Cash-strapped province given $842-M bump in federal equalization payment

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This article was published 20/12/2023 (632 days ago), so information in it may no longer be current.

Manitoba is forecast to receive a massive financial windfall from Ottawa as the NDP government grapples with a projected $1.6-billion deficit.

The province’s equalization payments will jump by $842 million in the fiscal year that begins in April, according to the federal government.

The transfer will total $4.3 billion — up 23 per cent compared to the $3.5 billion Manitoba received in the current year — and is based on a legislated formula intended to address fiscal disparities among the provinces.

Equalization payments are financed by the federal government through general revenues.

The boost to federal revenue next year does not, however, mean the NDP government will pull back on plans to cut spending through a review of health authorities and capital projects, Premier Wab Kinew said.

“Federal transfers certainly have a role to play, but federal transfers are not going to get us out of the problem that was left for us by the Stefanson government,” the premier told the Free Press Wednesday.

As of Sept. 30, the province’s forecast deficit was $1.6 billion, an increase of $1.2 billion from the budget released in March.

The shortfall has been driven by a $610-million swing in revenue at Manitoba Hydro, which is now forecasting a $160-million loss.

According to the utility, drought conditions, lower net exports and increased expenses contributed to the projected shortfall.

Provincial tax revenue is also forecast to come in $419 million below budget.

Meanwhile, spending on health-care is expected to be $566 million over budget, with several health authorities and service-delivery organizations forecasting “material over-expenditures” this year.

Kinew said he was aware federal transfers would rise as much as 20 per cent last Wednesday, when he announced $123 million worth of cuts and reallocated spending to pay for the NDP government’s gas tax holiday, health and homelessness initiatives this year.

The increase in cash coming from Ottawa doesn’t change the “serious challenge” of reducing the deficit while making the required investments in health care, education and economic development in the forthcoming spring budget, Kinew said.

“The Stefanson government created a structural deficit, which means that costs are increasing as we go forward into the future,” the premier said. “The budget situation will not improve on its own, because of a lot of the commitments that they made or announced being around capital.

“The amount of capital that was committed to in the current year is so high that as those costs continue to come on line in coming years, the pressure is going to continue to escalate.”

Kinew said the government is trying to restore a sustainable path that will allow for spending on health care, education and infrastructure that is needed today.

“And if we’re balanced and smart and judicious, and hopefully a few years down the road, we’ve started to put things back into a much-improved position while also investing in health care,” he said.

Niall Harney, a senior researcher at the Canadian Centre for Policy Alternatives-Manitoba, said the boost to federal revenues is good news for the province and will help to plug a hole in the deficit.

However, it will not free up the NDP government to deliver on their election promises to fix health care, invest in education and repair the damage of austerity, Harney said.

“What we’re seeing here is that our budget is extremely vulnerable to changes in federal transfers, environmental conditions, or economic conditions,” Harney said.

“Part of this deficit is a result of lower tax revenue, and that lower tax revenue is a result of the fiscal framework that was set out by the previous government in Budget 2023.”

The CCPA-Manitoba, a left-leaning think tank, recently issued an open letter calling on the NDP government to abandon the tax cuts contained in the budget and extend its timeline to eliminate the deficit.

During the election campaign, the NDP committed to adopting the fiscal framework in the former PC government’s last budget.

Harney said the province’s own-source revenue, as a per cent of gross domestic product, is at its lowest level since 2000, and Manitoba is now heavily reliant on federal transfers to balance the books.

“It’s unfortunate that we’re seeing this huge increase in federal transfer payments that should be going directly to revitalizing public services, but instead that money is being used to backfill the cost of tax cuts,” Harney said. “The government needs to change course. The economic conditions have changed.”

The premier said he had no news to share Wednesday about his election promise to balance the budget in one term.

“I’m optimistic that Manitobans and our government are going to be able to work together to address the situation with the budget, but it’s just not going to be easy,” Kinew said.

“It is going to require a significant amount of heavy lifting over the years to come.”

Manitoba is one of seven provinces to receive an equalization payment. Total federal transfers to the province in 2024-25 will be nearly $6.9 billion.

In a statement, Progressive Conservative finance critic Obby Khan once again accused the NDP of exaggerating the the state of the province’s finances.

“(Prime Minister) Justin Trudeau is giving Wab Kinew an $842-million gift for Christmas, which the premier knew he was getting before inflating the deficit and fear-mongering Manitobans before the holidays,” said Khan (Fort Whyte).

danielle.dasilva@freepress.mb.ca