Second-quarter report will tell tale of magical surplus

Opinion

Hey there, time traveller!
This article was published 23/11/2023 (658 days ago), so information in it may no longer be current.

When the Progressive Conservatives announced — just before the Oct. 3 provincial election — they had magically turned a hefty budget deficit for 2022-23 into a surplus, what they didn’t tell the public is they changed the accounting method to do it.

It wasn’t quite a slight of hand, but it was close.

In early 2023, the Tories adopted a new model of estimating personal and corporate taxes. The result: tens, possibly hundreds, of millions of dollars suddenly appeared on the books that weren’t there before.

The change was revealed in the province’s public accounts, released at the end of September. It didn’t get a lot of attention because Manitoba was in the final week of an election campaign.

The new revenue estimate model helped turn a deficit originally projected at $548 million into a $270-million surplus. A stronger-than-expected economy and Manitoba Hydro’s improved bottom line last year contributed to the good fortune, but the accounting change played a significant role, too.

“In early 2023, (Manitoba) Finance implemented a change in estimation methodology for personal and corporate tax revenues,” the public accounts state.

“This was the result of the work finance commissioned with Deloitte Canada in 2022 and takes into account the Manitoba specific economic data to forecast personal income taxes and corporate income taxes. This change resulted in a one-time revenue adjustment that must be made in the current year under the accounting standard, increasing the revenues for 2022-23.”

It doesn’t say how much more revenue the change produced, but it may have made the difference between a deficit and a surplus.

None of that was revealed by the Tories during the election campaign.

Manitoba auditor general Tyson Shtykalo called the accounting change a “key audit matter” in his public accounts report.

He didn’t criticize it. He merely pointed out it had an impact on the bottom line. His office hired an independent economist to analyze the change.

The public accounts also explain revenue estimates for a fiscal year can change even after the books close because the province doesn’t get all the information from the Canada Revenue Agency in time to include it in the “official” log.

“As a result, the amount of income tax attributable to the year can change as a result of reassessments in subsequent years,” the report says. “The estimates are based on the best information available at the time of preparation of the financial statements.”

So even the final number isn’t really the final number. That surplus could be revised further.

That’s how easily a deficit can turn into a surplus or vice versa, without government doing anything on the spending side.

The Tories attempted to use the reported surplus to show Manitobans they were good stewards of the public treasury.

Most of it, though, had nothing to do with good fiscal management. The Tories went over-budget by more than $1 billion in 2022-23. The surplus was due mostly to higher-than-expected Hydro revenue, more money from Ottawa and the accounting changes.

The Tories went back into deficit this year, when they unveiled their 2023 budget in March.

NDP Premier Wab Kinew says that deficit will be a lot bigger than what the Tories let on during the election campaign. He won’t say by how much.

Manitoba Finance will release the numbers in its second-quarter financial report, expected in the next two weeks.

When it does, the NDP will attempt to show the previous government went on a spending spree without going through proper budgeting channels.

There will be some truth to that. The Tories announced billions in spending over the summer, some of which was new and some which wasn’t. For the most part, they didn’t explain how they planned to pay for the new expenditures.

Still, budgeting is an ongoing process. Spending is always adjusted throughout the year as revenue estimates change. Even after the year is over, the numbers are adjusted (and sometimes manipulated).

This year’s deficit will grow mostly because Manitoba Hydro’s revenue plummeted in 2023, but it will also be driven by the former government’s overspending during the summer months.

What will complicate matters further is the Tories brought in significant tax cuts in the 2023 budget, some of which don’t kick in until Jan. 1, 2024.

The personal tax cuts alone on a full-year basis will reduce own-source revenues by a staggering $486 million. Government will have to borrow money to pay for those tax cuts.

Manitobans will find out just how much when the second-quarter report is released. Either way, it won’t be pretty.

tom.brodbeck@freepress.mb.ca