Weak economic outlook likely to result in broken NDP campaign promises

Hey there, time traveller!
This article was published 13/02/2024 (628 days ago), so information in it may no longer be current.

Manitoba’s NDP government is facing a bleak year economically to present its first budget, expected as early as next month.

Dawn Desjarlais, chief economist of Deloitte Canada, told a Manitoba Chambers of Commerce crowd last week the provincial economy is expected to experience “subpar growth” in 2024.

Deloitte recently pegged Manitoba’s economic growth at 0.4 per cent this year. It’s not quite recession territory, normally defined as two consecutive quarters of negative growth, but it’s awfully close.

That’s bad news for the government, which relies on a growing economy to fill its coffers with taxation revenue to pay for expensive public services, including health care, education, social services and infrastructure. For the NDP, which won last year’s election largely on a platform chock full of costly pledges, it represents a serious challenge.

The new government likely won’t have the revenue to make good on everything it promised voters last fall.

In its forecast report released in January, Deloitte predicted Manitoba’s manufacturing sector will be in “for a rough ride” this year as the global economy takes a turn for the worse. Weak output in Manitoba’s largest economic sector means less tax revenue for the government. Coupled with an expected pullback in household spending, Manitoba’s economic growth is projected to be “relatively subdued” in 2024 at 0.4 per cent, Deloitte predicts.

That’s half the 0.8 per cent growth rate Manitoba Finance projected in its second-quarter financial report, which was released in December. It’s just over one-third of the 1.1 per cent forecast in last year’s provincial budget.

If it proves true, it will be difficult — if not impossible — for the NDP to find the cash to pay for all the goodies it promised Manitobans.

It won’t, for example, have the fiscal capacity to make significant spending increases in key areas such as health care, education and social services, at least not while cutting taxes and reducing the size of the deficit.

The NDP will likely do a bit in all areas to give lip service to its campaign commitments, but it will almost certainly fall short of the largesse it promised.

That’s the problem when a political party over-promises during an election. Even a moderate downturn in the economy can have a significant hit on a government’s own-source revenue.

The only bright spot in the fiscal landscape for the NDP is a significant increase in equalization payments expected from Ottawa this year. It won’t be enough to entirely offset the dwindling tax revenue from a flat economy, but it will help.

Some of the challenges facing the NDP are self-inflicted. By incorporating the previous Tory government’s ill-advised tax cuts into its fiscal framework (at a time when the government is running a massive deficit of more than $1 billion) and adding its own tax relief — including the temporary elimination of the 14-cent-per-litre fuel tax — the NDP is reducing its revenue even further.

It’s prioritizing tax cuts, including for higher-income Manitobans, over much-needed resources for front-line services. It’s bad policy that does not serve Manitoba well. It doesn’t make the province more competitive, nor does it improve the overall quality of life in the province.

Governments can’t be all things to all people. They can’t satisfy the wishes of every interest group and every sector of the economy. They have to choose where to target taxpayer dollars. One of Premier Wab Kinew’s weaknesses is that he tries to be all things to all people. He spreads himself too thin.

To be an effective premier, Kinew will have to learn to say “no,” whether it’s to business groups that clamour for tax cuts (the same business groups demanding the province also invest in health care, anti-poverty measures and infrastructure), or to other interest groups that demand more money in their sectors.

Governments have a finite amount of tax dollars. They have to prioritize where and how to spend that money. They can’t satisfy everyone.

A soft economy in 2024 will force the NDP government to make those decisions. It will have no choice, unless it wants to run growing deficits for the next few years.

tom.brodbeck@freepress.mb.ca