properly accounted for by the Tories in the budget. (The NDP claimed a majority government in the Oct. 3 election, relegating the PCs to official Opposition.)

The $50-million Arts, Culture and Sport in Community Fund; a $268-million hike over four years for physician services; and costs associated with settling collective bargaining, including with the Manitoba Association of Health Care Professionals, were provided as examples.

“They failed to properly plan for this fiscal year,” Sala said. “They also very clearly attempted to obscure what was actually happening here with our fiscal situation.”

“They failed to properly plan for this fiscal year. They also very clearly attempted to obscure what was actually happening here with our fiscal situation.”–Finance Minister Adrien Sala

Overall, total expenditures are forecast to be $530 million higher than what was budgeted in March, with spending on health projected to be $566 million over budget and five other budget lines under-spent.

“It’s very clear now that budget 2023 and overall fiscal planning was nothing more than wishful thinking. There were numerous flawed assumptions,” Kinew said.

The Progressive Conservatives derided the fiscal forecast as “junk math” in question period Tuesday, and accused the NDP government of laying the groundwork for tax hikes.

Opposition Leader Heather Stefanson said the NDP appears to be playing an unfortunate political game with the province’s books.

“They’re a new government that’s in — they’re going to try and inflate those numbers as much as they can so that when they come out in the spring, they’ll come out with better numbers,” the Tory leader said.

“Manitobans don’t need to be scared about this — this is nothing more than the NDP playing politics.”

The former PC administration budgeted for all expenditures in the current fiscal year, she said. “We’ve left this government in a good financial position.”

The financial blame game is a classic political tactic often used by governments, and even some corporations, following a change in guard to manage expectations, said Shiu-Yik Au, an assistant professor at the University of Manitoba’s Asper School of Business accounting and finance department.

However, the reality remains there is a Canada-wide economic slowdown, largely due to rising interest rates, that is putting the pinch on Manitobans and the provincial government, Au said.

“Manitobans don’t need to be scared about this — this is nothing more than the NDP playing politics.”–Opposition Leader Heather Stefanson

“It’s going to be tough in Manitoba because every government wants to, when they come in, put their stamp on things, they want to initiate new programs and provide new things like gas tax cuts or increased services,” he said.

“There’s all these priorities and now they’re really crimped because they don’t have the economic growth to back it up.”

Au said it’s reasonable to expect cuts to programs, increased taxes or both to wrestle down the deficit.

However, there is reason to be optimistic, Conference Board of Canada economist Jake Lenarduzzi said.

“You have a very diverse economy and diversification is a great thing to have when trying to navigate times like this where there’s a lot of economic downturn, there’s a lot of uncertainty,” Lenarduzzi said. “On top of that, you’re seeing record-setting population growth and a very strong labour market.

”The overall economic outlook for Manitoba in the long run is very bright, so there is a lot of optimism in that regard.”

John McCallum, a professor emeritus of finance at the Asper School of Business, said it is difficult to compare one government’s fiscal forecast to another, as the assumptions could change between administrations.

Rather, he’ll be watching for the NDP government’s first budget to see how Kinew will deliver on his mantra “the economic horse pulls the social cart.”

“If I’m writing the budget, looking at this financial situation, knowing how hard it is to attract jobs and capital… I want people to see my government as a government that does not solve its problems by raising taxes on people,” the self-described conservative economist said.

”The overall economic outlook for Manitoba in the long run is very bright, so there is a lot of optimism in that regard.”–Economist Jake Lenarduzzi

“The economic horse is already very highly taxed in this province, but people are living with it and creating jobs, don’t mess with that.”

The 2024-25 pre-budget consultations will begin in January.

— with files from Carol Sanders

danielle.dasilva@freepress.mb.ca