Something the Pallister government has going for it when it drafts its 2021 budget over the next few weeks: debt costs and borrowing terms have never been more favourable.
With rock-bottom interest rates and debt repayment schedules as long as 100 years, it hasn't been this easy for government to borrow money in years.
It is good news for a provincial government staring down a $2-billion annual deficit, a shortfall not expected to budge much over the next year or two.
However, the cheap money all provinces are now enjoying will also put pressure on Manitoba to slow its plans to balance the books by 2028.
Finance Minister Scott Fielding said Friday government is still committed to eliminating the deficit over the next eight years. But to do that, the province would have to start chipping away sooner rather than later.
With an economy even Fielding acknowledges probably won’t fully recover before 2025, that could be a tall order.
The current deficit is more than twice the size it was when the Progressive Conservatives won government in 2016 (just under $1 billion). Trying to reduce it while the economy is still recovering from the COVID-19 pandemic will be an uphill battle, especially with growing demands in health care, education and social services.
The hundreds of millions alone required to support businesses scrambling to stay afloat after almost a year of punishing public health shutdowns will weigh heavy on the public treasury.
Normally, the province keeps about three months of cash on hand to meet its spending obligations. Due to the economic uncertainty during the pandemic, finance officials say they’re keeping a cash reserve of about six months (which includes cash in the Fiscal Stabilization Account).
To do that, they’ve had to borrow at record levels.
Normally, the province issues bonds of five, 10 and 30 years, at various rates. For the first time, however, the Manitoba government issued two $300-million "century bonds" last year on behalf of Manitoba Hydro (at interest rates of just under three per cent). Hydro pays the annual interest on the bond and repays the principal at the end of the 100 years.
Debt doesn’t get much cheaper than that.
Longer-term debt protects government against interest rate spikes. If too much debt comes due while interest rates are high, it can catch governments off-guard and drive up debt financing charges. To avoid that, government usually prefers a mix of short- and long-term bonds.
Anytime it can lock in debt at historically low rates for extended periods of time, it jumps at the chance.
With all this cheap cash around, the debate over how fast government should return to balance will likely take on a different tone, beginning with the 2021 budget.
If interest rates are at historically low levels and Manitoba is protected from interest rate hikes through long-term borrowing, should it hold off on balancing the books beyond the Pallister government's eight-year schedule?
Given the realities of the pandemic and the long-term damage it’s done to the economy, that debate is going to look a lot different than it has in the past.
Even the business community, which normally urges governments to "live within their means," will likely take a softer approach in the coming years (especially when it is demanding financial support for its members).
It’s hard to imagine any reasonable lobby group calling for tax cuts.
Eventually, government will have to figure out how to return to balance and start repaying debt.
Deficit financing is not sustainable in the long term. It can't be left to future generations to figure out.
But as long as money remains this cheap, and the economy continues to sputter, it's hard to imagine government returning to a balanced budget anytime soon.
Tom has been covering Manitoba politics since the early 1990s and joined the Winnipeg Free Press news team in 2019.