Note to Wab Kinew: stop tax cuts to clean deficit mess

Hey there, time traveller!
This article was published 05/12/2023 (681 days ago), so information in it may no longer be current.

There’s an easy way to eliminate most of the $1.6-billion deficit announced by the NDP government Tuesday: cancel the income tax cuts and education property tax cuts scheduled for 2024.

Together, they add up to almost $1 billion in tax cuts that benefit mostly higher-income Manitobans.

Seems like a simple enough solution, especially since most people would probably agree that borrowing money to cut taxes is a really bad idea. The only thing stopping the NDP government from reversing the tax cuts, which were brought in by the previous Progressive Conservative government, is politics.

From a pure policy point of view, cancelling the tax cuts would make the most sense. People in higher income brackets don’t need a tax cut. They would probably be happy to forgo one in favour of the province getting its finances together and ensuring front-line services, including health care, are properly funded. If a plebiscite were held today asking Manitobans whether the province should cut taxes in 2024 or significantly reduce the deficit and ensure resources are available for front-line services, my guess is the overwhelming majority would reject a tax cut.

So why is the government planning to cut taxes anyway? Political gamesmanship, mostly.

The Tories, under former premier Brian Pallister, recklessly borrowed money and drove up the provincial debt to cut taxes purely for ideological reasons. The NDP, not wanting to be pegged as tax-hikers, agreed to go along with the latest round of tax cuts that were unveiled in the Tories’ 2023 budget.

Now, faced with the reality that cutting taxes while projecting a $1.6-billion deficit makes no sense whatsoever, the NDP is sticking to its tax cut guns (at least so far, we’ll see what the government comes up with next week when it provides more detail on its fiscal plan). Why? Because the NDP wants to make this the former Tory government’s problem, not theirs.

If the NDP did the right thing and cancelled the tax cuts, the party would be criticized for reneging on its election promise. They would rather make good on the tax cut pledge and blame everything on the Tories instead. Politics.

If the NDP did the right thing and cancelled the tax cuts, the party would be criticized for reneging on its election promise. They would rather make good on the tax cut pledge and blame everything on the Tories instead. Politics.

Premier Wab Kinew said Tuesday the NDP plans to keep its campaign promise by following through on the tax cuts. That’s unfortunate.

What would be a real act of leadership on his part would be to set politics aside and do the right thing for Manitobans: cancel the tax cuts in 2024, reduce the deficit and invest in front-line services. That would be the act of a true statesman. It would be justifiable based on the changed circumstances.

The NDP would be heavily criticized by the Tories for doing so. But so what? Weighed against the benefit of substantially reducing the deficit and ensuring resources are available for front-line services, it’s a no-brainer.

Unfortunately, that seems unlikely.

The income tax cuts that will kick in Jan. 1 are worth $486 million on a full-year basis. That includes raising the basic personal amount, which benefits higher-income people the most, and making changes to tax brackets. The 50 per cent reduction in education property taxes is estimated at $453 million for 2023. Together, that’s 939 million in foregone revenue that could be applied to the $1.6-billion deficit.

Most of the projected deficit for 2023-24 is from lower tax revenues and a temporary drop in Manitoba Hydro revenues, owing to low water levels this year. As much as the NDP wants to blame the oversized deficit on the Tories and ascribe it to poor fiscal management, most of it is due to factors outside of any government’s control. Even the $566 million in overspending in health care isn’t that unusual in a department that typically goes over budget by a few hundred million dollars a year. Much of the health care spending is driven by volume. Naturally there’s going to be some variability each year. It’s a small amount in an $8-billion health budget.

The record deficit the NDP is now projecting could be easily solved if the government put politics aside and concentrated on good public policy.

The Tories did do a poor job of managing health-care costs heading into the Oct. 3 election, but it only represents a small portion of the $1.6-billion deficit.

Either way, the record deficit the NDP is now projecting could be easily solved if the government put politics aside and concentrated on good public policy. Hydro revenues will likely bounce back in 2024, which will automatically reduce the deficit by several hundred million dollars. Add to that nearly $1 billion in additional revenues if the NDP reversed the 2024 tax cuts and suddenly the massive shortfall would shrink to $200 million to $300 million.

The credit rating agencies would like it, there would be ample revenue for front-line services and most Manitobans would likely go along with it.

It seems so simple. Except for politics.

tom.brodbeck@freepress.mb.ca