Manitoba’s insistence on balancing the budget a fool’s game

Opinion

Hey there, time traveller!
This article was published 21/02/2025 (197 days ago), so information in it may no longer be current.

Balancing the books is important.

As a general rule, governments should live within their means and not rely on perpetual deficit financing to pay for operational costs. Doing so eventually leads to credit rating downgrades — as was the case in Manitoba under the NDP government led by Greg Selinger — higher interest costs, and in worst case scenarios, an inability to borrow in the financial markets, which happened to Saskatchewan in the 1990s.

But there are also times when rushing to eliminate a deficit can do more harm than good, especially when there is no rationale for doing so. That’s what the Manitoba government, which has projected a $1.3-billion deficit in 2024-25, is up against.

Finance Minister Adrien Sala insists his government is still committed to balancing the books in the final year of its first term in office, which would be in 2027.

During the 2023 election campaign, the NDP promised to eliminate the deficit in four years — before the party knew how bad the province’s finances really were.

Not only is a balanced budget in 2027 wishful thinking, it’s misguided. It won’t happen.

Knowing that, the Kinew government should prepare Manitobans for what they are truly facing — several more years of deficits to ensure that resources are available to fund front-line services, including in health care, and to support businesses should U.S. President Donald Trump make good on his tariff threats.

Should the latter occur, not only would it be virtually impossible to balance the books in 2027, the deficit would likely balloon.

Sala said this week his department is preparing two budgets, expected next month. One would be in response to a 25 per cent U.S. tariff and the other would be without the tariffs.

That is prudent. It would be similar to the two budgets the province drafted in 2020 when the COVID-19 pandemic hit – a regular budget and an emergency supplemental blueprint to address the effect of falling revenue and higher costs associated with the public health crisis.

Either way, there is no reasonable path to a balanced budget in 2027, even if the U.S. backs off on its tariff threats.

Even without the U.S. tax, Manitoba’s economy is not expected to have significant growth this year. Most forecasters have projected the province’s GDP will grow by about 1.3 per cent in 2025. That’s considered modest growth — enough for the province to tread water, but not enough to make a significant dent in the deficit.

A U.S. tariff would almost certainly knock that down to negative growth.

So why is the NDP government still talking about a balanced budget in 2027? Because it hasn’t figured out politically how to break the news to Manitobans.

That would be easy to do if there were a U.S. tariff. The government could easily justify a delay in eliminating the deficit if that were to occur, but it will be a little trickier to do if there are no tariffs. The NDP would have to come up with another explanation.

What it should do is simply be open and transparent about it. Rushing to balance the books when the province is facing a $1.3-billion deficit this year, as well as cost pressures in many areas including in health care, makes no financial or economic sense.

The province is not likely facing a credit rating downgrade in the short term and there are no impediments to borrowing in the financial markets.

The government’s most recent projected net debt, at $34.59 billion, is actually lower in 2024-25 than it was in the 2024 budget ($35.42 billion). Consequently, the projected debt-to-GDP ratio for this year has declined somewhat from a projected 38.5 per cent to 36.4 per cent. That’s on the high side, but it’s not high enough to spook bond rating agencies, especially if it doesn’t grow.

If the province can show it’s making modest progress to reduce the deficit, credit rating agencies would likely be satisfied.

Naturally, the hundreds of millions of dollars in tax cuts, brought in mostly by the former Tory government but continued by the NDP, has not helped. It’s making the task of balancing the books that much more difficult and it’s robbing front-line services of much-needed cash.

It’s unlikely, though, that the NDP would reverse those mistakes because it would be politically unpalatable to do so.

Either way, there is no sound argument to support a quick return to a balanced budget. Doing so would require massive spending cuts, which would be bad policy and bad politics.

A slow, steady path to a surplus budget is the sensible option.

tom.brodbeck@freepress.mb.ca