Easy, but wrong, to blame Tories if economic slump hits

Hey there, time traveller!
This article was published 27/08/2019 (2206 days ago), so information in it may no longer be current.

There’s one thing we can count on when it comes to politics and the economy: governments tend to take too much credit when there’s an upswing in economic growth — and they get too much blame when things go sour.

There’s a good example of that in Manitoba right now.

The Conference Board of Canada (CBOC) last week downgraded Manitoba’s economic growth projection to 0.5 per cent for 2019.

That’s down substantially from the think tank’s forecast of 1.7 per cent earlier this year.

The temptation — especially in the middle of a provincial election — is to blame government for the projected slowdown. The Manitoba Federation of Labour (MFL) claims it’s proof government’s spending controls are stalling the economy.

“They’re killing good, family-supporting jobs in the process,” MFL president Kevin Rebeck said.

That may make for good politics, but there’s little economic evidence to support the claim.

So far, the CBOC forecast is an outlier. The average projection from Canada’s big banks and others still has Manitoba growing well north of one per cent this year. Deloitte Canada recently pegged Manitoba’s real GDP growth at 1.2 per cent for 2019.

CBOC also offered little in the way of evidence to explain the major shift in its forecast. It says the winding down of Manitoba Hydro’s Keeyask and Bipole III projects, as well as restrained provincial government spending, are contributing to slower growth this year.

But those are not new economic factors. They were built into earlier forecasts and are part of the province’s 2019 budget.

If Manitoba’s GDP really does slump to 0.5 per cent this year — and that’s a big “if” — it would likely be due to other variables, such as global trade uncertainty and tensions with China — which CBOC did cite. A softer-than-expected local economy could also be a factor, but there’s conflicting data on that.

There is some merit to the argument that the Pallister government’s spending restraints have contributed to slower economic growth over the past three years. Government spending does have an effect on GDP growth, but in this case, it’s limited. Slowing the growth of expenditures by a few hundred million dollars (while still boosting spending overall) in a $17.5-billion annual budget is a drop in the bucket when assessing Manitoba’s $68-billion economy.

Either way, it wouldn’t explain CBOC’s revised forecast for 2019 since government has made no substantive changes to its fiscal policies since unveiling its budget in early March.

Of course, the Tories would surely take credit if the updated forecast suggested stronger-than-expected growth this year.

Governments always do, whether their policies contributed to that growth or not. They don’t like to accept blame when the economy tanks, but they’re happy to take credit when there’s a boom.

The reality is, for a trading province such as Manitoba, outside factors that include international relations and the state of the global economy have, by far, the largest effect on the province’s economic growth.

Local government policy in areas such as taxation, regulation, immigration and labour laws do have an effect. But those are typically felt over the long run. Even government stimulus spending, or restraint, usually takes time to wind its way through the economy.

There’s no question Manitoba is in a slow-growth period. Last year’s real GDP growth was estimated at one per cent. The province was banking on 1.7 per cent growth this year in its 2019 budget, a number that will likely end up lower. That’s well below the province’s average growth rate of 2.4 per cent between 1993 and 2017.

Winnipeg Free Press | Newsletter

Dan Lett | Not for Attribution

Tuesdays

A weekly look at politics close to home and around the world.

Sign up for Dan Lett | Not for Attribution

Sign Up

I agree to the Terms and Conditions, Cookie and Privacy Policies, and CASL agreement.

The slow growth has been called the “new normal.” And it’s affecting most of Canada in an era of international trade uncertainty.

For the Pallister government, slower growth will mean making budget adjustments if it wants to meet its goal of balancing the books within two terms in office. Each percentage point change in nominal GDP (not adjusted for inflation) represents $129 million in government revenue, according to the 2019 budget. This year’s budget deficit is projected at $360 million.

The next scheduled election is the fall of 2023. Which means the 2023-24 budget would have to be in the black for the Tories to meet their two-term, balanced-budget commitment. That’s still doable, barring a recession, severe drought or extreme flooding.

Manitobans may not be able to blame the current government for the projected downturn in the economy this year, but they can hold the Tories’ feet to the fire on their balanced-budget pledge.

tom.brodbeck@freepress.mb.ca

Tom Brodbeck
Columnist

Tom Brodbeck is an award-winning author and columnist with over 30 years experience in print media. He joined the Free Press in 2019. Born and raised in Montreal, Tom graduated from the University of Manitoba in 1993 with a Bachelor of Arts degree in economics and commerce. Read more about Tom.

Tom provides commentary and analysis on political and related issues at the municipal, provincial and federal level. His columns are built on research and coverage of local events. The Free Press’s editing team reviews Tom’s columns before they are posted online or published in print – part of the Free Press’s tradition, since 1872, of producing reliable independent journalism. Read more about Free Press’s history and mandate, and learn how our newsroom operates.