NDP’s love for tax cuts equals budget madness

Opinion

Hey there, time traveller!
This article was published 27/09/2024 (345 days ago), so information in it may no longer be current.

Manitoba’s debt has increased by nearly a quarter over the past four years, as per the province’s 2023-24 public accounts released Friday.

It may be too early to hit the panic button, but debt could become a serious problem for the NDP government if the province continues to cut taxes in an environment of slow economic growth.

The province’s net debt increased by over $2 billion in 2023-24 to $32.316 billion. That’s a seven per cent jump in a single year. It’s up just over 23 per cent from $26.171 billion in 2019-20.

One of the main reasons was the decision by the previous Tory government to cut over $1 billion a year in taxes, primarily from income taxes, school property taxes and business taxes.

It’s a trend the NDP government is continuing with further education property tax cuts in 2024 and its so-called gas tax holiday, which it just extended to the end of the year.

Borrowing money to cut taxes may be an effective way to bolster the Kinew government’s approval rating (a Probe Research poll released this week shows NDP support jumped provincewide to 56 per cent from 51 per cent in June), but it’s a costly move future generations will have to pay for.

The debt-servicing cost has soared in recent years. It hit $2.156 billion in 2023-34, up from $1.875 billion in 2019-20. That’s a 28 per cent increase over four years. It’s money that could be spent in priority areas such as health care, education and social services.

The growth in provincial debt shows no signs of slowing down.

Net debt is largely a combination of accumulated annual deficits and money borrowed for infrastructure costs, such as the construction and expansion of bridges, roads, schools and hospitals.

The province has only balanced the books twice since 2009. And every year, those deficits are added to the debt.

Is the current debt growth sustainable? Not if it keeps rising at this rate.

Debt as a percentage of the economy, one of the key metrics credit rating agencies look at, increased in 2023-24 to 35.7 per cent, up from 34.9 per cent one year earlier. That’s not an alarming number (it peaked at 38.9 per cent in 2020-21 during the COVID-19 pandemic when the economy slowed), but it’s on the high side.

However, it’s expected to keep growing. Net debt is projected to increase by a staggering $4.36 billion in 2024-25, as per the NDP’s 2024 budget. That number — a 13.5 per cent increase in one year — is alarming and definitely not sustainable.

The province is projecting debt-to-GDP will rise again to a record 39.1 per cent next year before it settles down to 38.3 per cent in 2027-28. But that’s only if the economy grows at a sufficient pace and the province keeps a lid on spending.

Labour costs are one of the biggest drivers. The continued pressure to hire more front-line workers in health care, education and social services — and demands by public-sector unions for higher wages to keep pace with high inflation — will further increase costs.

Personnel costs in the provincial government – including in health care, education and other provincially funded organizations – increased to $9.865 billion in 2023-34, as per the public accounts. That’s up nearly 20 per cent from $8.241 billion in 2019-20 — almost five per cent a year, on average.

Due to increased pressure to retain and recruit front-line professionals, that growth rate is not likely to subside.

It could spell trouble for a government saddled with a $796-million deficit amid growing pressure to borrow more to pay for expensive infrastructure.

If cutting taxes in this fiscal and economic environment sounds like madness, it’s because it is.

There is little projected growth in the province’s own-source revenues this year, partly because of a soft economy but also because of hundreds of millions of dollars in tax cuts.

The only reason the province’s books are not in worse shape is because Manitoba just got a massive increase in transfer payments from Ottawa (almost $1 billion this year).

The NDP is hoping a stronger economy with higher tax revenues will get Manitoba out of this mess. The province is projecting a razor-thin balanced budget in 2027-28, but that may be wishful thinking unless the economy picks up significantly.

The projected balanced budget is also based on very conservative spending increases over the next three years, which doesn’t seem to align with all the spending promises the NDP has made.

If all that new spending and further tax cuts are paid for with even more debt, it could be time to hit the panic button sooner rather than later.

tom.brodbeck@freepress.mb.ca