Budget perks and freebies might carry too high a cost

Opinion

Hey there, time traveller!
This article was published 20/03/2025 (200 days ago), so information in it may no longer be current.

On its own, it looks like a pretty good deal.

In Manitoba’s 2025-26 budget, the NDP government plans to take less money from Manitoba Hydro to stabilize electricity rates — a whole lot less money.

The government’s general revenues are supported by three streams of money that come from Hydro operations: a “water rental fee” that is based on the amount of water that flows through generating stations; a fee paid to the government guaranteeing Hydro’s enormous capital debt; and the large corporation capital tax charged on the total value of Hydro’s capital assets.

The NDP is eliminating the capital tax charged on Hydro assets and lowering the fees charged to backstop debt and borrowing. The result is a $152-million windfall for the Crown power utility, which will help Hydro survive a one-year rate freeze in the 2025-26 year and lower future rate increases.

How much lower remains to be seen.

After only a one per cent rate increase for the 2024-25 fiscal year, Hydro will seek something considerably higher in a new rate application expected to be filed with the Public Utilities Board in April. Hearings on that application will take place in the fall, with a rate bump expected by January 2027.

However, the decision to take $152 million less from Hydro cannot be viewed in isolation. This is a story about a government forgoing revenue as it faces an existential economic crisis.

A threatened trade war with the United States, which will not come into full focus until the beginning of April, could drag much of the world into a deep recession that economists predict could be as severe as the global financial meltdown of 2008-09.

A downturn would eviscerate Manitoba’s own-source revenues, a fact acknowledged by Premier Wab Kinew and Finance Minister Adrien Sala when they tabled the budget.

Under the budget’s worst-case scenario, the government would spend up to $1 billion to help businesses, farmers and families. Even with those economic supports, the budget estimates incomes could go down by $1,420 per capita and slash provincial GDP by 3.8 per cent.

The budget’s best-possible bottom line for this fiscal year is a $794-million deficit. That’s down from the $1.3-billion shortfall the NDP faced last year when it delivered its first provincial budget, but still alarmingly high with the potential to get much worse should the U.S. follow through with a scorched-earth trade war.

Facing that kind of scenario, this budget does appear to be incredibly optimistic in some of its assumptions, and incredibly generous in some of its gestures.

Even after acknowledging the likelihood of an economic downturn, the budget expects modest increases in most forms of own source revenue: income, sales and education property taxes are all forecast to go up. That seems incredibly naive given there are signs that jobs are at risk from tariff threats and consumer confidence is sagging across the country.

Meanwhile, the NDP government continues to demonstrate aggressive spending in key program areas, and a deep affection for “affordability” measures.

Spending on health care, housing and addictions is expected to go up by more than seven per cent, in keeping with the social priorities of the government. However, no government department appears to be getting less this year than last year, a remarkable fact given the fiscal pressures the NDP is facing.

On the affordability front, the affordability tax credit will go up by $100 to $1,600 per home, the $300 rebate for home security programs is being brought back, admission to provincial parks is being waived. There is no gas tax holiday this year, but that tax was reduced when it was reintroduced in January.

There are no new tax savings for individuals, but the NDP will cut business payroll taxes by $8.5 million. And there are hundreds of millions of dollars in added spending for infrastructure, new schools and health-care facilities.

In all, it’s a nearly six per cent increase in total spending.

Why would the NDP spend so aggressively at a time when we are surrounded by so many economic threats?

Sala said it best when he outlined plans for his government to spend money to support overall economic growth. “We are going to build, build, build over the next many years to make sure our economy keeps humming,” he said Thursday.

It’s true that many of the investments the NDP is making will manifest in more jobs, more local spending and — eventually — more money in the provincial treasury from all forms of taxation.

New schools, highways, free park admission and lower electricity rates are all great things. But they are risky gestures when a government carries an $800-million deficit gorilla on its back. One slip, and the gorilla could crush this budget.

It’s been said that in life, it’s better to be lucky than good. Sala and the NDP will need a whole lot of both to make this budget work.

dan.lett@freepress.mb.ca